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
not adding someone who is already scheduled at the same time.
We realize that there are some conflicts with participants. This was unavoidable, and in such cases a co-author will have to present the paper. Changes and corrections should be sent to gwyn.p.loftis@vanderbilt.edu.
All sessions will be equipped with a projector and screen for your
presentation. ASSA will not provide computers.
Jan 02, 2016 5:30 pm, Hilton Union Square, Plaza A
Econometric Society
Presidential Address
Presiding:
Eddie Dekel
(Northwestern University)
Robert Porter
(Northwestern University)
Jan 02, 2016 6:30 pm, Marriott Marquis, Yerba Buena Salon 8
Association for Social Economics
Plenary Session and Reception: What We Learned from the Global Financial Crisis
(E4, G2)
Presiding:
Giuseppe Fontana
(University of Leeds and University of Sannio)
What We Learned from the Global Financial Crisis
Jan Kregel
(Levy Economics Institute of Bard College)
[View Abstract]
[Download Preview] [Download PowerPoint] The Great Depression of the 1930s was followed by a series of regulatory and policy decisions that laid the groundwork for a twenty-year post-war expansion with stable prices and stable financial markets. The recent crisis has also been characterized by regulatory and policy decisions aimed at isolating government from responsibility for financial instability and increasing the role of the Federal Reserve in regulatory and supervisory matters. While financial markets have recovered, they remain highly volatile, and the recovery in real activity has been feeble. Are governments, politicians and economists less able to draw the appropriate lessons from the recent crisis than they were in the 1930s?
Jan 03, 2016 8:00 am, Marriott Marquis, Sierra C
Agricultural & Applied Economics Association
Water Resource Management Challenges: Efficient Institutions and Policies
(Q5)
Presiding:
Levan Elbakidze
(West Virginia University )
The Gravity of Water: Water Trade Frictions in California
Charles Regnacq
(Université de Pau et des Pays de l’Adour)
Ariel Dinar
(University of California-Riverside)
Ellen Hanak
(Public Policy Institute of California Water Policy Center)
[View Abstract]
[Download Preview] It is relatively well accepted that transactions costs weigh upon water markets and deter some transfers. But despite the fact that this type of cost appears to be key to a low level of water exchange, only few studies explicitly implement such a cost in their analyses. In the present paper we intend to fill this gap using a tool from recent and well established international trade literature: the gravity equation. We first develop a theoretical model to assess the micro-foundation of such an instrument in a water market context. The model distinguishes a variable and a fixed cost of trade, which allows us to disentangle the intensive and the extensive margin of water trading. Then we test the theoretical predictions using water transfer data within California at the level of water districts over a 17-year period. We classically approximate transaction costs with distances and institutional factors. Results validate the theoretical prediction and show the importance of distance and institutional factors in the decision to trade, with an emphasis on the extensive margin of water trade. Furthermore, we believe that this paper opens a new path in this particular research field and should allow better analysis of the performance of water markets.
Implications of Climate Change for Adaptations through Water Infrastructure and Conservation
Yang Xie
(University of California-Berkeley)
David Roland-Holst
(University of California-Berkeley)
David Zilberman
(University of California-Berkeley)
[View Abstract]
[Download Preview] We analyze the adaptation of water systems to climate change through infrastructure and conservation. We build a simple model in which the primary purpose of water-storage capacities is to manage inter-seasonal variation in water endowment and demand, and climate change is assumed to change total precipitation, its rain/snow distribution, evaporation of water stored in reservoirs, and the water demand. We show that the impact of climate change on the marginal benefit of water-storage capacities and input-efficiency in water use depends on the intensity of climate change and initial conditions about the climate and water demand, and climate change does not necessarily lead to increases or decreases in either conservation or storage. Some of our results are apparently counterintuitive and can generate policy and more general implications for adaptations to climate change in the water sector.
Bargaining for Recharge: An Analysis of Cooperation and Conjunctive Surface Water-Groundwater Management
Kelly Cobourn
(Virginia Tech)
Levan Elbakidze
(West Virginia University)
Gregory Amacher
(Virginia Tech)
[View Abstract]
[Download Preview] Recent negotiations between surface water and groundwater users in Idaho highlight a potential mechanism to resolve costly conflict that has arisen in many areas of the western U.S. where surface and groundwater resources are hydraulically connected. This article studies this type of agreement by developing a simple, dynamic model of cooperative bargaining between surface and groundwater users. The model reflects the potential gains to both types of water users from bargaining over a sustained reduction in groundwater pumping to increase surface water flows. In a non-cooperative setting, surface water users choose the groundwater pumping reduction to maximize their net production rents, but doing so is costly, which creates an incentive for surface water users to negotiate with groundwater users. With the theoretical model, we demonstrate that the Nash bargaining path of curtailments is lower than that in the non-cooperative outcome, but that it may be larger or smaller than the first-best outcome. The difference between the bargaining and first-best outcomes depends on the efficiency of groundwater irrigation and the relative bargaining power of surface water and groundwater users. In a numerical simulation, we show that when surface water users possess greater bargaining influence, the bargaining solution involves larger curtailments than is socially optimal and an improvement in irrigation efficiency drives the bargaining solution closer to the non-cooperative outcome. Conversely, when groundwater users possess greater bargaining influence, curtailments are lower than the socially optimal level and an improvement in efficiency drives the bargaining solution closer to the first-best.
Discussants:
Jeffrey Peterson
(University of Minnesota)
Jan 03, 2016 8:00 am, Hilton Union Square, Golden Gate 5
American Economic Association
Apartheid as Natural Experiment
(N3)
Presiding:
James A. Robinson
(Harvard University)
Family Planning and Fertility in South Africa under Apartheid
Johannes Norling
(University of Michigan)
[View Abstract]
[Download Preview] During the apartheid era, all South Africans were formally classified as white, African, coloured, or Asian. Starting in 1970, the government directly provided free family planning services to residents of townships and white-owned farms. Relative to African residents of other regions of the country, the share of African women that gave birth in these townships and white-owned farms declined by nearly one-third during the 1970s. Deferral of childbearing into the 1980s partially explains this decline, but lifetime fertility fell by one child per woman. These changes were coincident with increased employment among African women and, decades later, higher income for their children in adulthood.
The Natural Limits of Segregation and Re-Integration: Race, Space, and Voting in the New South Africa
Daniel de Kadt
(Massachusetts Institute of Technology)
Melissa Sands
(Harvard University)
[View Abstract]
[Download Preview] How, and why, does racial segregation affect voting behavior? We theorize that local racial context shapes individuals' expressed identities, which directly affects their political behavior. To test this theory we leverage natural geography as a conditionally exogenous instrument for sustained segregation in post-Apartheid South Africa, and study its consequences using aggregated voting and micro-level attitudinal data. Natural physical barriers such as hills, valleys, and rivers, enable states, or citizens of powerful economic in-groups, to partition urban and suburban spaces by race. In the South African context, such natural barriers were used for decades by the Apartheid regime explicitly for the purpose of separating race groups. The end of Apartheid in 1991 allowed for a rapid influx of black (and other non-white) South Africans into previously exclusively white urban and suburban areas, but re-integration was not uniform. We show that the presence of natural physical barriers sustained pre-existing segregation, differentially retarding re-integration in former racial enclaves. Using a two-stage least squares approach, we explore the political consequences of sustained segregation by considering the effect of changes in both the white share of the population and spatial segregation on voting behavior. We find that voters in white-only areas, and high segregation areas, to become less likely to vote for a non-white party, at rates that cannot be explained by simple racial voting or spatial sorting. We then explore geo-referenced survey data for roughly 50,000 individuals, and show micro-level evidence consistent with the aggregate findings and theory.
The persistence or reversal of subnational fortune in South Africa
Johan Fourie
(Stellenbosch University)
Dieter von Fintel
(Stellenbosch University)
[View Abstract]
[Download Preview] Does wealth persist over time despite historical shocks like colonisation? One strand of literature suggests no: Acemoglu et al. argue that colonisation brought bad institutions to most of sub-Saharan Africa that caused a ‘reversal of fortune’. Another strand of literature suggests the opposite: despite several centuries of colonialism in Latin America, Valencia and Caicedo argue, ‘persistence dominate’. This paper uses the case of South Africa to show that while populations persist, wealth does not. Densely populated regions before colonialism are still densely populated. But institutional differences imposed by the colonial authorities caused a subnational divergence in the fortunes of the indigenous population, reflected in unemployment outcomes today.
Labor Migration and Structural Change in Rural Labor Markets: Evidence from Malawi
Taryn Dinkelman
(Dartmouth College)
Grace Kumchulesi
(University of Malawi)
Martine Mariotti
(Australian National University)
[View Abstract]
[Download Preview] Can labor migration promote a measure of structural change in sending communities by allowing workers to accumulate capital outside of their country of origin? Using the historical experience of circular labor migration between Malawi and the gold mines in South Africa, we investigate how oscillating flows of men and in-flows of money affect rural labor markets over the long run. We use a difference-in-differences design and newly digitized Census and administrative data to measure what happens to labor market outcomes in the twenty years following two plausibly exogenous shocks to the option to migrate. In places with high exposure to migration shocks, workers shift out of agriculture and into more capital-intensive non-farm service activities. We show that capital accumulated abroad is a key channel for these structural changes.
Discussants:
Martine Mariotti
(Australian National University)
Katherine Eriksson
(University of California-Davis)
Remi Jedwab
(George Washington University)
Paulo Bastos
(World Bank)
Jan 03, 2016 8:00 am, Hilton Union Square, Continental – Parlor 1
American Economic Association
Brain Drain, Gain and Circulation
(F2, O3)
Presiding:
Caglar Ozden
(World Bank)
Ethnic Complementarities after the Opening of China: How Chinese Graduate Students Affected the Productivity of Their Advisors
George J. Borjas
(Harvard University)
Kirk B. Doran
(University of Notre Dame)
Ying Shen
(University of Notre Dame)
[View Abstract]
[Download Preview] The largest and most important flow of scientific talent in the world is the migration of international students to the doctoral programs in science and mathematics offered by universities in industrialized countries. This paper uses the opening up of China in 1978 to estimate the causal effect of this flow on the productivity of their professors in mathematics departments across the United States. Our identification strategy relies on both the suddenness of the opening of China and on a key feature of scientific production: intra-ethnic collaboration. The new Chinese students were more likely to be mentored by American professors with Chinese heritage. The increased access that the Chinese-American advisors had to a new pool of considerable talent led to a substantial increase in their productivity. Despite these sizable intra-ethnic knowledge spillovers, comparable non-Chinese advisors experienced a decline in the number of students they mentored and a concurrent decline in their research productivity. In fact, the productivity gains accruing to Chinese-American advisors were almost exactly offset by the losses suffered by the non-Chinese advisors. Finally, the evidence does not support the conjecture that the efficiency gains from the supply shock will be more evident in the next generation, as the Chinese students begin to contribute to mathematical knowledge. The rate of publication and the quality of the output of the Chinese students is comparable to that of the American students in their cohort.
Reversing Brain Drain: Evidence from Malaysia's Returning Expert Programme
Ximena Del Carpio
(World Bank)
Caglar Ozden
(World Bank)
Mauro Testaverde
(World Bank)
Mathis Wagner
(Boston College)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper presents the first evidence on the efficacy of a major program designed to encourage the return migration of high-skilled individuals. The Malaysian Returning Expert Program (REP) targets high-skilled Malaysians abroad and provides them with incentives to return. We use the fact that at several thresholds the probability of acceptance to the program increases discontinuously, to identify the impact of acceptance to the REP on the probability of returning to Malaysia. Our fuzzy regression discontinuity design estimates suggest that program approval increases the return probability by 40 – 70 percent for applicants with a pre-existing job offer in Malaysia. For those who apply without a job offer in Malaysia there is no significant treatment effect. We conduct a fiscal cost-benefit analysis of the REP and find a modest net fiscal effect of the program, between minus $6,900 and plus $4,200 per applicant, suggesting that the program roughly pays for itself.
Global Collaborative Patents
William R. Kerr
(Harvard University)
Sari Pekkala Kerr
(Wellesley College)
[View Abstract]
[Download Preview] We study the prevalence and traits of global collaborative patents for U.S. public companies, where the inventor team is located both within and outside of the United States. Collaborative patents are frequently observed when a corporation is entering into a new foreign region for innovative work, especially in settings where intellectual property protection is weak. We also connect collaborative patents to the ethnic composition of the firm's U.S. inventors and cross-border mobility of inventors within the firm. The inventor team composition has important consequences for how the new knowledge is exploited within and outside of the firm.
STEM Workers, H-1B Visas, and Productivity in U.S. Cities
Giovanni Peri
(University of California-Davis)
Kevin Shih
(University of California-Davis)
Chad Sparber
(Colgate University)
[View Abstract]
[Download Preview] Science, Technology, Engineering, and Mathematics (STEM) workers are fundamental inputs for innovation, the main driver of productivity growth. We identify the long-run effect of STEM employment growth on outcomes for native workers across 219 U.S. cities from 1990 to 2010. We use the 1980 distribution of foreign-born STEM workers and variation in the H-1B visa program to identify supply-driven STEM increases across cities. Increases in STEM workers are associated with significant wage gains for college-educated natives. Gains for non-college-educated natives are smaller but still significant. Our results imply that foreign STEM increased total factor productivity growth in US cities.
Discussants:
Caglar Ozden
(World Bank)
Kirk B. Doran
(University of Notre Dame)
David McKenzie
(World Bank)
Frederic Docquier
(University Catholic Louvain)
Jan 03, 2016 8:00 am, Hilton Union Square, Plaza A
American Economic Association
Capital Markets after Dodd-Frank and JOBS Act
(K2, G1) (Panel Discussion)
Panel Moderator:
Mark Flannery
(U.S. Securities and Exchange Commission)
Jennifer Marietta-Westberg
(U.S. Securities and Exchange Commission)
Christof Stahel
(U.S. Securities and Exchange Commission)
Adam Yonce
(U.S. Securities and Exchange Commission)
Anzhela Knyazeva
(U.S. Securities and Exchange Commission)
Jan 03, 2016 8:00 am, Hilton Union Square, Continental – Parlor 3
American Economic Association
Contractual Issues in Developing Countries
(O1, D8)
Presiding:
Supreet Kaur
(Columbia University)
Financial Contracting and Organizational Form: Evidence from the Regulation of Trade Credit
Emily Breza
(Columbia University)
Andres Liberman
(New York University)
[View Abstract]
[Download Preview] We present empirical evidence that restrictions to the set of feasible financial contracts affect buyer - supplier relationships and the organizational form of the firm. We exploit a regulation change that restricted the maturity of the trade credit contracts that a large retailer could sign with its small suppliers, defined by an arbitrary sales cutoff, to at most 30 days. Using a within-product differences-in-differences identification strategy, we find that the restriction to the set of feasible contracts reduces the likelihood that trade takes place by 11%. The large retailer responds by internalizing the procurement of some products previously sold by affected firms to its own subsidiaries but reduces the volume of purchases, consistent with the fact that vertical integration is costly. Thus, financial contracts like trade credit may help overcome contracting frictions and enable trade.
Joint Liability, Asset Collateralization, and Credit Access: Evidence from Rainwater Harvesting Tanks in Kenya
William Jack
(Georgetown University)
Joost de Laat
(The World Bank)
Michael Kremer
(Harvard University)
Tavneet Suri
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] A randomized trial among dairy farmers in Kenya suggests that take up of loans to purchase rainwater harvesting tanks is highly sensitive to deposit and guarantor requirements. Only 2.4% of farmers took up loans to buy rainwater harvesting tanks under standard credit terms with high deposit and guarantor requirements. Giving farmers the opportunity to collateralize loans with the asset they purchase increased loan take up to 44%. In contrast, substitution of joint liability guarantor requirements for deposit requirements does not increase loan take up. While easier credit terms are associated with higher rates of ever being late on a payment, late balances were trivial at the end of the sample, and we find neither selection or treatment effects of 25% deposit or guarantor requirements relative to a a 4% deposit requirement. All loans were fully repaid (in one case out of the proceeds of a sale of a repossesed tank.) Many borrowers repay loans early. While we cannot rule out other hypotheses, the data are consistent with the hypothesis that farmers are loss averse and that asset-backed collateralization encourages investment by loss-averse agents. Households offered loans on less restrictive terms are more likely to own a tank, have healthier cows, and report spending less time fetching water and tending livestock. Girls in these households are more likely to be enrolled in school.
Tropical Lending: International Prices and Strategic Default in the Coffee Market
Arthur Blouin
(University of Warwick)
Rocco Macchiavello
(Warwick University)
[View Abstract]
[Download Preview] We use detailed contract level data on a portfolio of 300 coffee processors in 25 developing countries to test for strategic default (ex-post moral hazard) in this market. Due to moral hazard, default rates increase following unanticipated increases in world coffee prices just before (but not just after) the maturity date of the contract. Contractual parties take into account strategic default in their contract choices: stronger relationships self-select into fixed price contracts that provide insurance to the seller but expose the buyer to strategic default. Weaker relationships self-select into indexed contracts that are robust to strategic default but left the exporter exposed to significant price risk. A RDD and model calibration shows that strategic default leads to credit constraints. Additional loans are used to increase input purchases from farmers rather than substituting other sources of credit. Prices paid to farmers increase implying the existence of contractual externalities along the supply chain.
Do Enforcement Constraints Prevent Trade? Evidence on Contracting Failures in Irrigation Markets
Ryan Bubb
(New York University)
Supreet Kaur
(Columbia University)
Sendhil Mullainathan
(Harvard University)
[View Abstract]
When contract enforcement is imperfect, concerns about ex-post reneging can lead to a break down in ex-ante trade. We study enforcement constraints in a setting with a high level of repeated interactions: irrigation sales among Indian farmers with neighboring landholdings. In this setting, smallholder farmers purchase irrigation from a well owner on a neighboring plot of land multiple times every year. Using a field experiment, we offered to subsidize the cost of irrigation between potential water buyer and seller pairs, with the subsidy payment to be delivered three months in the future. We randomized whether this payment would be delivered into the hands of the water buyer, or directly into the hands of the water seller. Under the Coasian benchmark, the amount of trade should not be affected by which party will receive our subsidy: if there are gains from trade, the parties should be able to execute the trade and ex ante agree on how to divide our payment. However, consistent with enforcement constraints, when the parties know the money will be delivered directly to the water seller, the amount of irrigation is 27% higher and sellers extend trade credit 36% more often. This generates a 15% estimated increase in net revenues (crop yield revenue minus irrigation cost); this magnitude is equivalent to a 20% increase in land size. These findings suggest that in our setting, contract enforceability is a first-order impediment to realizing the gains from trade
Discussants:
Rocco Macchiavello
(Warwick University)
Jessica Goldberg
(University of Maryland)
Xiao Yu Wang
(Duke University)
Jeremy Magruder
(University of California-Berkeley)
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 25
American Economic Association
Economic History
(N1)
Presiding:
David F. Weiman
(Barnard College and Columbia University )
Paradox Lost?
Richard A. Easterlin
(University of Southern California)
[View Abstract]
[Download Preview] [Download PowerPoint] In recent years scholars in economics, psychology, and sociology have asserted that the “Easterlin Paradox” is not supported by their empirical research. The principal purpose of this paper is to test whether recently published data from two sources – the United States General Social Survey and the World Values Survey (WVS) – confirm these negative findings. Is it “Paradox Lost” or “Paradox Regained”?
The Paradox states that at a point in time happiness varies directly with income both among and within nations, but over time happiness does not trend upward as income continues to grow. There is no disagreement on the cross section relationship, or that happiness and income fluctuations are positively related. The critical test of the Paradox is whether in the long run there is a statistically significant positive trend in happiness associated with long-term economic growth.
United States experience continues to support the Paradox: for almost seven decades, from 1946 through 2014, the trend in happiness has been flat or perhaps even negative, while real GDP per capita has tripled. Support for this conclusion on the happiness trend is provided by studies that adjust the data for comparability and by similar findings in other time series data.
The WVS data also support the Paradox: among countries worldwide there is not a statistically significant positive relationship between long-term growth rates of happiness and real GDP per capita. This nil relationship holds separately for developed, transition, and less developed countries, and remains unchanged after adjusting the data for comparability of the happiness question, and eliminating outliers and countries with non-nationally representative surveys.
Why have the Paradox critics come to a different conclusion? The main reason is that they typically include in their studies some happiness time series that are quite short, have only two observations, or fail to span a complete GDP cycle. As a result, the observed growth rates of happiness and income in these series are not trend rates, but those found in a cyclical expansion or contraction. Mixing these short-term growth rates with trend rates shifts the happiness-income regression from a horizontal to positive slope.
The Great Escape: Intergenerational Mobility Since 1940
Nathaniel Green Hilger
(Brown University)
[View Abstract]
[Download Preview] I develop a new method to estimate intergenerational mobility (IM) in educational attainment on U.S. census data spanning 1940-2000. I measure IM directly for children still living with parents at ages 26-29, and indirectly for other children using an imputation procedure that I validate in multiple datasets spanning the full sample period. Educational IM increased significantly 1940-1970 and declined after 1980. Post-1940 IM gains were economically large, driven by high school rather than college enrollment, and were larger for blacks primarily due to all-race IM gains in the South. I discuss potential causes of these patterns.
The Invisible Wound: The Long-term Impact of China’s Cultural Revolution on Individual Trust
Lingwei Wu
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] As one of the most destructive socio-political upheavals in the history of contemporary China, the Cultural Revolution (1966-1976) incentivized people to snitch on each other to signal loyalty to the Party. This paper identifies the causal effect of exposure to Cultural Revolution on social trust, taking advantage of both cohort and regional variation. Specifically, the regional intensity variation is captured by the number of abnormal deaths on county level, and cohort variation is measured by the interrupted years of schooling during the Cultural Revolution. The major finding is that individuals from counties with higher Cultural Revolution intensity and exposed to more years of interrupted schooling during the revolutionary years significantly trust less. I also discuss mechanisms through which the Cultural Revolution affected social trust. Robustness checks are conducted considering migration issues, measurement error, omitted variable bias, heterogeneous effects and placebo test.
Spending a Windfall: American Precious Metals and Euro-Asian Trade 1492-1815
Nuno Palma
(London School of Economics)
Andre Silva
(Nova School of Business and Economics)
[View Abstract]
[Download Preview] The large and persistent current account surplus of China vis-a-vis the United States and Europe is surprising to many economists, but it is not historically unprecedented. It was also the case that during the early modern period (1500-1800) Asia, and in particular, China, ran an enormous current account surplus vis-a-vis Western Europe. In this paper we use a combination of empirical evidence and structural modeling in a contribution to understand the role of American precious metals in stimulating Euro-Asian trade during the early modern era. We estimate the size of injections to Europe's stock of precious metals and use this information in a dynamic general equilibrium model to reproduce observed history as well as calculate a no-shock counterfactual of not having the injection of precious metals. To do this, we take into account transaction costs and endogenous money demand. Precious metals were particularly important for Asia because there is evidence of scarcity of means of payments in this region. Our conclusion is that the discovery of a windfall of American precious metals was a major driving impulse behind early modern Euro-Asian trade. Under the monetary injection European purchases of Asian goods are four times those of the unshocked baseline scenario. The simulations further suggest most of the observed increase in Euro-Asian trade is explained by the monetary injections.
The Cotton Boom and Slavery in Nineteenth-Century Rural Egypt
Mohamed Saleh
(Toulouse School of Economics)
[View Abstract]
[Download Preview] The “staples thesis” hypothesizes that labor contracts in a given region are explained by the technology of production of its major export staples, where slavery is likely to emerge in certain “slave-conducive” crops, such as cotton, rice, and sugarcane. This paper evaluates the thesis using a unique natural experiment from nineteenth-century rural Egypt, the cotton boom that occurred because of the American Civil War in 1861-1865. Historical evidence suggests that the cotton boom marked the emergence of the short-lived institution of agricultural slavery in Egypt’s Nile Delta, where all slaves were imported from East Africa, before the abolition of slavery in 1877. Employing the newly digitized Egyptian individual-level population census samples from 1848 and 1868, I document that cotton-favorable districts witnessed greater increases in household’s slaveholdings and in the population share of slave-owning households between 1848 and 1868 than cotton-unfavorable districts. Those districts also witnessed greater increase in the population share of free local immigrants. I examine several mechanisms of these effects, namely, cross-district differences in the prices and quantities of slaves and in the relative scarcity of free local labor, and inter-crop differences in economies of scale, labor intensity, and profitability (results on mechanisms are not complete). I propose an explanation of the findings that qualifies the “staples thesis.”
Jan 03, 2016 8:00 am, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Economics of Higher Education
(I2, J7)
Presiding:
Caroline Hoxby
(Stanford University)
The Impact of the V-SOURCE Program on Disadvantaged Students’ College Enrollment
Sarah Reber
(University of California-Los Angeles)
Meredith Phillips
(University of California-Los Angeles)
[View Abstract]
Despite well-documented large and growing returns to attending college, youth from disadvantaged backgrounds continue to attend college at lower rates than their advantaged peers. This gap is not fully explained by differences in academic preparation, and college enrollment and completion appear to have become more dependent on family income in recent decades. This paper reports the results of a randomized field trial of the effects of two variants of V-SOURCE, a college-counseling intervention designed to address informational and social support barriers to college enrollment, as well as students’ tendency to forget or procrastinate deadlines. V-SOURCE served students from the spring of the junior year through the summer after high school graduation. The program was delivered “virtually” via the internet, phone, email, text message, and social networking platforms, making it relatively low-cost and scalable. Although administrative and self-reported data reveal that students took advantage of V-SOURCE services and found them helpful, in preliminary analyses, we do not find evidence of effects of the program on college enrollment outcomes.
Do Public Subsidies Promote College Access and Completion? Evidence from Community College Districts
Isaac McFarlin
(University of Michigan)
Paco Martorell
(University of California-Davis)
Brian P. McCall
(University of Michigan)
[View Abstract]
Governments spend heavily on public higher education to make college affordable. In 2012, state appropriations to public colleges and universities exceeded $72 billion, allowing public institutions to keep college sticker tuition price lower for all students. Despite the magnitude of these expenditures, there exists little credible evidence on the causal impact of across-the-board tuition subsidies on college entry or college attainment. We exploit variation in tuition subsidies brought about by expansions in local college taxing district boundaries to isolate the impact of across-the-board tuition subsidies. Community college taxing districts are local jurisdictions that support public community colleges. In-district residents pay property taxes and face much lower tuition than individuals not living in college taxing districts. Preliminary event history analysis shows that Texas high school graduate cohorts exposed to taxing districts are more likely to attend community college immediately after high school compared to earlier cohorts of high school graduates from the same school district that are not exposed. The estimated effects are large, positive and statistically significant. Our effects are similar across students of varying economic status and measured ability. Moreover, we find little indication that students substitute away from public 4-year colleges. We are conducting analyses to distinguish between impacts of tuition subsidies and changes in college supply associated with taxing district expansions.
The Impact of Intergroup Contact on Racial Attitudes and Revealed Preference
Scott Carrell
(University of California-Davis)
Mark Hoekstra
(Texas A&M University)
James West
(Baylor University)
[View Abstract]
[Download Preview] Understanding whether racial attitudes are malleable is critical for addressing the underlying causes of discrimination. We examine whether white males' stated attitudes and behavior toward African Americans change based on the number and type of black peers to whom they are exposed. To overcome selection bias, we exploit data from the U.S. Air Force Academy in which students are randomly assigned to peer groups. Results show significant evidence in favor of the contact hypothesis. Both the number and aptitude of black peers with whom they are exposed significantly affect white males. Specifically, white men randomly assigned to higher-aptitude black peers report being more accepting of blacks in general and are more likely to match with a black roommate the following year after reassignment to a new peer group with a different set of black peers. We also find that, ceteris paribus, exposure to more black peers significantly increases the probability of a bi-racial roommate match.
Bias in Online Classes: Evidence from a Field Experiment
Thomas Dee
(Stanford University)
Rachel Baker
(University of California-Irvine)
Brent Evans
(Vanderbilt University)
June Park John
(Stanford University)
[View Abstract]
About 25 percent of college students currently participate in some type of online course. This figure is expected to climb rapidly. Prior research shows that gender and racial discrimination exists in various education contexts. However, little is known about discrimination in online settings. We explore this phenomenon in Massive Open Online Courses (MOOC) discussion forums, the primary setting for student-to-student and student-to-instructor online social interactions. We conduct a field experiment by posting comments using randomly assigned usernames in MOOC forums. Comments were randomly paired with a username evocative of race-gender profiles. We examine the number of views, responses, and points each comment receives. Our results indicate the presence of instructor bias. Instructors are more likely to respond to forum posts by white males. However, we uncover little evidence of bias among the broader online community. Our findings have important implications for low-cost, scalable instructor feedback systems in online settings.
Discussants:
Bridget Terry Long
(Harvard University)
Jeffrey Smith
(University of Michigan)
Jan 03, 2016 8:00 am, Hilton Union Square, Franciscan D
American Economic Association
Empirics of Capital Taxation
(H2, G3)
Presiding:
Marshall Steinbaum
(Washington Center for Equitable Growth)
Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut
Danny Yagan
(University of California-Berkeley)
[View Abstract]
[Download Preview] Policymakers frequently propose to use capital tax reform to stimulate investment and increase labor earnings. This paper tests for such real impacts of the 2003 dividend tax cut—one of the largest reforms ever to a U.S. capital tax rate—using a quasi-experimental design and a large sample of U.S. corporate tax returns from years 1996-2008. I estimate that the tax cut caused zero change in corporate investment, with an upper bound elasticity with respect to one minus the top statutory tax rate of .08 and an upper bound effect size of .03 standard deviations. This null result is robust across specifications, samples, and investment measures. I similarly find no impact on employee compensation. The lack of detectable real effects contrasts with an immediate impact on financial payouts to shareholders. Economically, the findings challenge leading estimates of the cost-of-capital elasticity of investment, or undermine models in which dividend tax reforms affect the cost of capital. Either way, it may be difficult for policymakers to implement an alternative dividend tax cut that has substantially larger near-term effects.
Capital Taxation and Inventors
Stefanie Stantcheva
(Harvard University)
Ufuk Akcigit
(University of Chicago)
Salome Baslandze
(University of Pennsylvania)
[View Abstract]
This paper studies the effect of capital gains and corporate taxes on inventors across OECD countries in period 1977-2003. We differentiate inventors according to the number and quality of their patents. "Superstar" inventors are those with the most and most valuable patents. We use panel data on all inventors from the United States and European Patent Offices and combine this dataset with the data we collect on capital gains and corporate taxes internationally.
Evaluating the Effects of ACE Systems on Debt Financing and Investments
Shafik Hebous
(Goethe University Frankfurt)
Martin Ruf
(University of Tuebingen)
[View Abstract]
[Download Preview] Theory recommends aligning the tax treatment of debt and equity. A few countries, notably
Belgium, have introduced an allowance for corporate equity (ACE) to achieve tax neutrality. We
study the effects of adopting an ACE on debt financing, passive investment, and active investment of multinational firms, using high-quality administrative data on virtually all
German-based multinationals. We use two main identification strategies, based on: (1) synthetic
control methods, and (2) variations across affiliates within the multinational group. Our results
suggest that an ACE reduces the corporate debt ratio of multinational affiliates. Additionally, an ACE increases intra-group lending and other forms of passive investment but has no effects on
production investment of multinational affiliates. The findings indicate that a unilateral
implementation of an ACE system generates a tax planning opportunity using a structure
combining the benefits from the ACE with interest deductions.
Taxation and the Optimal Constraint on Corporate Debt Finance
Peter Sorensen
(University of Copenhagen)
[View Abstract]
The tax bias in favour of debt finance under the corporate income tax means that corporate debt ratios exceed the socially optimal level. This creates a rationale for thin-capitalization rules limiting the amount of debt that qualifies for interest deductibility. This paper sets up a model of corporate finance and investment in a small open economy to quantify the deadweight loss from the asymmetric tax treatment of debt and equity and to identify the second-best optimal debt-asset ratio in the corporate sector. For plausible parameter values derived from data for the Norwegian economy, the deadweight loss from the tax distortions to corporate financing decisions amounts to 2-3 percent of total corporate tax revenue, and the socially optimal debt-asset ratio is 4-5 percentage points below the debt level currently observed. Driving the actual debt ratio down to this level would generate a total welfare gain of about 3 percent of corporate tax revenue. The welfare gain would arise partly from a fall in the social risks associated with corporate investment, and partly from the cut in the corporate tax rate made possible by a broader corporate tax base.
Discussants:
Ruud De Mooij
(International Monetary Fund)
Paul Burnham
(Congressional Budget Office)
Katherine Cuff
(McMaster University)
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 3 & 4
American Economic Association
Evaluating Energy Efficiency Programs
(Q4)
Presiding:
Hunt Allcott
(New York University)
Is there an Energy-Efficiency Gap? Experimental Evidence from Indian Manufacturing Plants
Nicholas Ryan
(Yale University)
[View Abstract]
Energy policy often uses subsidies to information or to capital in order to induce investment in more efficient energy-using durables, but there is little credible evidence on the efficacy of these policies. This paper reports on a large-scale field experiment that aimed to increase energy-efficiency, by providing energy audits and skilled energy managers, in a sample of 433 chemical and textile manufacturing plants in India. There are three main results. First, projected returns to energy efficiency in audited plants are high but rapidly diminishing. Second, treatment plants invest somewhat, but insignificantly, more than control plants in equipment upgrades and maintenance. In direct measurements of technical efficiency, treatment plants see improvements in certain aspects of thermal efficiency but no significant change in aggregate efficiency. Third, treatment plants see a short-lived and marginally significant decrease in electricity consumption after energy audits but return to the same consumption path as control plants within one year. The experiment does not support that subsidized information provision can reduce energy consumption.
Harberger Meets McKinsey: Measuring the Welfare Effects of Energy Efficiency Programs
Hunt Allcott
(New York University)
Michael Greenstone
(University of Chicago)
[View Abstract]
Energy efficiency programs are almost always evaluated by “engineering estimates” that may not align with empirically-realized energy savings and ignore non-monetary benefits and costs. We formalize a framework that uses engineering estimates and a refined set of revealed preferences to identify demand and market failure parameters for welfare analysis. We apply the framework to a 100,000-household randomized field experiment at a large energy efficiency program in Wisconsin. Energy use data suggest that the engineering estimates overstate realized energy savings over the first six to 18 months, and investment takeup data show substantial variation in non-monetary benefits and costs. Based only on monetary costs and benefits, the program had an internal rate of return of between -4.7 and 1.6 percent. Our welfare framework similarly suggests that the program reduced welfare.
Peer Effects in Energy Efficiency Program Participation
Judson Boomhower
(Stanford University)
[View Abstract]
Energy policy is increasingly focused on programs meant to counteract perceived underinvestment in energy efficiency. In evaluating these policies, economists have typically assumed that the actions of one household do not influence the choices of others. This misses a potentially important set of peer effects. If takeup of energy-efficiency programs is constrained by information problems, social networks may be particularly important in determining participation. In addition, correctly assessing the cost effectiveness of these programs requires credible estimates of spillover benefits. Taking advantage of rich household-level data on one million appliance replacements in a large middle-income country, I use a regression discontinuity design to compare homes whose neighbors were barely eligible for an appliance replacement subsidy to homes whose neighbors were barely ineligible. I find evidence of substantial peer effects. The timing and size of the effect suggest that information problems may affect energy-efficiency program participation.
Using High-Frequency Interval Meter Data to Evaluate Energy Efficiency Investments in Schools
Christopher R. Knittel
(Massachusetts Institute of Technology)
David Rapson
(University of California-Davis)
Mar Reguant
(Northwestern University)
Catherine Wolfram
(University of California-Berkeley)
[View Abstract]
We study the incidence and impacts of energy efficiency investments at public K-12 schools in California. Our empirical setting offers two advantages. First, schools provide a rare laboratory to analyze energy efficiency as there are thousands of them, all housing energy users pursuing very similar economic activities but exposed to different outdoor temperatures and with different existing infrastructures. Second, we make use of high frequency metering data---electricity consumption every fifteen minutes---to isolate times when measures are in use. These features allow us to precisely estimate the impacts of different types of energy efficiency measures, some of which are more capital intensive (appliance replacement) and some of which are more labor intensive (switching out lightbulbs). We then compare the estimates of the energy savings generated by measures to the costs of installing those measures to come up with measure-specific cost-benefit metrics. Finally, we consider whether the allocation of measures to schools appears efficient.
Discussants:
Paulina Oliva Vallejo
(University of California-Santa Barbara)
Lucas Davis
(University of California-Berkeley)
Koichiro Ito
(Boston University)
Arik Levinson
(Georgetown University)
Jan 03, 2016 8:00 am, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Gender in Corporation Management
(G3, J4)
Presiding:
Marianne Bertrand
(University of Chicago)
Does the Market Value CEO Styles?
Antoinette Schoar
(Massachusetts Institute of Technology)
Luo Zuo
(Cornell University)
[View Abstract]
[Download Preview] We study how investors perceive the skill set that different types of CEOs bring into their companies. We compare CEOs who started their careers during a recession with other CEOs. We show that the announcement return around the appointment of a recession CEO is very significant and positive, and this positive market reaction is driven by cases where a recession CEO replaces a non-recession CEO. Our results indicate that the market assigns a positive and economically meaningful value to a recession CEO, suggesting that there is a limited supply of these types of CEOs in the executive labor market.
Gender Diversity and Skill Contribution to Corporate Boards
Daehyun Kim
(University of Texas-Austin)
Laura Starks
(University of Texas-Austin)
[View Abstract]
[Download Preview] This study demonstrates how gender diversity in corporate boards could improve firm value. Prior studies examine the valuation impact of gender-diverse boards and document mixed empirical evidence. To solve this conundrum, we must first understand how gender diversity could affect firm value. However, no prior studies examine nor suggest a mechanism that describes how female directors can be beneficial to corporate
boards. Based on earlier findings that board heterogeneity of expertise improves firm value, we hypothesize and find evidence consistent with the argument that female directors contribute to boards by offering specific functional expertise, often missing from corporate boards.
Golf Buddies and Board Diversity
Sumit Agarwal
(National University of Singapore)
Wenlan Qian
(National University of Singapore)
David M. Reeb
(National University of Singapore)
Tien Foo Sing
(National University of Singapore)
[View Abstract]
[Download Preview] We study the participation of women in golf, a predominately male social activity, on their likelihood of serving on a board of directors. Exploiting a novel dataset of all golf games in Singapore, we find that woman golfers enjoy a 54% higher likelihood of serving on a board relative to male golfers. A woman’s probability of serving on the board in a large firm or in a predominately male industry increases by 117% to 125% when she plays golf. In sum, our results suggest that "playing the boys game" facilitates women’s directorships in publicly traded firms.
Women in Finance
Renée B. Adams
(University of New South Wales)
Tom Kirchmaier
(University of Manchester)
[View Abstract]
When it comes to the representation of women on boards, we argue that the finance industry may be special. Because it is relatively human capital intensive, educational differences between men and women may influence diversity in the industry. Since math is particularly important for finance, we examine this hypothesis using high school math scores from PISA. In countries with greater gender gaps in math scores and lower average math scores, we find that banks have lower boardroom diversity. The influence of math scores appears to transcend standard cultural explanations. Although special, the finance industry is not unique. Math scores also appear important for understanding boardroom diversity in other sectors. Our evidence suggests that differences in educational outcomes for boys and girls may have long-lasting implications for their career development.
Discussants:
Francisco Perez-Gonzalez
(Instituto Tecnológico Autónomo de México)
David Yermack
(New York University)
Carola Frydman
(Northwestern University)
Glenn Ellison
(Massachusetts Institute of Technology)
Jan 03, 2016 8:00 am, Hilton Union Square, Yosemite B
American Economic Association
Global Reserve Assets in a Low Interest Rate World
(A1)
Presiding:
Pierre-Olivier Gourinchas
(University of California-Berkeley)
A Model of the Reserve Asset
Zhiguo He
(University of Chicago)
Arvind Krishnamurthy
(University of Stanford)
Konstantin Milbradt
(Northwestern University)
N/A
Secular Stagnation and International Financial Markets
Gauti Eggertsson
(Brown University)
Neil Mehrotra
(Brown University)
Lawrence Summers
(Harvard University)
NA
The Sovereign-Bank Diabolical Loop and Flight to Safety Capital Flows: European Safe Bonds (ESBies)
Markus K. Brunnermeier
(Princeton University)
Luis Garicano
(London School of Economics)
Stijn Van Nieuwerburgh
(New York University)
Philip R. Lane
(Trinity College)
Marco Pagano
(University of Napoli)
[View Abstract]
[Download Preview] This paper provides a simple model of the diabolic loop between sovereign
and bank risk, and explores whether and how the loop can be defused by means
of sovereign debt design in a currency union. First, we find that what
matters is the ratio of banks' equity to their domestic sovereign exposures.
Second, requiring banks to hold only a senior tranche of domestic sovereign
debt is more effective than requiring them to diversify their sovereign
portfolios across countries. But a diversified sovereign debt portfolio is
most effective jointly with tranching: requiring banks to hold only
the senior tranche of such a portfolio -- i.e. ESBies -- reduces their
equity requirement per dollar of sovereign holdings, relative to a regime
where they are required to hold senior domestic sovereign debt only. ESBies
also generate more safe assets than domestic debt tranching alone. Finally,
insofar as the diabolic loop is defused and the associated endogenous risk
is reduced, in equilibrium the junior bond is itself risk-free.
Global Imbalances and Currency Wars at the ZLB
Ricardo Caballero
(Massachusetts Institute of Technology)
Emmanuel Farhi
(Harvard University)
Pierre-Olivier Gourinchas
(University of California-Berkeley)
[View Abstract]
[Download Preview] This paper explores the consequences of extremely low equilibrium real interest rates in a world with integrated but heterogenous capital markets, and nominal rigidities. In this context, we establish five main results: (i) Economies experiencing liquidity traps pull others into a similar situation by running current account surpluses; (ii) Reserve currencies have a tendency to bear a disproportionate share of the global liquidity trap—a phenomenon we dub the “reserve currency paradox;” (iii) Beggar- thy-neighbor exchange rate devaluations provide powerful stimulus to the domestic economy at the expense of other economies; (iv) While more price and wage flexibility exacerbates the risk of a deflationary global liquidity trap, it is the more rigid economies that bear the brunt of the recession; (v) (Safe) Public debt issuances and increases in government spending anywhere are expansionary everywhere. We use these results to shed light on the evolution of global imbalances, interest rates, and exchange rates since the beginning of the global financial crisis.
Discussants:
Manuel Amador
(Federal Reserve Bank of Minneapolis)
Matteo Maggiori
(Harvard University)
Jeremy Stein
(Harvard University)
Mark Gertler
(New York University)
Jan 03, 2016 8:00 am, Hilton Union Square, Continental Ballroom 4
American Economic Association
Historical Perspectives on Financial Crisis, Banks and Regulation
(E5, N2)
Presiding:
Gary Richardson
(Federal Reserve Bank of Richmond)
Crisis and Collapse in the Long Run: Some Microeconomic Evidence
Raghuram Rajan
(Reserve Bank of India and University of Chicago)
Rodney Ramcharan
(University of Southern California)
[View Abstract]
[Download Preview] This paper studies the long run effects of financial crises using new bank and town level data from around the Great Depression. We find evidence that banking markets became much more concentrated in areas that experienced a greater initial collapse in the local banking system. These areas also suffered slower population growth and worse economic outcomes over the long run relative to towns that were less affected by the Great Depression. There is also evidence that financial regulation after the Great Depression, and in particular limits on bank branching, may have helped to render the effects of the initial collapse persistent. All of this suggests a reason why post-crisis financial regulation, while potentially reducing financial instability, can also have longer run real consequences.
What Ends Banking Panics?
Gary Gorton
(Yale University)
Ellis Tallman
(Oberlin College and Federal Reserve Bank of Cleveland)
[View Abstract]
How do banking crises end? Suppression of bank-specific information during the crisis and secrecy about the identities of emergency borrowers are essential ingredients. These policies focus attention on the banking system not individual banks. During the National Banking Era, 1863-1914, banks responded to panics by suspending convertibility of checks into cash. During suspension periods, the clearing house transformed itself into a single institution by issuing liabilities of the joint membership. As a single institution it would not allow members to publish their individual balance sheet information in newspapers, which was required in normal times. Only the aggregate clearing house information was published. The clearing house conducted some special examinations of member banks and bailed out some banks. Sometime later convertibility was resumed and bank-specific information was published again.
Interbank Markets and Banking Crises: New Evidence on the Establishment and Impact of the Federal Reserve
Mark Carlson
(Bank for International Settlements and Federal Reserve Board)
David Wheelock
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] The Federal Reserve System was established in 1914 to correct flaws in the U.S. banking system that reformers blamed for recurrent banking crises. Those flaws included “seasonal stringency” in financial markets; the concentration of the nation’s bank reserves in New York City and other financial centers; and reliance on interbank relationships to move funds geographically. In the 19th Century, an extensive interbank network evolved organically to move funds around the country to accommodate shifting demands for loans and cash, but the system failed to overcome fully the problems of seasonal stringency and “inelastic currency” that plagued the National Banking system and led to crises. In this paper, we document strong and somewhat regionally diverse seasonal patterns in interbank flows. The interbank market accommodated regional differences in the demands for money and credit by shifting funds from surplus to deficit regions, but broke down when shocks caused spikes in liquidity demand throughout the nation, as in 1893 and 1907. The Federal Reserve was structured in part to minimize the need for interregional flows of funds to smooth regional differences in money and credit demands. We find that interbank linkages diminished in importance after the Fed was established, but they did not disappear entirely. Although the Fed’s decentralized structure was successful in alleviating local seasonal stringencies, the structure likely made it more difficult for the System to respond effectively to prevent the national banking collapse of the 1930s.
Commercial Bank Leverage and Regulatory Regimes: Comparative Evidence from the Great Depression and Great Recession
Christoffer Koch
(Federal Reserve Bank of Dallas)
Gary Richardson
(Federal Reserve Bank of Richmond)
Patrick Van Horn
(Southwestern University)
[View Abstract]
The regulatory framework for commercial banks evolved over the 20th century. In the run up to the Great Depression capital requirements for commercial banks were fixed in dollar terms and bank owners and managers had substantial liability for the fate of their firms. In the run up to the Great Recession capital requirements were proportional to risk-weighted assets and bank owners and managers may have felt that some firm were too big to fail. We compare these two regimes by examining historical and modern micro data and comparing the behavior of large and small institutions. We document how the largest banks’ capital choices in these two regimes differed during the two largest financial booms and busts in American history. Our findings illuminate the impact of changes in the regulatory framework on the behavior of the largest financial institutions in the U.S. Our empirical results suggest that the pre-Great Depression regulatory regime would have induced the largest U.S. banks to hold greater capital buffers prior to the financial crisis of 2008.
Discussants:
Christoffer Koch
(Federal Reserve Bank of Dallas)
Jonathan Rose
(Federal Reserve Board)
Gregor Matvos
(University of Chicago)
Kinda Hachem
(University of Chicago)
Jan 03, 2016 8:00 am, Hilton Union Square, Franciscan C
American Economic Association
Income and Wealth Distribution
(H2)
Presiding:
Richard V. Burkhauser
(Cornell University)
Financial Sector Pay and Labor Income Inequality: Evidence from Europe
Oliver Denk
(OECD)
[View Abstract]
[Download Preview] Public questioning about the role of finance has been fueled by the perception that financial sector pay is an important factor behind high economic inequalities. This paper is the first to provide a comprehensive analysis of the level of earnings in finance and the implications for labor income inequality for 18 European countries. Financial sector workers are shown to make up 20% among the top 1% earners, although the overall employment share of finance is only 4%. Nonetheless, the relatively small size of the sector limits the contribution that financial sector pay has on income inequality to a small, but noticeable amount. Simulations indicate that most of this contribution is explained by financial institutions paying salaries and bonuses which are above what employees with similar profiles receive in other sectors. Estimations that allow for heterogeneity across workers reveal that this wage premium is more than twice as high for financial sector workers at the top of the earnings distribution than at the bottom.
Who Are the Top 1% Earners?
Oliver Denk
(OECD)
[View Abstract]
[Download Preview] Top earners have become the subject of intense public and scholarly debate, but much remains to be learned about their socio-demographic characteristics. This paper is the first study to provide a comprehensive look at the profiles of the 1% highest paid employees across 18 European countries. Estimations use the largest harmonized data set available, an employer-based survey with a sample for the top 1% of 100,000. Workers in the top 1% tend to: i) be in their 40s or 50s, ii) be a man, iii) have tertiary education, iv) work in finance, manufacturing or wholesale and retail, and v) be employed as chief executives or other senior managers. These patterns are broadly similar across countries, but the analysis also uncovers several cross-country differences. For example, top earners are younger in Eastern Europe, they are less often new recruits in Southern Europe, and they include more women in countries where overall female employment is higher.
Optimal Taxation of Capital Income when Capital Returns are Heterogeneous
Aart Gerritsen
(Max Planck Institute for Tax Law and Public Finance)
Bas Jacobs
(Erasmus University Rotterdam)
Alexandra Rusu
(Erasmus University Rotterdam)
Kevin Spiritus
(University of Leuven)
[View Abstract]
We derive optimal linear and non-linear taxes on labor and capital income in a two-period life-cycle extension of the Mirrlees (1971) model where individuals are heterogeneous in their ability to earn labor and to earn capital income. Preferences are weakly separable and identical across individuals, so that capital-income taxes are zero if capital returns are identical for all individuals. We demonstrate that capital income should optimally be taxed if capital returns correlate positively with ability. Conditional on labor income, the capital-income tax base then provides information about an individual's underlying earning ability. The capital-income tax therefore provides distributional benefits over and above the redistributive benefits of the labor-income tax. The optimal capital-income tax strikes a balance between taxing rents in capital returns and distorting savings.
Behavioral Responses to Wealth Transfer Taxation: Bunching Evidence from Germany
Ulrich Glogowsky
(University of Erlangen-Nuremberg)
[View Abstract]
Increasing inequality in recent decades has triggered a heated debate on whether wealth transfer taxation is an appropriate countermeasure to the perpetuation of inequality. A major factor in making progress in this discussion is understanding how taxpayers respond to incentives generated by wealth transfer taxes. Using administrative tax records from Germany, this paper investigates behavioral responses to a very large transfer tax kink in the inheritance and inter vivos gift tax schedule. We find sharp bunching of taxable inheritances and even larger bunching of taxable inter vivos gifts. However, because the kink is large, the underlying taxable inheritance and gift elasticities are moderate and amount up to 0.11. In line with the notion of accidental bequest models, further evidence suggests that the amount of wealth bequeathed is uncertain. This may explain the small size of the inheritance elasticities. Based on the results, the present paper lends strong support to the hypothesis that wealth transfers are relatively inelastic along the intensive margin in the short term.
The Piketty Transition
Daniel R. Carroll
(Federal Reserve Bank of Cleveland)
[View Abstract]
[Download Preview] We study the effects on inequality of a "Piketty transition" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth depends critically upon the elasticity of substitution in production. For nearly all elasticity values, long run inequality is lower under zero growth. Although under zero growth capitalists save more, factor prices respond to the relative of abundance of capital, decreasing the return to capital relative to wages, which mitigates inequality. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and again the effect is negative rather than positive. Finally, following Piketty's thought experiment, we study how the transition might occur without declining returns; here, we find inequality decreases substantially if financial innovation acts to reduce idiosyncratic return risk, and does not change much at all if it acts to increase capital's share of income.
Jan 03, 2016 8:00 am, Hilton Union Square, Yosemite A
American Economic Association
International Trade and Macroeconomics
(F4)
Presiding:
Fabio Ghironi
(University of Washington and NBER)
Firms' Heterogeneity, Incomplete Information, and Pass-Through
Stefania Garetto
(Boston University)
[View Abstract]
[Download Preview] A large body of empirical work documents that prices of traded goods change by a smaller proportion than real exchange rates between the trading countries (incomplete pass-through). I present a Ricardian model of trade and international price-setting with heterogeneous firms, Bertrand competition and incomplete information. The model implies that: 1) firm-level pass-through is incomplete and a U-shaped function of firm market share; and 2) producers operating under incomplete information, like for example new entrants in a market, exhibit different pass-through rates than producers operating under complete information. Estimates from a panel data set of cars prices support the predictions of the model.
Trade, Unemployment and Monetary Policy
Matteo Cacciatore
(HEC Montreal)
Fabio Ghironi
(University of Washington and NBER)
[View Abstract]
[Download Preview] We study the effects of trade integration for the conduct of monetary policy in a two-country model with heterogeneous firms, endogenous producer entry, and labor market frictions. The model reproduces important empirical regularities related to international trade, namely synchronization of business cycles across trading partners and reallocation of market shares across producers. When trade linkages are weak, the optimal cooperative policy is inward-looking and requires significant departures from price stability both in the long run and over the business cycle. As trade integration reallocates market share toward more productive firms, the need of positive inflation to correct long-run distortions is reduced. Moreover, increased business cycle synchronization implies that country-specific shocks have more global consequences. As a result, the optimal cooperative policy remains inward looking. However, sub-optimal domestic stabilization implies inefficient fluctuations in cross-country demands that result in larger welfare costs when trade linkages are strong.
Diversification in the Small and in the Large: Evidence from Trade Networks
Francis Kramarz
(ENSAE, CREST and CEPR)
Julien Martin
(ESG UQAM)
Isabelle Méjean
(Ecole Polytechnique)
[View Abstract]
[Download Preview] This paper develops a framework to study how different sources of fluctuations and the micro-structure of trade networks shape the volatility of exports at the firm-level and in the aggregate. We consider four orthogonal shocks affecting exporter-importer trade networks -- a macroeconomic shock and three individual shocks hitting respectively the exporter, its foreign partner, and the match they form. We use our framework and new data on networks connecting French exporters to European buyers over the 1995-2007 period to structurally estimate these shocks. Individual shocks are found to be a major source of fluctuations, in disaggregated as in aggregate data. Customer-related shocks matters for the volatility in the small. Firms' exposure to such shocks varies depending on the structure of their portfolio of customers: More diversified firms are better hedged against customer-related shocks. This diversification explains a sizable fraction of the dispersion of volatility across firms. In the aggregate, the relative prevalence of different types of individual shocks also varies across countries. We show that it depends on the shape of the sales distribution across sellers, buyers and seller-buyer pairs. Differences in the structure of trade networks partly explains the differences in the origins and the magnitude of the volatility of French exports across destinations.
Asymmetric Trade Liberalizations and Current Account Dynamics
Alessandro Barattieri
(ESG UQAM and Collegio Carlo Alberto)
[View Abstract]
[Download Preview] The current account deficits of Spain, Portugal and Greece are the result of large deficits in goods trade and modest surpluses in service trade. Germany, instead, displays a large surplus in goods trade, but a deficit in service trade. Starting from this motivating evidence, I propose in this paper a simple model that rationalizes how the asymmetric timing of trade liberalizations can affect current account dynamics. I solve analytically a log-linear version of the model and derive an expression where the current account depends on present and future relative changes in the exogenous trade costs. Second, I show that trade costs dynamics and productivity dynamics have been highly asymmetric in the manufacturing and services sectors in Germany in the period 2000-2007 and I propose a quantitative analysis based on a standard 2-country international real business cycle model augmented with trade costs. When fed with the actual asymmetric trends found in the German data, the model can generate a trade surplus of about 6% of GDP. The model delivers large trade surpluses also when considering only asymmetric trade liberalizations, but fails to generate surpluses consistent with the data when considering only asymmetric productivity dynamics. Finally, I provide empirical evidence broadly supporting the key predictions of the simple model using both data from 24 OECD countries plus the BRICS and data from a sample of developing countries specialized in the export of agricultural goods.
Discussants:
Julien Martin
(ESG UQAM)
Paul R. Bergin
(University of California-Davis and NBER)
Stefania Garetto
(Boston University)
Giancarlo Corsetti
(University of Cambridge and CEPR)
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 21
American Economic Association
Network Effects
(I2)
Presiding:
Rachel Kranton
(Duke University)
Productivity Spillover among Scientific Workers
Wei Cheng
(Ohio State University)
[View Abstract]
[Download Preview] Technology and knowledge advancement is considered as a major engine for economic growth. However, little is known about the actual knowledge production process. This paper opens up this black box by investigating interactions between scientific workers in collaborative researches. Interactions among collaborators can stimulate creative thinking and provide learning opportunities for those who lack certain skills. Therefore, it is intuitive to expect that the productivity of a researcher’s collaborators has a positive effect on her own productivity, which is the main hypothesis to be tested in this study. We address the main endogeneity issue from people’s selection in collaborators by estimating pairwise network formations in the first step. Identification comes from exclusive variables that affect a researcher’s choice of collaborators but not her productivity directly. These instruments include common research interest and the overlap of two scientists’ collaborative networks. This paper confirms the existence of productivity spillover among scientific workers, and that one unit increase in coauthors’ productivity will increase his own publications by 0.05 units.
The Evolution of Networks: Evidence from the Effect of a Community Driven Development Program on Economic and Social Networks in Rural Gambia
Matthias Schuendeln
(Goethe University Frankfurt)
Simon Heß
(Goethe University Frankfurt)
Dany Jaimovich
(Goethe University Frankfurt)
[View Abstract]
The paper studies empirically the structure and dynamics of the networks of exchanges in rural communities of the Gambia, West Africa. We build the analysis on two rounds of data collection, in 2009 and 2014, in 56 Gambian villages. In each of these villages we interviewed all households (with few missing observations), collecting data for 8 different economic (e.g., for land, labor and credit) and social (family and friendship) networks. Our data combines two special features: By collecting data on all households, we avoid the biases of network analyses that are based on samples of households (e.g., Chandrasekhar and Lewis, 2011). In addition, half of our villages were treated with a randomly placed Community-Driven Development (CDD) program in 2009/10, after the baseline data collection, providing an exogenous source of variation in village-level development opportunities and in the structure of social interactions.<br /><br />
<br /><br />
We contribute to the literature in two directions. First, our data on networks at two points in time allows us a rare glimpse at how networks evolve over time. Second, we exploit the random placement of the CDD program as an exogenous shock to networks. The program is designed to affect the structure of interactions within the villages, with a particular focus on inclusiveness and avoiding elite capture. To analyze the causal mechanisms behind the dynamics of economic exchanges in the Gambian villages, we employ a difference-in-difference estimator, to study network-related outcomes at the village-, household- and at the dyadic-level. A particular focus is on the question whether evidence for the intended change in village-level institutions (e.g., Casey et al. 2012) can be found in networks; in particular, we investigate how the networks of village elites (such as traditional chiefs or religious leaders) and the networks of households that were isolated at baseline change in response to the program.
Estimating Network Effects without Network Data
Pedro CL Souza
(Pontifical Catholic University of Rio de Janeiro)
[View Abstract]
Empirical research on social and economic networks has been constrained by the limited availability of data regarding such networks. This paper develops a method that does not rely on network data to estimate network effects. The proposed method also estimates the probability that pairs of individuals form connections, which may depend on exogenous factors such as common gender. The method may incorporate imperfect network data, such as with self-reported data, with the purpose of refining the estimates and testing whether the reported connections positively affect the probability that a link is formed. To achieve those goals, I derive a maximum likelihood estimator for network effects that is not conditioned on network observation. Networks are treated as a source of unobserved heterogeneity and eliminated based on data collected from observing many groups. This is accomplished with recourse to a spatial econometric model with unobserved and stochastic networks. I then apply the model to estimate network effects in the context of a program evaluation. I demonstrate theoretically and empirically that including network effects has important implications for policy assessments.
Changes in Social Network Structure in Response to Exposure to Formal Credit Markets
Abhijit Banerjee
(Massachusetts Institute of Technology)
Arun Chandrasekhar
(Stanford University)
Esther Duflo
(Massachusetts Institute of Technology)
Matthew O. Jackson
(Stanford University)
[View Abstract]
We investigate whether small societies that are largely self-reliant for risk sharing and investment, and are suddenly exposed to an external source of credit, experience changes in internal social network structure. We examine not only whether such exposure changes the internal borrowing and lending structure of a society, but also whether this spills over and affects other networks such as exchange of favors and advice. We first provide a theoretical framework for analyzing how informal borrowing and lending relationships interact with exchange of favors and advice. We show that these are strategic complements and that eliminating some borrowing and lending relationships decreases the number of favor and advice relationships, and also results in a network that has a lower local clustering measure (`support'). We then investigate this empirically, using our data from \citep*{banerjeecdj2013} augmented with a resurvey after exposure to microfinance. Our data include detailed social network data on 75 villages, predating the entry of a microfinance institution; as well detailed social network data in the same villages two years {\sl after} the entry of the microfinance organization. Most importantly, the MFI entered just over half of the villages and not the others, allowing us to conduct a difference-in-differences analysis. We find that villages that were exposed to microfinance not only see a significant loss in the average number of borrowing and lending relationships compared to villages that were not exposed, but also see a significant loss in the number of favor exchange and advice relationships. In addition, exposure to formal borrowing channels changes the structure of the social network resulting in people having significantly fewer `friends in common', beyond what would come directly from the decreased density.
Influence of Social Networks on Vaccine Take-Up among Women in Rural Nigeria
Ryoko Sato
(University of Michigan)
Yoshito Takasaki
(University of Tokyo)
[View Abstract]
Social networks are important in influencing one's health behaviors. Using experimental data, this paper analyzes the effect of social networks on vaccination behaviors among women in rural Nigeria. Social networks within village, neighborhoods, and among friends all influence one's vaccination decision to a great extent. We find that the effect of a friend getting vaccinated increases the likelihood that one receives a vaccination by 17.8 percentage points. We additionally find that the effect of a friend receiving a vaccine on one's vaccination decision varies by the belief about vaccine safety, by the distance to a health clinic, and by the amount of cash incentives. We find suggestive evidence that social networks matter for one's vaccination decision because peers visit the clinic for vaccination together.
Jan 03, 2016 8:00 am, Hilton Union Square, Golden Gate 1 & 2
American Economic Association
Productivity Dispersion and Wage Inequality
(D2, J3)
Presiding:
John Haltiwanger
(University of Maryland)
Dispersion in Dispersion: Measuring Establishment-Level Differences in Productivity
Lucia S. Foster
(U.S. Census Bureau)
Cheryl A. Grim
(U.S. Census Bureau)
Sabrina Pabilonia
(U.S. Bureau of Labor Statistics)
Jay Stewart
(U.S. Bureau of Labor Statistics)
Zoltan Wolf
(Westat and U.S. Census Bureau)
Cindy Zoghi
(U.S. Bureau of Labor Statistics)
[View Abstract]
Productivity measures are critical for understanding economic growth and business survival in the U.S. economy. The Bureau of Labor Statistics (BLS) produces the official productivity statistics for the U.S. using aggregate industry level data. However, those statistics cannot provide insight on the within-industry variation in productivity, limiting our understanding of the rich productivity dynamics in the U.S. economy. To address this gap, the BLS and the Census Bureau are collaborating to create measures of within-industry productivity dispersion with the goal of developing both public-use and restricted-use statistics. The public-use measures of productivity dispersion will include within-industry measures of the distribution of productivity for industries in the Manufacturing sector and will be published jointly by the BLS and the Census Bureau. Restricted-use establishment-level data with input, output, and productivity measures will be made available in secure Federal Statistical Research Data Centers.
Why do we need measures of within-industry productivity dispersion? Results from microdata-based productivity research have changed the way we think about aggregate productivity growth, labor market dynamics, international trade and industrial organization. There are large and persistent productivity differences across businesses even within narrowly defined industries. These differences are correlated with important economic outcomes such as the growth and survival of establishments.
In this paper, we construct establishment-level labor productivity and multifactor productivity measures using microdata from the Annual Survey of Manufactures and the Census of Manufactures. Along the way, we examine a variety of data and measurement issues including issues related to imputation and weighting of the microdata. We also compare industry-level micro-aggregated measures to BLS industry-level measures of inputs, output and productivity. Finally, we explore the variation in our industry-level productivity dispersion measures across industries and time.
Firm Performance and the Volatility of Worker Earnings
Chinhui Juhn
(University of Houston)
Kristin McCue
(U.S. Bureau of the Census)
Holly Monti
(U.S. Census Bureau)
Brooks Pierce
(U.S. Bureau of Labor Statistics)
[View Abstract]
The notion that firms provide wage insurance to risk-averse workers goes back to Bailey (1975). Recently, Guiso et al. (2005) use Italian data and find evidence of full wage insurance in the case of temporary shocks to firm output, although only partial insurance for permanent shocks. Using 1992-2011 Longitudinal Employer Household Dynamics (LEHD) data matched to Census annual business surveys, we examine whether shocks to firm performance (year to year changes in sales and value-added) are transmitted to worker earnings. We examine both short-term (year to year) and long-term (five year) changes, using Economic Census data to examine the representativeness of our annual sample. We also examine whether the extent of wage insurance varies across industries and workers at different percentiles in the earnings distribution.
How Persistent Are Establishment Wage Differentials?
Matt Dey
(U.S. Bureau of Labor Statistics)
Jay Stewart
(U.S. Bureau of Labor Statistics)
[View Abstract]
A large empirical literature has documented the existence of establishment wage differentials. But worker and establishment differentials are typically identified via turnover, which means that it is not possible to know very much about what these effects represent or how persistent they are over time.
We use a largely untapped dataset, the BLS’s Occupational Employment Statistics, to examine the nature of establishment wage differentials. The OES is an establishment survey that collects payroll information (i.e., the employment and wages for each occupation) for a relatively large number (about 400,000 per year) of establishments across the United States. This information allows us to identify and estimate occupation-by-establishment wage differentials, expressed as the percent difference between the prevailing wage in the market for an occupation and the wage paid by the establishment. We then aggregate these differentials to calculate establishment-specific wage differentials. With these establishment-specific differentials in hand, we can examine their properties and determine the extent to which they persist over time.
We first examine the distribution of wage differentials across establishments and how the magnitudes of these effects vary by establishments’ observable characteristics, such as industry, size, skill intensity. Next, we examine how these differentials are distributed across occupations within each establishment. If they are unequally distributed, then it would be hard to argue that they are true establishment wage differentials. Existing research (Lane, Salmon, and Spletzer 2007) has shown that there is a positive correlation between the wages of certain high-wage and low-wage pairs of occupations. For example, establishments that pay high wages to accountants also pay high wages to janitors. Our methodology allows us to use standard inequality measures to examine the within establishment distribution of these differentials, and relate them to observable characteristics. Finally, we examine the persistence of establishment wage differentials for a sample of large certainty units that are in the OES sample in multiple years.
Augmenting the Human Capital Earnings Equation with Meaures of the Place Where You Work
Erling Barth
(University of Oslo)
James C. Davis
(U.S. Census Bureau)
Richard B. Freeman
(Harvard University)
[View Abstract]
Recent work highlights the importance of the establishment where someone works in the pay of workers and in the growth in wage inequality among US workers (Barth, Bryson, Davis, and Freeman 2014). To what extent are differences in earnings linked to the firm to which the establishment belongs and its characteristics, and to the characteristics of the establishment, in addition to the characteristics of the individual that enters the standard earnings equation?
To answer this question we combine establishment level data with data on firms (using firm identifiers on the establishment files) and data on employees (using establishment identifiers linked to the Longitudinal Employer Household Dynamics (LEHD)) to estimate earnings equations that include establishment and firm characteristics.
We measure establishment-level characteristics by: the value of capital structures from buildings to equipment of different types from the quinquennial Economic Census from 1992 to 2007; and the average of years of schooling, age, gender, race at the establishment level obtained from the characteristics of individual workers in the establishment in the decennial Census long forms for 2000 and 1990, and CPS for 1986-1998.
We measure firm-level characteristics by R&D investments from the Business R&D and Innovation Survey (BRDIS) and different forms of capital investments from the Annual Capital Expenditure Survey (ACES). We link these firm-level characteristics to the LEHD, thus adding measures of the knowledge and physical capital of the firm to workers wage regressions.
Decomposing the variance of ln earnings of individuals, we find that both firm and establishment substantially affect the variation of earnings of workers, along with their individual characteristics. At the establishment level, the education of co-workers affects individual pay, conditional on own level of education; plant capital equipment is associated with higher wages whereas building structures have little effect. The firm's level of R&D intensity is associated with higher wages for all workers. These results hold both when workers move to establishments or firms with larger amounts of the specified attributes and when they remain at the same establishment and the establishment or firm increases the attributes.
Discussants:
Chad Syverson
(University of Chicago)
Gary Solon
(University of Arizona)
Jason Faberman
(Federal Reserve Bank of Chicago)
Steven J. Davis
(University of Chicago)
Jan 03, 2016 8:00 am, Hilton Union Square, Golden Gate 8
American Economic Association
Research in Economic Education
(A2)
Presiding:
Georg Schaur
(University of Tennessee)
Diversity, Effort, and Cooperation in Team Based Learning
Molly Espey
(Clemson University)
[View Abstract]
[Download Preview] Student and team performance in in sixteen sections of an introductory microeconomic theory course taught using team-based learning are analyzed to determine what measurable characteristics of teams influence outcomes. Team success on in-class quizzes and activities and team cohesiveness are modeled as a function of diversity of class level, gender, and geographic origin, previous academic performance, and team size and class size. Individual performance is estimated as a function of individual characteristics and team characteristics, including team performance and team cohesiveness. Results suggest that team performance is not significantly influenced by team size, class size, or the mix of class levels. The GPA of the top individual on the team is positively correlated with overall team success. Interestingly, team cohesiveness is not significantly impacted by team success. Further individual success is positively and significant influenced by team cohesiveness but not by overall team performance.
Do Students Know Best? Choice, Classroom Time, and Academic Performance
Ted Joyce
(City University of New York)
Sean Crockett
(City University of New York)
David A. Jaeger
(City University of New York)
Onur Altindag
(City University of New York)
Stephen Daniel O'Connell
(City University of New York)
Dahlia Remler
(City University of New York)
[Download Preview] NA
Women’s Decision to Pursue a Masters Degree in Economics or Finance
Anne Boring
(Sciences Po)
NA
Changing What Our Students Think, What Our Students Know, and What Our Students Think They Know
Adam J. Hoffer
(University of Wisconsin-La Crosse)
[View Abstract]
This study presents the results of two pedagogical interventions – an assignment using economic data and an assignment requiring a research project and presentation – aimed at dispelling economic misconceptions that linger through a typical principles of economics course. Participants were surveyed regarding several economic facts. Control and treatment pedagogical approaches were carried out over four academic semesters. The results suggest the combined research plus data treatment was most effective student learning about the labor force earning the minimum wage and the composition of the federal budget. The research treatment group participants were most likely to provide an answer of “I don’t know” when asked about particular economic facts.
Discussants:
Matthew Rousu
(Susquehanna University)
Gail Hoyt
(University of Kentucky)
Olga Troitschanskaia
(University of Mainz)
Jennifer Imazeki
(San Diego State University)
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 13
American Economic Association
Strategic Games
(D4)
Presiding:
Alison Watts
(Southern Illinois University-Carbondale)
A Bargaining Model of Endogenous Procedures
Razvan Vlaicu
(Northwestern University)
Daniel Diermeier
(University of Chicago)
Carlo Prato
(Georgetown University)
[View Abstract]
This paper endogenizes policymaking procedures in a multilateral bargaining framework. A procedure specifies players' proposal power in bargaining over one-dimensional policies. In procedural bargaining players internalize the procedures' effects on subsequent policy bargaining. In policy bargaining players' utilities are strictly concave and order-restricted. The paper provides characterization, existence, and uniqueness results for this two-tier bargaining model. Although the procedural choice set is multidimensional, sequentially rational procedures feature "limited power sharing" and admit a total order. In equilibrium endogenous policy and procedure are strategic complements.
Strategic Experimentation on a Common Threshold
Yi Chen
(Yale University)
[View Abstract]
[Download Preview] A dynamic game of experimentation is examined where players search for an unknown threshold. Players contribute to the rate of decline in a state variable, and the game ends with a costly breakdown once the state falls below the threshold. In the unique symmetric pure-strategy stationary Markov equilibrium, the state decreases gradually over time and settles at a cutoff level asymptotically, conditional on no breakdown. The cutoff depends on the patience, the cost of the breakdown, and the prior distribution of the threshold, but not on the number of players. In a discrete-time version of the game, the equilibrium time path of the state converges to that of the continuous-time model when period length tends to zero.
Suboptimal Behavior in Strategy-Proof Mechanisms: Evidence from the Residency Match
Alexander Robert Rees-Jones
(University of Pennsylvania)
[View Abstract]
[Download Preview] Strategy-proof mechanisms eliminate the possibility for gain from strategic misrepresentation of preferences. If market participants respond optimally, these mechanisms permit the observation of true preferences and avoid the implicit punishment of market participants who do not try to "game the system." Using new data from a flagship application of the matching literature - the medical residency match - I study if these potential benefits are fully realized. I present evidence that some students pursue futile attempts at strategic misrepresentation, and examine the causes and correlates of this behavior. These results inform the assessment of the costs and benefits of strategy-proof mechanisms, and demonstrate broad challenges in mechanism design.
Bilateral Trading in Divisible Double Auctions
Songzi Du
(Simon Fraser University)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] This paper studies bilateral trading in divisible double auctions. In the existing literature, divisible double auctions have been applied predominantly to markets with at least three bidders, for the reason that the usual linear equilibrium implies a market breakdown if only two bidders are present. These models thus cannot describe important decentralized markets where trades are conducted bilaterally (i.e. with exactly two agents). Examples include the bilateral trading of commodities, financial securities, and derivatives. In this paper we fill this gap. In our model, two bidders trade a divisible asset in a double auction. The bidders (1) submit demand schedules, (2) have interdependent and linearly decreasing or constant marginal values, and (3) can be asymmetric in their preferences. We characterize a family of nonlinear equilibria, implicitly given by a solution to an algebraic equation. These equilibria are also ex post optimal, that is, bidders do not wish to change their strategies even after they observe the equilibrium outcome ex post. If marginal values are constant, we solve the family of ex post equilibria in closed form. We show that the equilibrium quantity of trading is strictly less than that in the ex post efficient allocation. Our theory of bilateral trading differs from the bargaining literature and can serve as a tractable building block to model dynamic trading in decentralized markets of divisible assets.
Generalized Deferred Acceptance Auctions with Multiple Relinquishment Options for Spectrum Reallocation
Eiichiro Kazumori
(State University of New York)
[View Abstract]
[Download Preview] This paper studies the design of reverse auctions in the US incentive auctions where TV broadcasters in the UHF band offer to relinquish the usage right or to relocate to another band to increase the spectrum for mobile communication uses. The state of the art is the deferred-acceptance auctions by Milgrom and Segal (2014) that determine allocations based on scores and are strategy-proof when sellers are single-minded. But when sellers have multiple relinquishment options and are restricted to be single-minded, there would be possibilities of strategic considerations about which option the seller should bid. Nevertheless just allowing multiple bids is not possible since a seller switching one option to another may violate interference constraints. To resolve this issue, this paper proposes generalized deferred acceptance auctions with the supplementary phase where sellers make multiple offers, the buyer does not need to recalculate interference constraints, and are strategy-proof. This auction can be regarded as a generalization of `ladder auctions' of Milgrom, Ausubel, Levin, and Segal (2014) for multiple offers. These results show generalities and robustness of incentive auctions design described in FCC (2015)and Milgrom and Segal (2014).
Jan 03, 2016 8:00 am, Hilton Union Square, Imperial A
American Economic Association
The Economics of Violence
(O1, Q1)
Presiding:
Solomon M. Hsiang
(University of California-Berkeley)
Agricultural Productivity and Conflict: Evidence from the Diffusion of Potatoes to the Old World
Murat Iyigun
(University of Colorado)
Nathan Nunn
(Harvard University)
Nancy Qian
(Yale University)
[View Abstract]
We examine the long-term effects of improved agricultural productivity on warfare. Our analysis relies on a newly constructed geo-referenced dataset on the location of conflicts in Europe, Middle East and North Africa between 1400 and 1900. Exploiting the improvement in agricultural productivity arising from the introduction of potatoes from the Americas in the late 17th century, we compare the prevalence of conflicts in regions suitable for potato cultivation with the prevalence in unsuitable regions, before and after potatoes were introduced. Our results show that the increase in agricultural productivity arising from the introduction of potatoes significantly reduced conflict. We find that this occurred through a reduction in the onset of conflicts rather than through a shortening of the duration of conflicts. We also find that the increase in agricultural productivity resulted in the formation of larger states with control over larger amounts of land.
The Effect of Civilian Casualties on Wartime Informing: Evidence from the Iraq War
Andrew Shaver
(Princeton University)
Jacob Shapiro
(Princeton University)
[View Abstract]
[Download Preview] Scholars of civil war and insurgency have long posited that insurgent organizations and their state enemies incur costs for the collateral damage they cause. We provide the first direct quantitative evidence that wartime informing is affected by civilian casualties. Using newly declassified data on tip flow to Coalition forces in Iraq we find that information flow goes down after government forces inadvertently kill civilians and it goes up when insurgents do so. These results have strong policy implications; confirm a relationship long posited in the theoretical literature on insurgency; and are consistent with a broad range of circumstantial evidence on the topic.
Economic and Non-Economic Factors in Violence: Evidence from Organized Crime, Suicides and Climate in Mexico
Ceren Baysan
(University of California-Berkeley)
Marshall Burke
(Stanford University)
Felipe Gonzales
(University of California-Berkeley)
Solomon M. Hsiang
(University of California-Berkeley)
Edward Miguel
(University of California-Berkeley)
[View Abstract]
Changes in climate have been shown to substantially shape intergroup violence, but the mechanism remains poorly understood. We test if economic factors are the central pathway by examining killings by drug-trafficking organizations (DTOs), “normal” homicides, and suicides in Mexico. High temperatures have a large and similar impact on all three types of violence, suggesting some commonality in mechanisms. Many patterns in the data, including the limited influence of a cash transfer program in dampening the sensitivity to high temperature and a comparison with non-violent DTO crime, indicate that government monetary incentives only partially explain the observed relationship between temperature and DTO violence. We argue that previously ignored psychological and physiological factors that are affected by temperature, modeled here as a “taste for violence,” likely play an important role. Our results have important implications for the understanding of violence, as well as for the impacts of climate change.
The Intergenerational Transmission of War
Filipe Campante
(Harvard University)
David Yanagizawa-Drott
(Harvard University)
[View Abstract]
We study whether war service by one generation affects service by the next generation in later wars, in the context of the major U.S. theaters of the 20th century. To identify a causal effect, we exploit the fact that general suitability for service implies that the closer to age 21 an individual’s father happened to be at a time of war is a key determinant of the father’s likelihood of participation. We find that a father’s war service has a positive and significant effect on his son’s likelihood of service in the next generation’s war. Across all wars, we estimate an intergenerational transmission parameter of approximately 0.1. Quantitatively, our estimates imply that each individual war had a substantial impact on service in those that followed. This effect cannot be explained by broader occupational choice or labor market opportunity channels: father’s war service increases sons’ educational achievement and actually reduces the likelihood of military service outside of wartime. Instead, we find evidence consistent with cultural transmission from fathers to sons. Taken together, our results indicate that a history of wars helps countries overcome the collective action problem of getting citizens to volunteer for war service.
Discussants:
Suresh Naidu
(Columbia University)
Michael Callen
(Harvard University)
Melissa Dell
(Harvard University)
Edward Miguel
(University of California-Berkeley)
Jan 03, 2016 8:00 am, Hilton Union Square, Imperial B
American Economic Association
Valuing Climate Change Catastrophes
(Q5)
Presiding:
Robert Mendelsohn
(Yale University)
Shutting Down the Thermohaline Circulation
Richard S.J. Tol
(University of Sussex)
David Anthoff
(University of California-Berkeley)
Francisco Estrada
(Centro de Ciencias de la Atmósfera)
[View Abstract]
Past climate changes in the Earth’s history have been associated with a shut- or slowdown of the thermohaline (or meridional) overturning circulation as vast amount of freshwater were introduced into the Atlantic Ocean. This study will use data from hosing experiments with climate models (Coupled Atmosphere Ocean General Circulation Models) on future climate with and without a shutdown of the thermohaline circulation. Contrary to the popular image, these experiments show that expected cooling in Western Europe due to a shutdown of the thermohaline circulation is similar in magnitude to the expected warming due to increasing greenhouse gas concentrations. As ocean currents redistribute rather than create heat, a shutdown of the thermohaline circulation would also lead to an accelerated warming in Latin America and Africa. The FUND model will then be used to evaluate the change in human welfare associated with a shutdown of the thermohaline circulation.
A Potential Disintegration of the West Antarctic Ice Sheet (WAIS): Implications for Economic Analyses of Mitigation Strategies
Delavane Diaz
(Stanford University)
Thomas F. Rutherford
(University of Wisconsin-Madison)
Klaus Keller
(Pennsylvania State University)
[View Abstract]
[Download Preview] [Download PowerPoint] The Earth system may react in a nonlinear threshold response to climate forcings. One such example is the potential disintegration of the West Antarctic ice sheet (WAIS) in response to ocean and atmospheric warming, leading to substantial sea-level rise. WAIS disintegration has been interpreted as an example of dangerous anthropogenic interference with the climate system and been discussed as one motivation for stringent mitigation of greenhouse gas emissions. Incorporating threshold responses into integrated assessment models (IAMs) used for policy analysis poses nontrivial challenges due to the current incomplete scientific understanding, methodological limitations, and pervasive deep uncertainties. Here we analyze the effects of representing (in a very approximate way) a potential WAIS disintegration in a stochastic programming IAM with endogenous uncertainty. We identify methodological and conceptual challenges and demonstrate avenues to address some of them through model emulation as well as the representation of expert knowledge, and learning. The results illustrate the relationships between scientific uncertainties, policy objectives, and metrics such as the social cost of carbon. We conclude with a discussion of key open challenges and research needs.
Ecosystem Impacts
Colin Prentice
(Imperial College London)
Robert Mendelsohn
(Yale University)
[View Abstract]
[Download Preview] [Download PowerPoint] One of the most widely discussed effects of climate change is on land ecosystems (natural and managed), but there is surprisingly little clear information available about the nature of these impacts, particularly including the physiological effects of increasing CO2 concentrations on plants. Starting with two alternative emission scenarios: a path of modest and a path of high emissions, this study uses climate change forecasts and dynamic quantitative ecosystem models to examine the resulting impacts on net primary production (NPP, approximately equivalent to plant growth.) What do these process-based ecosystem models predict will happen to NPP, standing biomass (assets), and the extent of different biomes (forests, grasslands, deserts) across the earth? Are these changes likely to lead to large market or non-market damages?
Economic Effects of an Ocean Acidification Catastrophe
Gunnar Knapp
(University of Alaska-Anchorage)
Steve Colt
(University of Alaska-Anchorage)
[View Abstract]
[Download Preview] [Download PowerPoint] Acidification from increasing uptake of CO2 has emerged as a potentially serious threat to ocean health. Here we assess the potential magnitude of the economic effects of an ocean acidification catastrophe by focusing on key marine ecosystem services most likely to be affected: marine capture fisheries, marine aquaculture, and coral reefs. It is scientifically plausible that by year 2200 OA could be associated with 1) Complete collapse of economically viable marine capture fisheries, 2) Minimal economic effect on aquaculture, due to high potential for adaptation, 3)Complete destruction of coral reefs, and 4) Significant loss of biodiversity and rearrangement of marine and nearshore ecosystems. Our assessment of upper-bound values for the first three effects yields a potential loss of between 141 and 227 billion 2014 dollars per year (0.13 - 0.21% of current world GDP).
Discussants:
William Nordhaus
(Yale University)
James Neumann
(Industrial Economics)
Charles Kolstad
(Stanford University)
David Anthoff
(University of California-Berkeley)
Jan 03, 2016 8:00 am, Marriott Marquis, Nob Hill C & D
American Finance Association
Aggregate Volatility Shocks: Real and Financial Effects
(G1)
Presiding:
Stefano Giglio
(University of Chicago)
Uncertainty and International Capital Flows
Francois Gourio
(Federal Reserve Bank of Chicago)
Michael Siemer
(Federal Reserve Board)
Adrien Verdelhan
(Massachusetts Institute of Technology)
[View Abstract]
In a large panel of 26 emerging countries over the last 40 years, aggregate stock market return volatilities, our measure of uncertainty, forecast capital flows. When the stock market return volatility increases, capital inflows decrease and capital outflows increase. We propose a simple decomposition of each country’s market return volatility into two components: countries differ by their exposure to systematic volatility, measured by their uncertainty betas, and by their country-specific volatility. Capital inflows respond to both systematic and country- specific shocks to volatility, and they respond more in high uncertainty beta countries. These results are all statistically significant. A simple portfolio choice model illustrates the impact of uncertainty on gross capital flows: in the model, foreigners are exposed to expropriation risk. When the probability of expropriation increases, foreigners sell the domestic assets to the domestic investors, leading to a counter-cyclical home bias.
Flight-to-Safety in the Nonlinear Risk-Return Tradeoff for Stocks and Bonds
Tobias Adrian
(Federal Reserve Bank of New York)
Richard K. Crump
(Federal Reserve Bank of New York)
Erik Vogt
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] We document a highly significant, strongly nonlinear dependence of stock and
bond returns on past equity market volatility as measured by the VIX. We propose
a new estimator for the shape of the nonlinear forecasting relationship from
the cross-section of returns, increasing identification power. The nonlinearities
are mirror images for stocks and bonds, revealing flight-to-safety: expected returns
increase for stocks when volatility increases from moderate to high levels
while they decline for Treasuries. Our findings are supportive of dynamic asset
pricing theories where asset managers are subject to withdrawals that tighten
when market volatility increases, leading to declines in risk appetite that manifest
in flight-to-safety.
Inventory Risk, Market-Maker Wealth, and the Variance Risk Premium: Theory and Evidence
Mathieu Fournier
(HEC Montréal)
Kris Jacobs
(University of Houston)
[View Abstract]
[Download Preview] We investigate the role of option market makers in the determination of the variance risk premium and the valuation of index options. A reduced-form analysis indicates that a substantial part of the variance risk premium is driven by inventory risk and market maker wealth. When market makers experience extreme wealth losses, a one standard deviation change in inventory risk leads to a change in the variance risk premium of over 6%. Motivated by these findings, we develop a structural model of a market maker with limited capital who is exposed to market variance risk through his inventory. We derive the endogenous variance risk premium and characterize its dependence on inventory risk and market maker wealth. We estimate the model using index returns and options and find that it performs well, especially during the financial crisis.
Discussants:
Helene Rey
(London Business School)
Eric Ghysels
(University of North Carolina)
Ian Dew-Becker
(Northwestern University)
Jan 03, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Government Policies and Markets
(G1)
Presiding:
Anna Cieslak
(Duke University )
Is the Revolving Door of Washington a Back Door to Excess Corporate Returns?
Mehmet Canayaz
(University of Oxford)
Jose Martinez
(University of Connecticut)
Han Ozsoylev
(University of Oxford)
[View Abstract]
[Download Preview] In this paper, we look into the so-called "revolving door of Washington", which is the movement of individuals between federal government positions and jobs in the private sector, and examine its link to long-run stock returns. We find that firms where current public officials become future employees outperform other firms by a statistically significant 7.96% per year in terms of four-factor alpha. We also show that firms receive more valuable government contracts when a future firm employee is holding a post in the government. Our findings are consistent with the hypothesis of a quid pro quo relationship between some public officials and their future corporate employers. We run a battery of robustness checks to mitigate endogeneity concerns and other alternative explanations.
Regulatory Arbitrage in Repo Markets
Ben Munyan
(Vanderbilt University)
[View Abstract]
[Download Preview] Before its collapse in September 2008, Lehman Brothers had been using the repurchase agreement (repo) market to hide up to $50 billion from their balance sheet at the end of each quarter. When this “Repo 105” scheme was uncovered (a type of strategy called window dressing), the Securities and Exchange Commission conducted an inquiry into public US financial institutions and concluded that Lehman was an isolated case. Using confidential regulatory data on daily repo transactions from July 2008 to July 2014, I show that non-US banks continue to remove an average of $170 billion from the US tri-party repo market every quarter-end. This amount is more than double the$76 billion market-wide drop in tri-party repo during the turmoil of the 2008 financial crisis and represents about 10% of the entire tri-party repo market. Window dressing induced deleveraging spills over into agency bond markets and money market funds and affects market quality each quarter, and understates balance sheet based measures of systemic risk for non-US banks.
Student Loans and the Rise in College Tuition: Evidence from the Expansion in Federal Loan Programs
David Lucca
(Federal Reserve Bank of New York)
Taylor Nadauld
(Brigham Young University)
[View Abstract]
[Download Preview] When students fund their education through loans, changes in student borrowing and tuition are interlinked. Tuition cost impacts loan demand but loan supply can also affects equilibrium tuition costs when students are constrained in their borrowing. To resolve this simultaneity problem, we exploit unique student loan data and policy changes in the Stafford Loan Program over the past few years, as a natural experiment, to identify the impact of an increase in the student loan supply on changes in tuition. Our results indicate that institutions more exposed to changes in borrowing limits of federal loan programs raise their tuition disproportionately around these policy changes. These effects are most pronounced for expensive, private institutions that are also not among the most selective as measured by average student SAT scores. We also find evidence of larger tuition increases around changes in the Stafford Loan Program for private for-profit institutions.
When Transparency Improves, Must Prices Reflect Fundamentals Better?
Snehal Banerjee
(University of California-San Diego)
Jesse Davis
(Northwestern University)
Naveen Gondhi
(Northwestern University)
[View Abstract]
No. Regulation often mandates increased transparency to improve how well prices reflect fundamentals. We show that such policy can be counterproductive. We study the optimal decision of an investor who can choose to acquire costly information not only about asset fundamentals but also about the behavior of liquidity traders. We characterize how changing the cost of information acquisition affects the extent to which prices reflect fundamentals. When liquidity trading is price-dependent (e.g., due to forced deleveraging), surprising results emerge: higher transparency, even if exclusively targeting fundamentals, can decrease price informativeness, and cheaper access to non-fundamental information can improve efficiency.
Discussants:
Vyacheslav Fos
(Boston College)
Antoine Martin
(Federal Reserve Bank of New York)
Brian Melzer
(Northwestern University)
Laura Veldkamp
(New York University)
Jan 03, 2016 8:00 am, Marriott Marquis, Nob Hill A & B
American Finance Association
High-Frequency Trading
(G1)
Presiding:
Albert Menkveld
(Vrije University Amsterdam)
The Welfare Impact of High Frequency Trading
Giovanni Cespa
(City University London)
Xavier Vives
(IESE Business School)
[View Abstract]
[Download Preview] We show in a dynamic trading model that market fragmentation, induced by an informational friction resulting from high frequency trading, may generate market instability (flash crashes) and deleterious welfare consequences from increased trading platform competition. In this context an increase in the mass of dealers with continuous presence in the market can decrease liquidity and welfare. However, with transparent markets, the market is stable, and maximal market participation induces the highest levels of liquidity and welfare.
High-Frequency Trading and Market Stability
Dion Bongaerts
(Erasmus University)
Mark Van Achter
(Erasmus University )
[View Abstract]
[Download Preview] In recent years, technological innovations and changes in financial regulation induced a new set of liquidity providers to arise on financial markets: high-frequency traders (HFTs). HFTs differ most notably from traditional market participants in the fact that they combine speed and information processing. We compare a setting with HFTs to settings with traders that only have speed technology or only information processing technology available. Speed technology by itself will only be adopted when socially efficient. Information processing technology by itself will only generate mild inefficiencies due to a lemons problem. The combination of the two, however, can lead to the implementation of inefficient speed technology or the amplification of the lemons problem. In the latter case, liquidity evaporates when it is most needed and markets can freeze altogether for periods of time. We also discuss how regulation can prevent such sudden drops of liquidity and how the market may recover after a freeze.
Anticipatory Traders and Trading Speed
Raymond Fishe
(University of Richmond)
Richard Haynes
(U.S. Commodity Futures Trading Commission)
Esen Onur
(U.S. Commodity Futures Trading Commission)
[View Abstract]
[Download Preview] We investigate whether there is a class of market participants who follow strategies that appear to anticipate local price trends. The anticipatory traders we identify can correctly process information prior to the overall market and systematically act before other participants. They use manual and automated order entry methods and exhibit varying processing speeds, but most are not fast enough to make them high frequency traders. In certain cases, other market participants are shown to gain by detecting such trading and reacting to avoid adverse selection costs. To identify these traders, we devise methods to isolate price paths—localized price trends and bid-ask bounce sequences—using order book data from the WTI crude oil futures market.
High Frequency Trading and Extreme Price Movements
Jonathan Brogaard
(University of Washington-Seattle)
Al Carrion
(Lehigh University)
Thibaut Moyaert
(Louvain School of Management)
Ryan Riordan
(Queen's University)
Andriy Shkilko
(Wilfrid Laurier University)
Konstantin Sokolov
(Wilfrid Laurier University)
[View Abstract]
[Download Preview] Endogenous liquidity providers (ELPs) are often viewed as unreliable in times of stress. We examine the activity of a common ELP type – high frequency traders (HFTs) – around extreme price movements (EPMs). We find that HFTs provide liquidity during EPMs and absorb imbalances created by non-high frequency traders (nHFTs). This relation is observed for various types of EPMs, including those resulting in permanent price changes and those that occur during the 2008 financial crisis. There is little evidence of HFTs causing EPMs; most EPMs are triggered by nHFTs. Despite the highly unusual circumstances, HFTs are profitable during the average EPM.
Discussants:
Andreas Park
(University of Toronto)
Shmuel Baruch
(University of Utah)
Joel Hasbrouck
(New York University)
Maureen O'Hara
(Cornell University)
Jan 03, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
Innovations and Behavior in Household Finance
(G0)
Presiding:
Adair Morse
(University of California-Berkeley)
The Display of Information and Household Investment Behavior
Maya Shaton
(Federal Reserve Board)
[View Abstract]
[Download Preview] I show that household investment decisions depend on the manner in which information is displayed by exploiting a regulatory change which prohibited the display of past returns for any period shorter than twelve months. In this setting, the information displayed was altered but the attainable information set remained constant. Using a differences-in-differences design, I find that the shock to information display caused a reduction in the sensitivity of fund flows to short-term returns, a decline in overall trade volume, and increased asset allocation toward riskier funds. These results are consistent with models of limited attention and myopic loss aversion. To further explore the concept of salience, I propose a distinction between relative and absolute salience and find evidence consistent with the latter. Overall, my findings indicate that small changes in the manner in which past performance information is displayed can have large effects on household investment behavior and potentially influence households’ accumulated wealth at retirement.
Adverse Selection and Maturity Choice in Consumer Credit Markets: Evidence from an Online Lender
Andrew Hertzberg
(Columbia University)
Andres Liberman
(New York University )
Daniel Paravisini
(London School of Economics)
[View Abstract]
[Download Preview] This paper exploits a natural experiment to document adverse selection among prime consumer credit borrowers in the US. In our setting, some borrowers are offered only a short term loan while an observationally equivalent set of borrowers is offered the same short term loan as well as an additional long maturity option. We isolate adverse selection from the causal effect of maturity on repayment by comparing the ex post default behavior of borrowers who took the same short term loan in both settings. We show that when the long term option is available, borrowers who choose the short term loan default less and have higher future FICO scores. Thus, a longer loan maturity induces adverse selection by attracting unobservably less creditworthy borrowers. The difference in the default rate of borrowers who choose the pre-existing short maturity loan and those that self select to the new long maturity option is five percentage points, an economically large effect for prime borrowers whose average default rate is 8.6%. Our results highlight the potential for underprovision of long maturity consumer credit.
Do Credit Card Companies Screen for Behavioral Biases?
Hong Ru
(Nanyang Technological University)
Antoinette Schoar
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We look at the supply side of the credit card market to analyze the pricing and advertising strategies of credit card offers. First, we show that card issuers target poorer and less educated customers with more steeply backward loaded fees (lower introductory APR but much higher late- and over-limit fees), compared to cards offered to educated and richer customers. Second, issuers use rewards programs to screen for unobservable borrower types. Conditional on the same borrower type, cards with rewards such as low Introductory APR, Cash back or Points programs, also have more steeply backward loaded fees, than cards without these salient rewards. In contrast, cards with Miles programs, which are offered only to the most educated and richest consumers, rely much less on backward loaded fees. These findings are in line with predictions from behavioral contract theory that shrouded (or backward loaded) pricing should occur in markets with naïve consumers while products offered to sophisticated consumers cannot be shrouded and need to be priced upfront. Finally, using shocks to the credit worthiness of customers via increases in state level unemployment insurance, we show that card issuers rely more heavily on backward loaded and hidden fees when customers are less exposed to negative cash flow shocks.
Discussants:
Brad Barber
(University of California-Davis)
Mitchell Petersen
(Northwestern University)
Justine Hastings
(Brown University)
Jan 03, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Institutional Investors and Alternative Assets
(G1)
Presiding:
Anna Pavlova
(London Business School)
How to Squander Your Endowment: Pitfalls and Remedies
Phil Dybvig
(Washington University-St. Louis)
Zhenjiang Qin
(Southwestern University of Finance and Economics)
[View Abstract]
[Download Preview] University donors choose to contribute to endowment if they want to make a permanent contribution to the university. It is consequently viewed as a responsibility of the university to preserve capital when choosing the investments and spending rule of endowments. Practitioners commonly measure preservation of capital by looking at the excess of expected return over the spending rate, but this criterion involves an incorrect application of the law of large numbers based on products instead of sums. The measure can be corrected by looking expected log return net of spending, which is less by approximately half the variance of returns if period returns are not too volatile. Even if the correct minimum spending rule is applied, the common practice of smoothing spending using a partial adjustment model for spending tends to makes spending unstable in bad times and in fact the probability of eventual ruin is one. We look at optimal spending rules that preserve capital and retain some benefits of smoothing.
Riding the Bubble with Convex Incentives
Juan Sotes-Paladino
(University of Melbourne)
Fernando Zapatero
(University of Southern California)
[View Abstract]
[Download Preview] We show that the convex incentives of institutional investors like hedge funds can explain their failure to trade against mispricing. The standard mean-variance and hedging components that make up the portfolio often imply opposite stances against mispricing. The first component represents the manager's bets against overpriced securities. By contrast, the manager's hedge against the risk of forfeiting an end-of-period performance fee can result in substantial over-investment in overpriced securities. This ``bubble-riding'' component is more likely to drive the manager's portfolio as overpricing increases. We show that this rationale holds in equilibrium and can substantially exacerbate mispricing.
Where Experience Matters: Asset Allocation and Asset Pricing with Opaque and Illiquid Assets
Adrian Buss
(INSEAD)
Raman Uppal
(Edhec Business School)
Grigory Vilkov
(Frankfurt School of Finance and Management)
[View Abstract]
[Download Preview] Alternative assets, such as private equity, hedge funds, and real assets, are illiquid and opaque, and thus pose a challenge to traditional models of asset allocation. In this paper, we study asset allocation and asset pricing in a general equilibrium model with liquid assets and an alternative risky asset, which is opaque and incurs transaction costs, and investors who differ in their experience in assessing the alternative asset. We find that the optimal asset-allocation strategy of the relatively inexperienced investors is to initially tilt their portfolio away from the alternative asset and to hold more of it with experience. Counterintuitively, a decrease in the transaction cost for the alternative asset increases the portfolio tilt at the initial date, and hence, the liquidity discount. Transaction costs may induce inexperienced investors to hold a majority of the illiquid asset at later dates, even if they are pessimistic about future payoffs, and produce a sizable liquidity discount. During periods when the alternative asset is illiquid, investors trade the liquid equity index instead, leading to strong spillover effects.
Does it Pay to Invest in Art? A Selection-Corrected Returns Perspective
Arthur Korteweg
(University of Southern California)
Roman Kraussl
(University of Luxembourg and Emory University)
Patrick Verwijmeren
(Erasmus University)
[View Abstract]
[Download Preview] This paper shows the importance of correcting for sample selection when investing in illiquid assets that trade endogenously. Using a sample of 32,928 paintings that sold repeatedly between 1960 and 2013, we find an asymmetric V-shaped relation between sale probabilities and returns. Adjusting for the resulting selection bias cuts average annual index returns from 8.7 percent to 6.3 percent, lowers Sharpe ratios from 0.27 to 0.11, and materially impacts portfolio allocations. Investing in a broad portfolio of paintings is not attractive, but targeting specific styles or top-selling artists may add value. The methodology extends naturally to other asset classes.
Discussants:
Thomas Gilbert
(University of Washington)
Andrea M. Buffa
(Boston University)
Christian Heyerdahl-Larsen
(London Business School)
Ludovic Phalippou
(University of Oxford)
Jan 03, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Law and the Business and Social Environment
(G1)
Presiding:
Jarrad Harford
(University of Washington)
Law and Finance Matter: Lessons from Externally Imposed Courts
James Brown
(Iowa State University)
J. Anthony Cookson
(University of Colorado)
Rawley Heimer
(Federal Reserve Bank of Cleveland)
[View Abstract]
[Download Preview] This paper provides novel evidence on the real and financial market effects of legal institutions. Our analysis exploits persistent and externally imposed differences in court enforcement that arose when the U.S. Congress assigned state courts to adjudicate contracts on a subset of Native American reservations. Using area-specific data on small business and household credit, reservations assigned to state courts, which enforce contracts more predictably than tribal courts, have stronger credit markets. Moreover, the law-driven component of credit market development is associated with significantly higher levels of per capita income, with stronger effects in sectors that depend more on external financing.
How Collateral Laws Shape Lending and Sectoral Activity
Charles Calomiris
(Columbia University)
Mauricio Larrain
(Columbia University)
Jose Liberti
(DePaul University)
Jason Sturgess
(DePaul University)
[View Abstract]
[Download Preview] We demonstrate the central importance of creditors’ ability to use "movable" assets as collateral (as distinct from "immovable" real estate) when borrowing from banks. Using a unique cross-country micro-level loan dataset containing loan-to-value ratios for different assets, we find that loan-to values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased towards the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable based production. An analysis of Slovakia’s collateral law reform confirms our findings.
Measuring Contract Completeness: A Text Based Analysis of Loan Agreements
Bernhard Ganglmair
(University of Texas-Dallas)
Malcolm Wardlaw
(University of Texas-Dallas)
[View Abstract]
[Download Preview] Contractual incompleteness is one of the core principles in much of corporate finance theory, but the lack of quantitative measures of completeness has made direct empirical testing difficult. This paper helps fill this gap by proposing several measures of contractual detail using text based analysis. We analyze the default sections of a sample of private loan contracts, generating several measures of contract detail and of the use of common boilerplate language. Contracts are more complex when there is greater default risk, more uncertainty, and longer maturities, and an increased likelihood of renegotiation. Default language also shares greater similarities for larger contracts and contracts with more lenders, suggesting a role for standardization at the expense of complexity. We also find evidence that more complex loan contracts are associated with increases in operating performance suggesting that contractual completeness is associated with greater investment efficiency.
The Financial Value of Corporate Law: Evidence from (Re)incorportions
Martijn Cremers
(University of Notre Dame)
Simone Sepe
(University of Arizona and Toulouse School of Economics)
[View Abstract]
[Download Preview] This paper provides novel evidence concerning the association between firm value and state corporate law regarding takeovers. We use plausibly exogenous variation in incorporation at the IPO stage from the law firm identity, finding that Delaware incorporation is negatively related to firm value. Consistent with this, firms reincorporating into (out of) Delaware decrease (increase) in firm value. Reincorporations into Delaware lead to more takeovers and results seem driven by firms with stronger shareholder-stakeholder conflicts of interests. Therefore, state corporate law seems to matter for firm value primarily by affecting shareholder commitment to long-term value creation, only secondarily by reducing managerial entrenchment.
Discussants:
David Robinson
(Duke University)
Scott Frame
(Federal Reserve Bank of Atlanta)
Greg Nini
(Drexel University)
Jonathan Karpoff
(University of Washington)
Jan 03, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Liability Structure and Funding Risk of Banks
(G2)
Presiding:
Charles Calomiris
(Columbia University)
Bank Liability Structure
Suresh Sundaresan
(Columbia University)
Zhenyu Wang
(Indiana University )
[View Abstract]
[Download Preview] We develop, and solve analytically, a dynamic model of optimal bank liability structure that incorporates bank run, regulatory closure, endogenous default, and endogenous deposit-insurance premium. Value-maximizing banks balance between deposits and debt so that endogenous default coincides with bank closure. Banks' optimal response to regulatory changes often counteracts regulators' objective in reducing bank failures. For example, an optimal response to the introduction of FDIC is to increase leverage by choosing a higher deposit-to-asset ratio and a lower debt-to-asset ratio. We also find that banks' optimal leverage can be substantial even in the absence of material tax benefits.
Double Bank Runs and Liquidity Risk Management
Filippo Ippolito
(Universitat Pompeu Fabra)
Jose Luis Peydro
(Universitat Pompeu Fabra)
Andrea Polo
(Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
Enrico Sette
(Bank of Italy)
[View Abstract]
[Download Preview] By providing liquidity to depositors and credit line borrowers, banks are exposed to double-runs on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section, pre-shock interbank exposure is (unconditionally) unrelated to post-shock credit line drawdowns. However, conditioning on firm observable and unobservable characteristics, higher pre-shock interbank exposure implies more post-shock drawdowns. We show that is the result of active pre-shock liquidity risk management by more exposed banks granting credit lines to firms that run less in a crisis.
Banks, Taxes, and Nonbank Competition
George Pennacchi
(University of Illinois)
[View Abstract]
[Download Preview] This paper models banks’ choice of capital structure and interest rates on loans and deposits when financial services markets are characterized by economies of scope, corporate taxes, and competition from nonbanks (shadow banks). In markets with rich retail lending opportunities but limited retail savings, banks may choose high equity capital (low leverage) when they are not subject to corporate income taxes. When banks are taxed, capital declines and retail borrowers bear the tax burden. In the opposite case of markets with few lending opportunities but plentiful retail savings, the tax burden falls on depositors and banks minimize capital. When banks face greater nonbank competition for retail savings, equilibrium loan rates increase, encouraging entry from nonbank lenders. The model’s predictions are consistent with U.S. banks over the last two centuries. Recent empirical research on how taxes affect bank behavior also supports the model.
Discussants:
Heitor Almeida
(University of Illinois-Urbana-Champaign)
Charles Calomiris
(Columbia University)
Deborah Lucas
(Massachusetts Institute of Technology)
Jan 03, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
The Influence of Markets on Corporate Policy
(G3)
Presiding:
Amy Dittmar
(University of Michigan)
The Market for Equity Lending and Corporate Cash
Murillo Campello
(Cornell University and NBER)
Pedro Saffi
(Judge Business School)
[View Abstract]
[Download Preview] Ever increasing competition and search for returns have prompted institutional investors to place their holdings in the equity lending market, making them the largest suppliers of stocks for shorting. This paper shows that changes in the supply of lendable shares have important implications for corporate financial policies. It does so via quasi-experimental methods that build on the evolving framework of institutional investing. Using data from the equity lending market, we show that companies save more cash and repurchase more stocks when institutional investors make more of their stocks available for shorting in the market. The economic magnitudes involved are significant and the policy effects we document are particularly stronger for firms whose stocks are ex-ante less liquid and firms that are credit constrained --- who need to build internal liquidity to absorb external shocks. The study sheds new light on how the changing nature of capital market institutions shapes the liquidity needs of firms.
Kicking Maturity Down the Road: Early Refinancing and Maturity Management in the Corporate Bond Market
Qiping Xu
(University of Chicago )
[View Abstract]
This paper studies debt maturity management through early refinancing, in which firms simultaneously retire their outstanding bonds before the scheduled due date and issue new bonds as replacements. Speculative-grade firms frequently refinance early to extend the maturity of their outstanding bonds. This pattern is strongest when credit supply conditions are more accommodating, resulting in a procyclical debt maturity structure for speculative-grade firms. In contrast, investment-grade firms do not manage their maturity similarly. This difference has real consequences. Early refinancing and maturity extension allow speculative-grade firms to invest more, while investment-grade firms show no response of investment to early refinancing. I exploit the timing of the protection period of callable bonds to show that the effect of early refinancing on maturity and investment is not driven by unobservable firm characteristics or interest-rate conditions. The evidence is consistent with precautionary maturity management, in which speculative-grade firms extend maturity to hedge against refinancing risk caused by credit supply fluctuations. Longer maturity reduces the possibility of being forced to refinance during credit market downturns, allowing firms more flexibility to invest.
The Risk Anomaly Tradeoff of Leverage
Malcolm Baker
(Harvard Business School )
Jeffrey Wurgler
(New York University)
[View Abstract]
[Download Preview] Higher-beta and higher-volatility equities do not earn commensurately higher returns, a pattern known as the risk anomaly. In this paper, we consider the possibility that the risk anomaly represents mispricing and develop its implications for corporate leverage. The risk anomaly generates a simple tradeoff theory: At zero leverage, the overall cost of capital falls as leverage increases equity risk, but as debt becomes riskier the marginal benefit of increasing equity risk declines. We show that there is an interior optimum, and that it is reached at lower leverage for firms with high asset risk. Empirically, consistent with a risk anomaly tradeoff as well as the traditional tradeoff theory, firms with low-risk assets choose higher leverage. More uniquely, the risk anomaly theory helps to explain why leverage is inversely related to systematic risk, holding constant total risk; why leverage is inversely related to both upside and downside risk; why a large number of firms maintain small or zero leverage despite high marginal tax rates; and, why some firms maintain high leverage despite little tax benefit.
Discussants:
Ran Duchin
(University of Washington)
Taylor Begley
(London Business School)
Hui Chen
(Massachusetts Institute of Technology)
Jan 03, 2016 8:00 am, Parc 55, Mission I
American Real Estate & Urban Economic Association
Changing Markets and Space
(R3, G2)
Presiding:
Andrew Hanson
(Marquette University)
Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse Engineering Approach
Kevin J. Lansing
(Federal Reserve Bank of San Francisco)
Paolo Gelain
(Norges Bank)
Gisle Natvik
(BI Norwegian Business School)
[View Abstract]
[Download Preview] We use a simple quantitative asset pricing model to "reverse-engineer" the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage contract (one-period versus long-term). We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data. Counterfactual simulations show that shifting lending standards (as measured by a loan-to-equity limit) were an important driver of the episode while movements in the mortgage interest rate were not. All models deliver rapid consumption growth during the boom, negative consumption growth during the Great Recession, and sluggish consumption growth during the recovery when households are deleveraging.
Entry and Co-Location: Evidence from Chilean Retailers
Anthony Pennington-Cross
(Marquette University)
Sergio Garate
(Pennsylvania State University)
[View Abstract]
This research examines the entry decision and the impact that entry has on retail establishments in Chile. Contrary to evidence in the US, where big box retailers co-locate much more than economic opportunities would indicate makes sense, we find evidence that Chilean retailer entry decisions are based primarily on local and national economic conditions. The existence of incumbent stores repel entry. This may be due to the weaker regulatory and zoning restrictions in Chile or other unobserved differences between the US and Chile. When a new store is opened, the impact on the retail environment (measured by sales) depends on the spatial distance between the entrant and other firms, the length of time since entry, and the characteristics of both the entrant and incumbent. Entry has little to no measurable impact on the sales of incumbent stores. However, the typical entrant tends to increase total sales (incumbents and future entrants) for stores 2 to 4 miles away from the point of entry. In contrast, entrants who attract customers from long distances (larger market areas) tend to have negative spillovers.
Urban Revival in America, 2000-2010
Jessie Handbury
(University of Pennsylvania)
Victor Couture
(University of California-Berkeley)
[View Abstract]
[Download Preview] This paper documents and explains the striking reversal of fortune of urban America from 2000 to 2010. We show that almost all large American cities have experienced large increases in young professionals near their Central Business Districts over the last decade. We assemble a rich database at a fine spatial scale to test a number of competing hypotheses explaining this recent trend. We first estimate a residential choice model to assess the relative roles of changing amenities, job locations, and housing prices, as well as changing attitudes regarding these factors, in drawing the young and college-educated downtown. We find that diverging preferences for consumption amenities - such as retail, entertainment, and service establishments - explain the diverging location decisions of the young and college-educated relative to their non-college-educated peers and their older college-educated counterparts. In complementary analyses, our data rejects other hypotheses, such as changes in home ownership rates or changes in household formation rates due to delayed marriage and childbirth. These stark new trends within cities have important implications for the future of America’s downtowns, whose current revival does not appear to be driven by temporary trends.
Could Further Restrictions on "Exotic" Lending Have Dampened the Housing Boom? A VAR Perspective
Wayne Archer
(University of Florida)
[View Abstract]
It is widely recognized that severe house price declines played a central role in post-boom mortgage defaults. However, it is not clear how much the housing price boom caused “loose lending” and how much “loose lending” caused the housing price “bubble.” While several studies have explored the lending-house price interaction, results are mixed, and frequently are driven by the prior assumptions of the studies. Thus, it remains unclear how much restrictions on mortgage lending could dampen housing bubbles. This study, recognizing that prices and lending are interdependent and dynamic, uses vector auto-regression (VAR) to examine the relative contribution of several factors thought to be contributors to the house price bubble. It examines the roles of interest rates, leverage, and the wide-spread use of such “exotic” lending practices as low/no doc loans, low FICO scores, interest only loans, very high LTV loans, negative amortization, and “sub-prime” loans in general. The study uses a unique extension of VAR analysis to examine the probable effect that a continuing restriction on “loose lending” might have had on the increase in housing prices in the years leading up to the housing “bust” after 2007. The study uses a panel of quarterly data (2.1 million loans) from 21 Florida counties from 1997 through 2006. We find that variation in lending policy accounts for between 25 and 45 percent of forecast variance in total appreciation during the time. In all of our analysis, the own-influence of appreciation is an important component, suggesting a “momentum” factor, while interest rates, in general, have the weakest effect. We find that extending the conventional VAR impulse-response analysis to 20 quarters, recognizing structure (fundamental vs non-fundamental factors), and introducing a unique sustained impulse analysis are all valuable steps.
Discussants:
Jaime Luque
(University of Wisconsin)
Shawn Rohlin
(Kent State University)
Hal Martin
(Federal Reserve Bank of Cleveland)
Marcus Casey
(University of Illinois-Chicago)
Jan 03, 2016 8:00 am, Parc 55, Mission II & III
American Real Estate & Urban Economic Association
Rents and Empirical Real Estate
(J3, R1)
Presiding:
Brent Ambrose
(Pennsylvania State University)
The housing stock, housing prices, and user costs: the roles of location, structure and unobserved quality
Jonathan Halket
(University of Essex)
Lars Nesheim
(University College London)
Florian Oswald
(University College London)
[View Abstract]
We use a large repeated cross-section of houses to estimate a selection model of the supply of owner occupied and rental housing. We find that physical characteristics and unobserved heterogeneity and
not location are important for selection. We interpret this as strong evidence in favor of contracting frictions in the rental market relating to maintenance and modification of a dwelling’s physical characteristics. Accounting for selection is important for estimates of rent-to-price ratios and can explain some puzzling correlations between rent-to-price ratio and homeownership rates.
Do Rural Migrants Benefit from Urban Labor Market Agglomeration Economies? Evidence from Chinese Cities
Shihe Fu
(Southwestern University of Finance and Economics)
Lixing Li
(Peking University)
Guangliang Yang
(Fudon University)
[View Abstract]
[Download Preview] We combine the 2005 China Inter-Census Population Survey data and the 2004 China Manufacturing Census to test whether workers, particularly rural migrants, benefit from labor market Marshallian externalities in manufacturing industries in Chinese cities. We find that workers in general, and rural migrants in particular, benefit from labor market pooling effect (measured by total employment in a city-industry cell) and human capital externalities (measured by share of workers with a college degree or above in a city-industry cell). This finding is robust to various sorting bias tests. However, rural migrants benefit much less compared with local or urban workers, possibly because rural migrants suffer from lack of social network and from double discrimination in terms of being both rural and migrants. Our findings have policy implications on how Chinese cities can attract skilled workers during the rapid urbanization process coupled with global competition.
Agglomeration Economies and Capitalization Rates: Evidence from the Dutch Office Market
Arno Van Der Vlist
(University of Groningen)
Marc Francke
(University of Amsterdam)
Dennis Schoenmaker
(University of Groningen)
[View Abstract]
Agglomerations of economic activity result in higher rents, however it does not exclude the possibility of agglomeration spillovers to risk-induced reasons for investors. We address this issue by testing whether agglomeration economies based on rents in the commercial real estate office market carry over to capitalization rates. Using unique transaction-based data on individual commercial real estate properties in the Netherlands over 1990-2011, we find that agglomeration economies result in lower capitalization rates. This implies a substantial lower capitalization rate by approximately 2 (0.02%) to 8 (0.08%) basis points associated with agglomeration economies. Furthermore, we find that this effect of agglomeration diminishes with further distance when adding mutual exclusive rings, which is in line with the law of economic geography.
Condo Rents and Apartment Rents
Edward Coulson
(University of Nevada-Las Vegas)
Lynn Fisher
(Mortgage Bankers Association)
[View Abstract]
Coulson and Fisher (2014) note various incentive issues in the formation of ownership of multi-unit buildings. The flow of housing services, particularly the maintenance of the building is a function of that ownership structure. We find weak evidence that rents in condo buildings are higher than rents in comparable apartment buildings, even accounting for unobservable quality differences in the two types of buildings. This premium generally increases with the number of units in the building, highlighting the incentive problems discussed in Coulson and Fisher (2014).
Discussants:
Morris Davis
(Rutgers University)
Herman Li
(University of Nevada-Las Vegas)
Serguei Chervachidze
(CBRE)
Moussa Diop
(University of Wisconsin)
Jan 03, 2016 8:00 am, Parc 55, Powell I
American Real Estate & Urban Economic Association
Urban Theory
(R1, R3)
Presiding:
Gilles Duranton
(University of Pennsylvania)
Asset Risk Premiums in a Production Economy with Housing
Xiongchuan Lai
(Zhongnan University of Economics and Law)
Yuming Fu
(National University of Singapore )
[View Abstract]
We investigate the general equilibrium effects of housing supply on asset risk premiums in a production economy with housing. We show that the presence of intratemporal substitution between non-housing and housing consumption has the effect of mitigating consumption risk, in contrast to the result based on an exchange-economy model where consumption composition shocks are independent of non-housing consumption shocks (Piazzesi et al. (2007)). Moreover, a lower housing supply elasticity makes housing price more volatile in response to productivity shocks. It thus increases the housing risk premium via elevated consumption risk but reduces the equity risk premium via enhanced intratemporal substitution effect. Empirically, we use the land value share of home value as proxy for the housing supply elasticity, and find it predicts (negatively) excess stock returns and (positively) excess housing returns, especially in the long-horizon (6-12 quarters) return forecasts.
Rationality and Exuberance in Land Prices and the Supply of New Housing
Alex Anas
(State University of New York-Buffalo)
Debarshi Indra
(University of California-Riverside)
[View Abstract]
[Download Preview] We model decisions to construct housing under uncertainty, from a panel of land parcels zoned single family residential in LA County. The period 1988 to 2012 includes two price booms followed by the savings and loans and the recent mortgage crises, respectively. The probability of construction depends on structural density and on profits from post-construction housing prices that vary stochastically among investors, and on a start-up cost that we model as noisy. The model detects the exuberance during the price booms as an expectation of a high return from investing in land (animal spirits) and, at the same time, a growing sensitivity to noise than to prices. Measured by entropy, during the 2000-2007 boom, noise climbed to 38% of the reservation price for land, but receded before house prices peaked. Reservation prices exceeded land prices by 6.21% during the boom of 2000-2007, trailing by 2.06% during the crash. We derive the elasticity of housing supply from the annual construction elasticity on each land parcel, remedying the aggregative approach in the extant literature.
Parking and Urban Form
Jan Brueckner
(University of California-Irvine)
Sofia Franco
(Universidade Nova de Lisboa)
[View Abstract]
[Download Preview] This paper analyzes the provision of residential parking in a monocentric city, with the ultimate goal of appraising the desirability and effects of regulations such as a minimum-parking requirement (MPR) per dwelling. The analysis considers three different regimes for provision of parking space: surface parking, underground parking, and structural parking, with the latter two regimes involving capital investment either in the form of an underground parking garage or an above-ground parking structure. Parking area is viewed as a dwelling attribute that, along with floor space, provides utility. In addition, road congestion in the neighborhood (which affects the commuting costs of local residents) depends on the average amount of off-street parking per dwelling, an externality that is ignored by profit-maximizing developers, making the equilibrium inefficient. The analysis explores the equilibrium spatial behavior of the two dwelling attributes as well as residential and parking structural density, and analysis of land rent shows which parking regimes are present in different parts of the city. Efficiency requires an increase in parking area per dwelling at each location, which can be achieved in a crude fashion by an MPR, whose effects are analyzed.
City of Dreams
Jorge de la Roca
(New York University)
Gianmarco Ottaviano
(London School of Economics)
Diego Puga
(CEMFI)
[View Abstract]
[Download Preview] Higher ability workers benefit more from bigger cities while housing costs there are higher for everyone, and yet there is little sorting on ability. A possible explanation is that young individuals have an imperfect assessment of their ability, and, when they learn about it, early decisions have had a lasting impact and reduce their incentives to move. We formalize this idea through an overlapping generations model of urban sorting by workers with heterogeneous ability and self-confidence, with the latter defined as individuals’ assessment of their own ability. We then test the location patterns predicted by the model over the life cycle on panel data from the National Longitudinal Survey of Youth 1979. We find that the city-size choices of individuals at different stages vary with ability and self-confidence in a way that closely matches our theoretical predictions.
Discussants:
Haifang Huang
(University of Alberta)
Charles G. Nathanson
(Northwestern University)
Richard J. Arnott
(University of California-Riverside)
Sanhghoon Lee
(University of British Columbia)
Jan 03, 2016 8:00 am, Parc 55, Market Street
Association for Comparative Economic Studies
Economic Developments in China, India, and Japan
(E2, E6)
Presiding:
Daniel Michael Berkowitz
(University of Pittsburgh)
Demographics and Aggregate Household Saving in Japan, China, and India
Chadwick C. Curtis
(University of Richmond-Virginia)
Steven Lugauer
(University of Notre Dame)
Nelson C. Mark
(University of Notre Dame and NBER)
[View Abstract]
[Download Preview] We present a model of household life-cycle saving decisions in order to quantify the impact of demographic changes on aggregate household saving rates in Japan, China, and India. The observed age distributions help explain the contrasting saving patterns over time across the three countries. In the model simulations, the growing number of retirees suppresses Japanese saving rates, while decreasing family size increases saving rates for both China and India. Projecting forward, the model predicts lower saving rates in Japan and China.
Fiscal Decentralization and Pollution in China
Peter Lorentzen
(University of California-Berkeley)
Daniel Mattingly
(University of California-Berkeley)
Denise van der Kamp
(University of California-Berkeley)
[View Abstract]
[Download Preview] China’s fiscal decentralization has been praised as an important driver of its economic growth. Interjurisdictional competition has arguably incentivized officials to promote economic development. However, the downside of decentralization is that it enables local authorities to slow or block implementation of centrally‐mandated governance reforms, especially when these may negatively affect local development goals. We show in this paper that cities with larger budget deficits are slower to implement new transparency requirements. Additional evidence points to a bifurcation in development strategies. In fiscally strong cities, increased foreign investment leads to greater disclosure of pollution, suggesting a race to the top for cities hoping to become world class. In fiscally weak cities, foreign investment is associated with decreased disclosure, suggesting they aim to be pollution havens. Similarly, fiscally strong cities increase pollution disclosures if they are highly polluted, suggesting a motivation to clean up, while fiscally weak cities decrease disclosures.
Reserve Requirements and the Bank Lending Channel in China
Zuzana Fungáčová
(Bank of Finland)
Riikka Nuutilainen
(Bank of Finland)
Laurent Weill
(University of Strasbourg and Bank of Finland)
[View Abstract]
[Download Preview] This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The transmission of monetary policy is a major question in China as banks play a key role in the Chinese financial system and provide most of the funding to firms. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004-2013, we analyze the reaction of loan supply to changes in reserve requirements. To this end, we analyze the reaction of loan supply to monetary policy actions using the methodology of Kashyap and Stein (1995, 2000). We find no evidence of the bank lending channel through the use of reserve requirements. We observe nonetheless that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership influences the transmission of monetary policy. As a consequence, the changes in the ownership structure of the banking industry through privatization or foreign bank entry can foster or hamper the effectiveness of the monetary policy.
Macroeconomic Consequences of the Real-Financial Nexus: Imbalances and Spillovers Between China and the United States
Ke Pang
(Wilfrid Laurier University)
Pierre L. Siklos
(Wilfrid Laurier University)
[View Abstract]
[Download Preview] Relying on quarterly data since 1998 we estimate, for China and the U.S., small scale econometric models that economize on the number of variables employed and yet are rich enough to provide useful insights about spillover effects between the two countries under different maintained assumptions about the exogeneity of the macroeconomic relationship between them. We conclude that inflation in China responds to credit shocks. Indeed, the monetary transmission mechanism in China resembles that of the US even if the channels through which monetary policy affects their respective economies differ. We also find that the monetary policy stance of the PBOC was helpful in mitigating the impact of the global financial crisis of 2008-9. Finally, spillovers from the US to China are significant and originate from both through the real and financial sectors of the US economy.
Discussants:
Gerhard Glomm
(Indiana University-Bloomington )
Laura Solanko
(Bank of Finland)
Pierre L. Siklos
(Wilfrid Laurier University)
Steven Lugauer
(University of Notre Dame)
Jan 03, 2016 8:00 am, Marriott Marquis, Pacific C
Association for Evolutionary Economics
Inside Entrepreneurship: Social Entrepreneurship in Practice
(B5, L3)
Presiding:
Zohreh Emami
(Alverno College)
Let There be Light: Solar Power, Social Enterprise, and Sustainable Development
Tonia L. Warnecke
(Rollins College)
Ahiteme N. Houndonougbo
(Rollins College)
[View Abstract]
Energy poverty is a major problem in the developing world, but social enterprises have begun to light the darkness. We discuss the potential for this approach to solar power; highlight challenges including financing, scale, and maintenance; and discuss the limits of social enterprise as a stand-alone solution to utility provision.
Awash in a Sea of Confusion: Benefit Corporations, Social Enterprise, and the Fear of “Greenwashing”
Michelle J. Stecker
(Rollins College)
[View Abstract]
[Download Preview] Within the last five years, a majority of states enacted benefit corporation legislation, a new legal form of business that embraces the “triple-bottom line” of people, planet, and profit. Benefit corporation status provides legal protections for directors and officers, who may now balance social and environmental impact with shareholder returns; creates rich opportunities for social entrepreneurs; gives investors more socially responsible options; and offers a helpful designation for consumers. This paper describes the history and purpose of benefit corporations, evaluates their pros and cons, and argues that safeguards against greenwashing make benefit corporations a valuable business form for social enterprise.
Integrating Social Innovation into the Academy: The Perspective of Academic Leadership
Debra Wellman
(Rollins College)
Carol Bresnahan
(Rollins College)
[View Abstract]
With demographic shifts, rising educational costs, and changing demands of the 21st century workplace, U.S. colleges and universities are under fire. This paper shows how one liberal arts institution has integrated social innovation and addressed challenges including budgeting, structure, cross-disciplinarity, and teaching pragmatic liberal arts.
Revolutionizing Business Education for Social Impact
Denise Parris
(Rollins College)
Cecilia McInnis-Bowers
(Rollins College)
Michelle J. Stecker
(Rollins College)
Tonia L. Warnecke
(Rollins College)
[View Abstract]
Although students are interested in socially responsible careers, business education has not traditionally emphasized social value creation. We explain how one educational institution is revolutionizing business education by creating the first social entrepreneurship major in an AACSB-accredited business department. We detail steps for development/implementation, keys to success, and student impact.
Social Impact from Outside versus Inside Entrepreneurs: When Institutions Bind and Favors Blind
Wilfred Dolfsma
(Loughborough University in London )
Francis de Lanoy
(University of Curacao)
[View Abstract]
In some societies outside-entrepreneurs are more active than community-inside entrepreneurs. Institutions, and relationships entrepreneurs have, hamper insiders from starting or succeeding. Outsiders may be less inclined to generate social value. Institutional economics suggests that, rather than outside-entrepreneurs having more resources, inside-entrepreneurs are hampered by a community’s institutions that blind and social relations that bind.
Discussants:
Benjamin C. Wilson
(State University New York-Cortland)
Jan 03, 2016 8:00 am, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Institutional Economic Thought and Analysis
(B5, B1)
Presiding:
Robert H. Scott III
(Monmouth University)
Organizing Heterodoxy: On Fred Lee and Transnational Post-Keynesianism since the 1970s
Tiago Mata
(University College London and Clarence Ayres Scholar)
[View Abstract]
Heterodox economics is a social movement. Fred Lee understood this insight both as militant economist and as historian. Lee's writings imagined a united front of dissenters, but his writings did not have the intended mobilizing effects. I ask what this record tells us about the uses of history in economics.
Industrial Capitalism – What Veblen and Ayres add to Nef and Mantoux
Stephen C. Bannister
(University of Utah)
[View Abstract]
[Download Preview] John Nef and Paul Mantoux have richly described institutional formation resulting from the Industrial Revolution. In this paper I continue my exploration of the theme that derived demand for capital was the cause of industrial capitalism by incorporating the more theoretical work of Thorstein Veblen and Clarence Ayers.
Evolutionary Drift and Loss of Information in the Evolution of Institutions
Torsten Heinrich
(University of Bremen-Germany)
[View Abstract]
[Download Preview] Evolutionary economics provides a self-organizing stabilizing mechanism without relying on mechanic equilibria. However, there are differences between biological and economic evolution, that may entail a general lack of fixation and perhaps the quick loss of information through Muller's ratchet. This contribution addresses potential problems in the context of the literature.
Schumpeter’s Innovation, Financial Instability and the Business Enterprise
Scott L.B. McConnell
(Eastern Oregon University)
[View Abstract]
Joseph Schumpeter outlined the process of innovation as it pertains to the business enterprise in productive industry. This paper will explore the financial industry from this vantage, outlining the contributions of Minsky and Veblen while providing an updated analysis of current innovations in the financial sector.
Complex Systems Characteristics and Theoretical Development for Analysis inside Institutions
F. Gregory Hayden
(University of Nebraska-Lincoln)
[View Abstract]
Institutions are patterns of social activity that design roles for persons as social actors, service and are serviced by other institutions, and operate as systems. The main activity inside institutions that is utilized to complete the service responsibilities--which includes production--is the formulation and enforcement of rules, regulations, and requirements. The concepts of closed systems, endogeneity, and self-organized systems have been offered as being relevant for the analysis of institutional systems. As explained here, those concepts are inconsistent with the processing of real-world institutions. When conducting analysis inside institutions, it is necessary to recognize, observe, and model the rules, regulations, requirements which are formulated to be consistent with the normative belief, technological, and ecological criteria of institutions. Generally, social scientists have emphasized belief criteria, and ignored technological and ecological criteria.
This paper explains new complex system concepts for conducting analysis inside institutions. The first half of the paper is devoted to explaining new characteristics and theories found in three prior studies. The new knowledge is utilized to analyze and extend other studies completed whose analysis was made inside institutions.
Jan 03, 2016 8:00 am, Marriott Marquis, Pacific B
Association for Social Economics
Job Guarantee: Issues in Social and Ecological Justice
(J6, Q5)
Presiding:
Michael J. Murray
(Bemidji State University)
Public Works Program as a Strong Means for Land and Water Conservation in Iran
Zahra Karimi
(University of Mazandaran)
[View Abstract]
In the past 3 decades, agriculture has expanded very rapidly and the main source of irrigation has been underground water in Iran. Mistaken policies regarding extraction of underground water and inefficient supervision on the loans that were allocated for renovation of irrigation system were the main reasons behind the water crisis in Iran. In the same time, the country faced the problem of accelerating unemployment and underemployment, especially in dry lands and drought stricken regions. With rising poverty and malnourishment, crimes and social problems grew very rapidly; and conserving water and land and creating job opportunities became the most important priorities. As farmers’ income is generally low and private firms do not run the risk to invest in agricultural activities, public work scheme is the only means to prevent agricultural problems to become a catastrophe. Public work projects such as providing water delivery systems, drainage, sewage and sanitation, with direct involvement of local communities, is the most effective way to prevent unemployment and poverty to become a social disaster. Public works schemes can mitigate the thread of expanding water crisis, and revitalize agricultural sector through government investment and direct involvement of local beneficiaries in implementation of watershed projects.
Bioregional JG: The Creation of a New Social Ethos
Josefina Y. Li
(University of Minnesota-Duluth)
[View Abstract]
This paper examines aspects of the job guarantee (JG) programs that promote sustainability, which is defined as the well-being of human society, economy and the environment. Literature has shown that the Job guarantee program, funded by the federal government is guided by a set of social objectives rather than profit motive. As a consequence of that, JG programs can end poverty due to joblessness, reduce inequality, perform must needed public and environmental services. Many JG scholars have stressed that the program should be structured and implemented at the local level by established NGOs. Furthermore, this paper adds that when combined with bioregionalism, jobs performed can foster healthy, cohesive, and low carbon community. Along with teaching of alternative philosophy, such as Buddhism, and anarcho-communism, bioregional JG programs may assist the creation of a new social ethos, one that not materialist nor self-maximizing, one that is grounded in cooperation, minimal! ism, democracy and conservation. With the creation of this new ethos, JG program would succeed in transitioning our current society to a sustainable post-capitalist society.
Complementary Currencies, Communities, Cooperation: The Local Job Guarantee for Sustainable Prosperity
Mathew Forstater
(University of Missouri-Kansas City)
[View Abstract]
Proposals for a Job Guarantee have been put forward as national policies due to the flexibility the federal government has in paying for the program. This flexibility stems from the ability of the Treasury and the Central Bank to work in concert in using fiscal and monetary policies. An alternative route to job creation at the local level would be to use a complementary currency to pay for community service employment. This paper examines the potential benefits of such a program in terms of environmental sustainability and other advantages of political and economic decentralization and localism.
Getting Serious about the Limits to Growth: ELR and Economic Restructuring under Decroissance
Hendrik Van den Berg
(University of Nebraska–Lincoln)
[View Abstract]
In The Limits to Growth, Meadows et al. (1972) predicted an end to growth early in the early 21st century. The 30-Year Update of that work as well as numerous scientific studies suggest, that we still face precisely the same limits to growth outlined in the 1972 work. Humanity has, however, accelerated the growth of its ecological footprint on Earth, and limits to growth now threaten a collapse of human society. Our monopoly-capitalist economic system has effectively already been adjusting to the limits to growth by increasingly seeking profit through financialization rather than real production. Mainstream macroeconomists have tended to ignore the limits to growth altogether, and they continue to urge targeting full employment by means of policies to stimulate GDP growth. After the 2007-2009 financial collapse, mainstream economists called supported quantitative easing and neoliberal austerity policies to restore GDP growth to pre-crisis rates. Post Keynesians usually! only differed in that they called for fiscal stimulus rather than quantitative easing and neoliberal reforms to restore GDP growth. Even environmentally-conscious development economists continue to seek growth although they do urge that growth be sustainable. Only a few economists linked to the decroissance movement in France have openly argued for the deep structural changes in our economies to deal with a no-growth economy. This paper argues that Post Keynesians are, despite their recent tepid concern for the environment, actually well-positioned to deal with limits to growth because they are open to active macroeconomic policies that actually change the structure of our economy.
Jan 03, 2016 8:00 am, Hilton Union Square, Sutter A & B
Association of Environmental & Resource Economists
Hedonic Models of Land Value and Amenities: Methods and Applications
(Q5, Q4)
Presiding:
Nicolai Kuminoff
(Arizona State University)
Are Home Buyers Myopic? Evidence from Housing Sales
Erica Meyers
(University of Illinois)
[View Abstract]
[Download Preview] This paper explores whether home buyers are myopic about future energy costs. I
exploit variation in energy costs in the form of fuel price changes in Massachusetts where there
is an even distribution of homes that heat with oil and homes that heat with natural gas. I
nd that relative fuel price shifts cause relative changes in housing transaction prices that are
consistent with full capitalization of the present value of future energy cost dierences under
relatively low discount rates. These ndings are consistent with home buyers being attentive
to energy costs at point of sale and are not consistent with myopia
What the Frac? Sand Mining and Transport-Induced Externalities
Alexey Kalinin
(University of Wisconsin-Madison)
Dominic Parker
(University of Wisconsin-Madison)
Corbett Grainger
(University of Wisconsin-Madison)
Daniel Phaneuf
(University of Wisconsin-Madison)
[View Abstract]
Noise, traffic and air pollution are among common externalities of industrial production and mining. While these externalities arise on site and are experienced locally, they can be exported through the transport of output from the production site, via trucking and rail. As a result, the broader region surrounding the industrial activity, together with more distant communities, are brought to bear the externalities of those land uses through increased load on the transport infrastructure.
The economics literature on locally undesirable land uses (LULUs) has largely focused on measuring external impacts surrounding the site, but externalities around the transport network are potentially more problematic. Whereas endogenous land prices discourage the siting of LULUs near economically valuable alternative land uses, this pricing mechanism is absent on open access transport networks. For this reason, in the absence of government regulation, one would expect industrial firms to internalize land use externalities in their location choice but not with respect to their use of existing transport networks.
We examine these ideas in detail in the context of the recent “frac-sand” mining boom in Wisconsin. Due to the proliferation of hydraulic fracturing in North Dakota, Texas, Pennsylvania and elsewhere, demand for otherwise low-value silica sand in Wisconsin and neighboring states spiked during 2010-2013. This led to an increase from 10 to approximately 130 mines and processing facilities over a four-year period. The sand boom has triggered complaints of local externalities including noise, light, industrial traffic and air pollution on and near transportation networks. We study this episode theoretically and empirically by combining panel data on sand mine openings and production, traffic on nearby roads and rail tracks, vehicle accidents, local air pollution and property values. We find preliminary evidence of negative externalities of increased mining on road use, concentrated near sources and freight lines
The Impacts of Climate Change on U.S. Agriculture: Accounting for Omitted Spatial Dependence in the Hedonic Approach
Ariel Ortiz-Bobea
(Cornell University)
[View Abstract]
[Download Preview] This paper proposes a hedonic approach for estimating the impacts of climate change on agriculture that is robust to spatially-dependent omitted variables. I exploit the fact that certain estimators amplify the influence of such confounders to varying degrees, to detect the sign and magnitude of the bias and correct for it. Results suggest that large impacts of climate change on US agriculture are unlikely, in contrast to the large damages found in the literature. Previous findings appear biased downward severalfold, possibly due to the omitted differential rise of development pressure on farmland, which is correlated with climate. Results stand to various robustness checks. (JEL Q15, Q51, Q54, R14)
Valuing Time-Varying Attributes Using the Hedonic Model: When is a Dynamic Approach Necessary?
Kelly C. Bishop
(Arizona State University)
Alvin Murphy
(Arizona State University)
[View Abstract]
[Download Preview] Despite the fact that dynamic models of location choice are well-motivated in the literature (as the housing market features large moving costs and predictability of amenities), it remains that the estimation of these models is not without substantial costs to the econometrician in terms of computation and/or additional data requirements. In this paper, we build off of the intuitive (static) modeling framework of Rosen (1974) and specify a simple, forward-looking model of location choice. We use this model, along with a series of insightful graphs, to describe more fully the potential biases associated with the static approach and relate this bias to the time-series trend of the amenity of interest. This allows the researcher to determine, a priori, the value of extending the empirical analysis to a forward-looking approach. In addition, we illustrate an empirically-relevant example where, despite a time-varying amenity, the static model and a forward-looking model arrive at the same estimate of willingness to pay. Finally, we apply these models to estimate the willingness-to-pay to avoid violent crime. Recovering estimates separately by (geographic) area allows us to illustrate various degrees of bias induced by assuming myopic agents.
Discussants:
Jaren C. Pope
(Brigham Young University)
Lucija Muehlenbachs
(University of Calgary)
Wolfram Schlenker
(Columbia University)
Ralph Mastromonaco
(University of Oregon)
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 15
Econometric Society
Advances in Contract and Tax Theory
(A1)
Presiding:
Lars Stole
(University of Chicago)
Nonlinear Pricing with ''Average-Price'' Bias
Lars Stole
(University of Chicago)
[View Abstract]
Recent empirical evidence suggests that when consumers are faced with complex nonlinear pricing schedules, they make choices based on average (rather than marginal) prices. Taking such behavior as given, we characterize a monopolist's optimal nonlinear price schedule. In contrast to a setting with neoclassical ("marginal price") consumers, optimal nonlinear prices in a setting with "average-price bias" exhibit quantity premia rather than quantity discounts. In addition, consumption is distorted downward for consumers with the highest marginal values. Both of these properties arise from the fact that the monopolist may extract all of the information rents from an average-price bias consumer, but must now leave such consumers "curvature rents." Whether or not a monopolist prefers neoclassical consumers to those with an average-price bias depends upon underlying preferences, type distributions and costs.
The Generalized Informativeness Principle
Pierre Chaigneau
(HEC Montreal)
Alex Edmans
(London Business School)
Daniel Gottlieb
(Washington University in St Louis)
[View Abstract]
[Download Preview] This paper extends the informativeness principle, as originally formulated by Holmstrom (1979), to settings in which the first-order approach does not hold. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically. The sufficient conditions for a signal to have value for contracting are stronger than previously believed, potentially rationalizing the simplicity of real-life contracts.
Optimal Taxation with Behavioral Agents
Xavier Gabaix
(New York Universitiy)
Emmanuel Farhi
(Harvard University)
[View Abstract]
[Download Preview] This paper develops a theory of optimal taxation with behavioral agents. We use a general behavioral framework that encompasses a wide range of behavioral biases such as misperceptions, internalities and mental accounting. We revisit the three pillars of optimal taxation: Ramsey (linear commodity taxation to raise revenues and redistribute), Pigou (linear commodity taxation to correct externalities) and Mirrlees (nonlinear income taxation). We show how the canonical optimal tax formulas are modified and lead to a rich set of novel economic insights. We also show how to incorporate nudges in the optimal taxation frameworks, and jointly characterize optimal taxes and nudges. We explore the Diamond-Mirrlees productive efficiency result and the Atkinson-Stiglitz uniform commodity taxation proposition, and find that they are more likely to fail with behavioral agents.
Conflict and Compensation
Bentley MacLeod
(Columbia University)
Teck Yong Tan
(Columbia University)
[View Abstract]
The purpose of this paper is to provide a complete characterization of the optimal contract with moral hazard and two sided asymmetric information. The goal is to understand the relationship between the form of asymmetric information and contract form, including bonus pay, flat reward systems, and 360 review systems that rely upon the information of both principal and agent.
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 14
Econometric Society
Firm-Level International Linkages
(F1, F2)
Presiding:
Andrew McCallum
(Federal Reserve Board)
Multinational Firms and International Business Cycle Transmission
Javier Cravino
(University of Michigan)
Andrei Levchenko
(University of Michigan)
[View Abstract]
[Download Preview] We investigate how multinational firms contribute to the transmission of shocks across countries using a large firm-level dataset that contains ownership information for 8 million firms in 34 countries. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10% growth in the sales of the headquarter is associated with a 2% growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10% of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.
Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake
Aaron Flaaen
(Federal Reserve Board)
Christoph Boehm
(University of Michigan)
Nitya Pandalai-Nayar
(University of Michigan)
[View Abstract]
[Download Preview] Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. Foreign multinational affiliates in the U.S. exhibit substantial intermediate input linkages with their source country. The scope for these linkages to generate cross-country spillovers in the domestic market depends on the elasticity of substitution with respect to other inputs. Using the 2011 Tohoku earthquake as an exogenous shock, we estimate this elasticity for those firms most reliant on Japanese imported inputs: the U.S. affiliates of Japanese multinationals. These firms suffered large drops in U.S. output in the months following the shock, roughly one-for-one with the drop in imports and consistent with a Leontief relationship between imported and domestic inputs. Structural estimates of the production function for these firms yield disaggregated production elasticities that are similarly low. Our results suggest that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks.
Multinational Production and Intra-Firm Trade
Vanessa Alviarez
(University of British Columbia)
Ayhab Saad
(University of Michigan)
[View Abstract]
A salient empirical regularity of multinational production (MP) is that foreign affiliate sales are decreasing in trade costs. As a response, intra-firm trade from parents to foreign affiliates has been combined with standard models of horizontal MP to generate complementarities between trade and multinational activity that deliver gravity-style predictions for foreign affiliates’ sales. However, intra-firm trade is not common across foreign affiliates, but rather concentrated among a small set of large multinational firms (Ramondo et al., 2014). In addition, we document that not only firms in the upper-tail of the firm size distribution are subject to gravity forces, but also the sales of relatively small foreign affiliates are significantly affected by geographical barriers even when they rarely conduct intra-firm transactions. Two puzzles emerge: (i) why is intra-firm trade concentrated among the largest multinational firms? (ii) what are the mechanisms that drive affiliates’ sales in the lower tail of the distribution to obey gravity forces, even in the absence of intra-firm trade? In this paper we deliver a framework to explain these two phenomena.
The Structure of Export Entry Costs
Andrew McCallum
(Federal Reserve Board)
[View Abstract]
[Download Preview] Many models of international trade feature an up-front cost that firms pay to enter foreign markets. Despite the important role these costs play in determining trade linkages between international markets, we understand little about their structure or magnitude. In particular, we do not know if there are country complementarities or a global portion in these entry costs. A global sunk export entry cost is one the firm must pay to access any foreign market and would lead to increasing returns in the number of destinations served. Country complementarities might be geographic, for example, entering Germany reduces the cost of entering France, or they might be linguistic, so that exporting to Mexico lowers barriers to entry into Spain. The structure of these barriers to entry is important because it determines the structure of hysteresis and how trade between countries responds to shocks. Characterizing the structure of sunk entry costs relies on careful identification of state dependence conditional on heterogeneity. I employ reduced form and structural approaches along with the confidential universe of U.S. manufacturers' exporting behavior to conclude that export entry costs are mainly country specific. The structural model allows me to estimate that the global entry cost U.S. firms face is $20 thousand while country specific entry costs are between $3.7 million and $4.2 million per market.
Discussants:
Natalia Ramondo
(University of California-San Diego)
Teresa Fort
(Dartmouth College)
Kim Ruhl
(New York University)
James Tybout
(Pennsylvania State University)
Claudia Steinwender
(Harvard Business School)
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 19
Econometric Society
Inequality and Education
(A1)
Presiding:
David Autor
(Massachusetts Institute of Technology)
Education Production and Incentives
Hugh Macartney
(Duke University)
Robert McMillan
(University of Toronto)
Uros Petronijevic
(University of Toronto)
[View Abstract]
[Download Preview] The substantial `value-added' literature that seeks to measure the overall impact of teachers on student achievement does not distinguish between teacher effects that are invariant to prevailing incentives and those that are responsive to them. In contrast, we develop an empirical approach that, for the first time, allows us to separate out incentive-varying teacher effort from incentive-invariant teacher ability, and further, to explore whether the effects of effort and ability persist differentially. Our strategy exploits exogenous variation in the incentive strength of a well-known federal accountability scheme, along with rich administrative data covering all public school students in North Carolina. We separately identify teacher effort and teacher ability to determine their relative magnitudes contemporaneously, finding that a one standard deviation increase in teacher ability is equivalent to 21 percent of a standard deviation increase in student test scores, while an analogous change in teacher effort accounts for 8 percent of such an increase. We then use prior incentive strength to reject the hypothesis that the persistence of teacher ability and effort is similar. To supplement our regression-based evidence, we set out a complementary structural estimation procedure, showing that effort affects future scores less than ability. From a policy perspective, our results indicate that incentives matter when measuring teacher value-added. Our analysis also has implications for the cost effectiveness of sharpening incentives relative to altering the distribution of teacher ability across classrooms and schools.
Leveling Up: Early Results from a Randomized Evaluation of Post-Secondary Aid
David Autor
(Massachusetts Institute of Technology)
Joshua Angrist
(Massachusetts Institute of Technology)
Sally Hudson
(MIT)
Amanda Pallais
(Harvard)
[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.
Firming Up Inequality
Fatih Guvenen
(University of Minnesota)
Nicholas Bloom
(Stanford University)
David Price
(Stanford University)
Jae Song
(Social Security Administration)
Till Von Wachter
(University of California-Los Angeles)
[View Abstract]
Earnings inequality in the United States has increased rapidly over the last three decades, but little is known about the role of firms in this trend. For example, how much of the rise in earnings inequality can be attributed to rising dispersion between firms in the average wages they pay, and how much is due to rising wage dispersion among workers within firms? Similarly, how did rising inequality affect the wage earnings of different types of workers working for the same employer---men vs. women, young vs. old, new hires vs. senior employees, and so on? To address questions like these, we begin by constructing a matched employer-employee data set for the United States using administrative records. Covering all U.S. firms between 1978 to 2012, we show that virtually all of the rise in earnings dispersion between workers is accounted for by increasing dispersion in average wages paid by the employers of these individuals. In contrast, pay differences within employers have remained virtually unchanged, a finding that is robust across industries, geographical regions, and firm size groups. Furthermore, the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.
The Labor Market and the Marriage Market: How Adverse Employment Shocks Affect Marriage, Fertility, and Children's Living Circumstances
David Dorn
(University of Zurich)
David Autor
(Massachusetts Institute of Technology)
Gordon Hanson
(University of California, San Diego)
[View Abstract]
[Download Preview] The structure of marriage and child-rearing in U.S. households has undergone two marked shifts in the last three decades: a steep decline in the prevalence of marriage among young adults, and a sharp rise in the fraction of children born to unmarried mothers or living in single-headed households, the latter of which is concentrated among non-college and minority households and thus particularly affects lower-SES children. A potential contributor to both phenomena is the declining labor market opportunities faced by non-college and minority males, which make these males less valuable as marital partners. We explore the impact of the labor market on the marriage market by exploiting large scale, plausibly exogenous trade-induced shocks to local manufacturing employment, stemming from rising import competition from China. We trace out how these shocks impact marriage, divorce, childbearing, and the prevalence of children growing up in poor and single-parent households. We find that trade shocks between 1990 and 2010 have had quite modest impacts on household structure in aggregate. When we disaggregate these shocks into components affecting male versus female employment, however, we find impacts that are both economically and statistically significant. Import shocks concentrated on male employment reduce marriage rates and fertility, raise the fraction of births due to teen mothers, and, most significantly, increase the fraction of children living either in poverty or in single-headed households. On net, our findings do not suggest that rising import competition from China has been an important contributor to changing marital behavior in this time interval, since these shocks have not been particularly biased against males. But our analysis strongly supports the hypothesis that changes in labor demand that reduce male employment opportunities may be a quantitatively important contributor to the rise in the share of U.S. children living in poor and in single-headed households.
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 20
Econometric Society
Macro Labor
(A1)
Presiding:
Bart Hobijn
(Federal Reserve Bank of San Francisco)
Changes in U.S. Household Labor-Force Participation by Household Income
Nicolas Petrosky-Nadeau
(Federal Reserve Bank of San Francisco)
Robert Hall
(STANFORD UNIVERSITY)
[View Abstract]
Since the start of the Great Recession, there has been a substantial decline in the rate of labor force participation (LFPR). Part of this decline appears to be the result of secular factors like the aging of the labor force. Using the SIPP, we focus on the fall in the participation rate of individuals aged 25 to 54. A novel contribution of our approach is to examine how this decline varies across the distribution of household income. We find that almost all of the decline in the LFPR of 25- to 54-year-olds can be attributed to declining participation by individuals in households in the upper half of the household income distribution. The result that the decline in prime-age LFPR is concentrated in higher-income households continues a trend that started as early as 2001.
Grown-Up Business Cycles
Aysegul Sahin
(Federal Reserve Bank of New York)
[View Abstract]
We document two striking facts about U.S. firm dynamics and interpret their significance for aggregate employment dynamics. The first observation is the steady decline in the firm entry rate over the last thirty years, and the second is the gradual shift of employment from younger to older firms over the same period. Both observations hold across industries and geographies. We show that, despite these trends, firms’ life-cycle dynamics and business-cycle properties have remained virtually unchanged. Consequently, the reallocation of employment toward older firms results entirely from the cumulative effect of the thirty-year decline in firm entry. This “start-up deficit” has both an immediate and a delayed (by shifting the age distribution) effect on aggregate employment dynamics. Recognizing this evolving heterogeneity is crucial for understanding shifts in aggregate behavior of employment over the business cycle. With mature firms less responsive to business cycle shocks, the cyclical component of aggregate employment growth diminishes with the increasing share of mature firms. At the same time, the trend decline in firm entry masks the diminishing cyclicality during contractions and reinforces it during expansions, which generates the appearance of jobless recoveries where aggregate employment recovers slowly relative to output.
The Extent and Cyclicality of Career Changes: Evidence for the U.K.
Bart Hobijn
(Federal Reserve Bank of San Francisco)
Carlos Carrillo-Tudela
(Essex)
Ludo Visschers
(The University of Edinburgh/Univ Carlos)
[View Abstract]
Using quarterly data for the U.K. from 1993 through 2012, we document that in economic downturns a smaller fraction of unemployed workers change their career when starting a new job. Moreover, the proportion of total hires that involves a career change for the worker also drops in recessions. Together with a simultaneous drop in overall turnover, this implies that the number of career changes declines during recessions. These results indicate that recessions are times of subdued reallocation rather than of accelerated and involuntary structural transformation. We back this interpretation up with evidence on who changes careers, which industries and occupations they come from and go to, and at which wage gains.
Labor Share Decline and Intellectual Property Products Capital
Dongya Koh
(University of Arkansas)
Raul Santaeulalia-Llopis
(Washington University-St. Louis)
Yu Zheng
(City University of Hong Kong)
[View Abstract]
[Download Preview] We study the behavior of the US labor share over the past 65 years using new data from the post-2013 revision of the national income and product accounts and the fixed assets tables capitalizing intellectual property products (IPP). We find that IPP capital entirely explains the observed decline of the US labor share, which otherwise is secularly constant over the past 65 years for structures and equipment capital. The labor share decline simply reflects the fact that the US economy is undergoing a transition toward a larger IPP sector.
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 16
Econometric Society
Model Specification and Testing
(A1)
Presiding:
Christoph Rothe
(Columbia University)
On the Value of Knowing the Propensity Score for Estimating Average Treatment Effects
Christoph Rothe
(Columbia University)
[View Abstract]
We propose a method for estimating average treatment effects when the propensity score is known.
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 without any excluded instrument. Instead, only 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 conditions. The first is a standard control function condition. The second is a weak separability condition on the effect of the endogenous and exogenous regressors on the outcome. The third is that we can find some compensating variations where the direct effect of the exogenous regressors on the outcome compensates its indirect effect through the endogenous regressor. Our framework encompasses continuous and limited dependent outcomes, and some of our results apply to the case of discrete instruments. Finally, we develop a semiparametric estimator and run some Monte Carlo simulations.
Estimation and Inference with a (Nearly) Singular Jacobian
Sukjin Han
(University of Texas-Austin)
Adam McCloskey
(Brown University)
[View Abstract]
[Download Preview] This paper develops extremum estimation and inference results for nonlinear models with very general forms of potential identification failure when the source of this identification failure is known. We examine models that may have a general deficient rank Jacobian in certain parts of the parameter space, leading to an identified set that is a sub-manifold of the parameter space. We examine standard extremum estimators and Wald statistics under a comprehensive class of parameter sequences characterizing the strength of identification of the model parameters, ranging from non-identification to strong identification. Allowing for a general singular Jacobian as the limiting point of weak identification allows us to study estimation and inference in many models to which previous results in the weak identification literature do not apply. Using the asymptotic results, we propose two hypothesis testing methods that make use of a standard Wald statistic and data-dependent critical values, leading to tests with correct asymptotic size regardless of identification strength and good power properties. Importantly, this allows one to directly conduct uniform inference on low- dimensional functions of the model parameters, including one-dimensional subvectors. The paper focuses on three examples of models to illustrate the results: sample selection models, models of potential outcomes with endogenous treatment and threshold crossing models.
Uniform Asymptotic Risk of Averaging GMM Estimator Robust to Misspecification
Xu Cheng
(University of Pennsylvania)
[View Abstract]
This paper studies the averaging GMM estimator that combines a conservative GMM estimator based on valid moment conditions and an aggressive GMM estimator based on both valid and possibly misspecified moment conditions, where the weight is the sample analog of an infeasible optimal weight. It is an alternative to pre-test estimators that switch between the conservative and aggressive estimators based on model specification tests. This averaging estimator is robust in the sense that it uniformly dominates the conservative estimator by reducing the risk under any degree of misspecification, whereas the pre-test estimators reduce the risk in parts of the parameter space and increase it in other parts.
To establish uniform dominance of one estimator over another, we establish asymptotic theories on uniform approximations of the finite-sample risk differences between two estimators. These asymptotic results are developed along drifting sequences of data generating processes (DGPs) that model various degrees of local misspecification as well as global misspecification. Extending seminal results on the James-Stein estimator, the uniform dominance is established in non-Gaussian semiparametric nonlinear models. The proposed averaging estimator is applied to estimate the human capital production function in a life-cycle labor supply model.
Is There an Optimal Weighting for Linear Inverse Problems?
Senay Sokullu
(University of Bristol)
Jean-Pierre FLORENS
(Toulouse School of Economics)
[View Abstract]
[Download Preview] This paper considers linear equation r ̂=Kφ+U in functional spaces where K and the variance of U, Σ are given. The function φ is estimated by minimizing a Tikhonov functional 〖||Ar ̂-AKφ||〗^(2 )+α||Lφ||^2 where α is a regularization parameter and A and L are two chosen operators. We analyse the optimal mean integrated squared error, min┬α〖E||φ ̂_α-φ||^2 〗, in order to determine the optimal choice of A (and L). Contrary to the finite dimensional case A=Σ^(-1/2) is not optimal and the best choice depends on the regularity of φ and the degree of ill-posedness of Σ.
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 5 & 6
Econometric Society
Sovereign Debt and European Crisis
(A1)
Presiding:
Sebnem Kalemli-Ozcan
(University of Maryland)
Uncertainty and Economic Activity: A Global Perspective
Alessandro Rebucci
(Johns Hopkins University)
[View Abstract]
[Download Preview] The 2007-2008 global financial crisis and the subsequent anemic recovery have rekindled academic interest in quantifying the impact of uncertainty on macroeconomic dynamics based on the premise that uncertainty causes economic activity to slow down and contract. In this paper, we study the interrelation between financial markets volatility and economic activity assuming that both variables are driven by the same set of unobserved common factors. By relaying on the multi-country nature of our data, we can identify and estimate a statistically significant and economically sizable association between country-specific GDP growth and global volatility, but no associations between volatility and the business cycle over and above those driven by the factors assumed to be common to both volatility and growth.
The Slump in Europe
Robert Kollmann
(European Center for Advanced Research in Economics and Statistics (ECARES), Université Libre de Bruxelles & CEPR)
Beatrice Pataracchia
(European Commission, Joint Research Centre)
Rafal Raciborski
(European Commission, DG ECFIN)
Marco Ratto
(European Commission, Joint Research Centre)
Werner Roeger
(European Commission, DG ECFIN)
Lukas Vogel
(European Commission, DG ECFIN)
Jan in 't Veld
(European Commission)
[View Abstract]
[Download Preview] The global financial crisis led to a sharp contraction in US and Euro Area (EA) GDP, and was followed by a long-lasting slump. The post-crisis adjustment in the US and the EA shows striking differences. The EA slump is more persistent and characterized by a more pronounced contraction in TFP growth. During the slump, the wage share rose in the EA, while it fell in the US. This paper uses an estimated 3-region (US, EA and ROW) New Keynesian DSGE model with sovereign debt, banks and financial shocks to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that the European sovereign debt crisis following the 2009 recession, a less aggressive initial response of EA monetary and fiscal policy, a more vulnerable banking sector and greater rigidities in goods and labor markets explain the greater persistence of the EA slump. Moreover, the interaction between downward nominal rigidities and financial frictions is key for accounting for the persistent European slump. A negative TFP shock in combination with wage adjustment frictions generates an increase of the wage share as observed for the EA.
Liquidity Shocks, Dollar Funding Costs, and the Bank Lending Channel During the European Sovereign Crisis
Andrei Zlate
(Federal Reserve Bank of Boston)
Ricardo Correa
(Board of Governors of the Federal Reserv)
Horacio Sapriza
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper documents a new type of cross-border bank lending channel, using a novel dataset on the balance sheets of U.S. branches of foreign banks and their syndicated loans. During the European sovereign debt crisis in mid-2011, some of the U.S. branches of European banks faced a dollar liquidity shock — due to their perceived risk reflecting the sovereign risk of their countries of origin — which in turn affected the branches’ lending to U.S. entities. Our results show that: (1) The U.S. branches of euro-area banks suffered a liquidity shock in the form of reduced access to large time deposits, mainly from U.S. money market funds, which prompted them to reduce lending to U.S. firms. The reduction in lending took place mostly along the extensive margin and negatively affected U.S. corporate investment. (2) The affected branches received additional funding from their parent banks, but not enough to offset the lost deposits. (3) The liquidity shock was related to country rather than bank-specific characteristics, reflecting a broad sentiment against the liabilities of euro-area banks.
Sovereign Debt Restructurings and the Short-Term Debt Curse
Tamon Asonuma
(International Monetary Fund)
Dirk Niepelt
(Study Center Gerzensee and University of Bern)
Romain Ranciere
(International Monetary Fund)
[View Abstract]
We present novel evidence that, in present value terms, creditors with short maturity securities suffer significantly more than creditors with long maturity securities during recent sovereign debt restructuring episodes. We also document a new stylized fact, consistent with this novel evidence, that the sovereign yield curve becomes systematically inverted as countries are approaching sovereign default or restructuring. We then show, using a simple model of sovereign debt, how model-implied differential NPV haircuts between short- and long-term creditors, can explain the observed dynamics of the sovereign yield curve.
Jan 03, 2016 8:00 am, Hilton Union Square, Union Square 17 & 18
Health Economics Research Organization
Aging and its Economic Consequences
(J1, I1)
Presiding:
Peter Orszag
(Citigroup)
Long-Run Macroeconomic Effects of the Aging United States Population
Peter Orszag
(Citigroup)
Ronald D. Lee
(University of California-Berkeley)
[View Abstract]
[Download Preview] Across the industrialized world, health and mortality gradients by education and income have generally been steepening. The leading explanations for the increased gaps in life expectancy involve differential trends in smoking, diet and exercise, stress, chronic disease management, and access to health care. Less well known, however, is the impact these trends will have on public programs and their progressivity—especially Social Security and Medicare. <br />
<br />
To fill this gap, this paper uses the Future Elderly Model (FEM), a micro-simulation model of health and economic outcomes for older Americans, to estimate the effects of steeper mortality gradients on the progressivity of Social Security and Medicare benefits. This study produces projections to develop new insights about the long-run macroeconomic effects of the aging U.S. population, with a focus on distributional consequences. This paper expands the FEM to incorporate user assumptions about the trends in inequality, and then examines how changes in inequality affect progressivity. Findings suggest significant reductions in progressivity of both Medicare and Social Security if current mortality trends persist and noticeable effects on total program costs.
The Effects of Longevity Increases and Social Security Reform on Lifetime Benefits
Courtney Coile
(Wellesley College)
[View Abstract]
[Download Preview] Life expectancy at age 65 has increased by 5 years over the past half-century, with the greatest gains going to high-income individuals. This trend towards longer lives jeopardizes the long-term solvency of the Social Security system and has raised the specter of Social Security reform. How might rising inequality in life expectancy and potential Social Security reforms affect lifetime Social Security benefits, and how does this vary with lifetime income? We explore these questions, making use of the Future Elderly Model (FEM), a microsimulation model that tracks cohorts starting at age 50 and projects future health status and economic outcomes using data from the Health and Retirement Study, the Medical Expenditure Panel Survey, and the Medicare Current Beneficiary Survey. In the model, retirement and benefit claiming decisions are dynamic and depend on health and economic conditions. We find that rising inequality in life expectancy reduces the progressivity of the Social Security system. We also find that there are potential reforms, including raising the Full Retirement Age, which would have a progressive effect on lifetime benefits.
The Long-Term Benefits of Risk Prevention In The United States Elderly
Etienne Gaudette
(University of Southern California)
Andrew Messali
(University of Southern California)
David Agus
(University of Southern California)
Dana P. Goldman
(University of Southern California)
[View Abstract]
Over a decade ago, the aspirin cardiovascular data reached a tipping point and led to the United States Preventive Services Task Force (USPSTF) giving daily aspirin an “A” recommendation for the prevention of myocardial infarction in men and ischemic stroke in women. Despite this, aspirin use remains low relative to the populations targeted by the USPSTF. This article seeks to determine the long-term economic and population health impact of full compliance with the USPSTF guidelines. To that end, simulations are conducted using the Future Elderly Model (FEM), an established dynamic microsimulation that follows Americans aged 51 and older. Using the well-recognized estimates of the health impact of aspirin–including both its known benefits and main side effects–, we construct an FEM scenario in which daily aspirin use increases in accordance with the USPSTF guidelines. The difference in outcomes between this scenario and the baseline FEM reveals the impact of compliance with the guidelines. We account for the uncertainty in aspirin effectiveness by sampling estimates of the clinical effects from the confidence intervals for relative risks reported by the medical literature. The outcomes projected are chosen to provide a broad perspective of both the individual and societal impacts of compliance with the guidelines, and include: incidence of heart disease, stroke, and cancer, life expectancy, quality-adjusted life expectancy, disability-free life expectancy, medical costs–decomposed into total medical spending, Medicare parts A, B and D, and Medicaid–, Social Security benefits, Disability benefits, and Supplemental Security Income.
Discussants:
Jay Bhattacharya
(Stanford University)
Alice Rivlin
(Brookings Institution)
Lauren Nicholas
(Johns Hopkins University)
Jan 03, 2016 8:00 am, Marriott Marquis, Sierra A
International Association for Feminist Economics
Development, Division of Labor, and Sexual Orientation
(J1)
Presiding:
Ann Mari May
(University of Nebraska-Lincoln)
Labor Market, Care and Gender Equality: With Reference to Developing and Emerging Countries
Indira Hirway
(Center For Development Alternatives)
[View Abstract]
Organization of care between the four care diamond institutions in a developing and emerging economy is a matter of great concern for gender equality, for adequacy of care and for efficient functioning of the labour market. This is because (1) the main burden of care usually falls on households, resulting in women’s time stress and time poverty, (2) unpaid work, which is a lifelong time tax on women, restricts their opportunities in life, (3) unequal burden of unpaid care, along with the social norms, result in their inferior status in the labour market, and (4) frequently care deficiency affects the present and future well being of children.
The usual approaches recommended include policies that help women and men in managing work-life balance and in integrating women in the labour market, policies that raise opportunities for women in the labour market through education and training in skills and entrepreneurship and the 3-R approach of recognizing, reducing and reorganizing unpaid care (shifting some to the mainstream economy).
Though these approaches have definite advantages, they are not adequate to ensure complete gender equality in the economy and to provide level playing field to women in the labour market with men. They also cannot optimize the use of labour force under an efficient labour market. This is because the present view of the macro-economy is fractured, as it leaves out a major part of the economy. The paper shows empirically how incorporating unpaid care into labour market analysis helps and how a wider view of macro-economy integrates unpaid care in promoting gender equality, good care and healthy and sustainable economy.
The Relationship between LGBT Inclusion and Economic Development: An Analysis of Emerging Economies
M.V. Lee Badgett
(University of Massachusetts-Amherst)
Sheila Nezhad
(Headwaters Foundation for Justice)
Kees Waaldijk
(University of Leiden)
Yana van der Muelen Rodgers
(Rutgers University)
[View Abstract]
This study analyzes the impact of social inclusion of lesbian, gay, bisexual, and transgender (LGBT) people on economic development in 39 countries, 29 of which are emerging economies and 10 of which have active LGBT social movements and have significance to global development institutions. Little empirical research has tested the theoretical prediction - based on several economic frameworks – that inclusion of LGBT people is linked to a stronger economy. The analysis takes two approaches. First, the “micro-level” approach uses an extensive literature review to identify barriers to freedoms for LGBT people that can affect economic development. Second, the “macro-level” approach defines inclusion as the legal rights of LGBT people, measured through two newly-developed indices. We use multivariate regression to analyze the effect of LGBT rights on per capita GDP and the Human Development Index.
The micro-level analysis finds substantial evidence that LGBT people are limited in their freedoms in ways that also create economic harms, such as lost labor time, lost productivity, underinvestment in human capital, and the inefficient allocation of human resources through discrimination. These impacts, in turn, may act as a drag on overall economic output. The macro-level analysis uses a fixed effects approach from 1990-2011 and reveals a clear positive correlation between per capita GDP and legal rights for LGB and transgender people In the full regressions, the impact of an additional legal right on per capita GDP is approximately $320, or about 3% of the average GDP per capita in the sample.
How Does the Gender Composition in Couples Affect the Division of Labor after Childbirth?
Ylva Moberg
(Uppsala University)
[View Abstract]
Previous studies have found increased specialization and an increased income gap between heterosexual spouses after childbirth. This pattern is often contributed to the fact that men have on average higher wages and thus are relatively more productive in the labor market.<br />
However a complementary explanation is that gender in itself affects the behavior of couples. The aim of this paper is to investigate the importance of gender for the division of labor in couples after having children.<br />
<br />
In this paper I compare the effect of entering parenthood on the within couples income gaps in lesbian and heterosexual couples. Swedish population wide register data is used to sample lesbian and heterosexual couples with similar pre-childbirth income gaps. A difference-in-differences strategy is used to estimate the effect of the gender composition in couples on the change in the spousal income gap after childbirth. In this way I can estimate the effect of the gender composition of the parents on the division of labor after childbirth.<br />
<br />
Heterosexual couples show increased specialization, in terms of a vast increase in their labor income gap, after becoming parents. In general the income gap is smaller in lesbian couples after childbirth also when comparing lesbian and heterosexual couples with the same pre-parenthood income gap. In lesbian couples, the child's birth mother takes more time off work to stay on parental leave in the first two years of the child's life. After that the division of labor in lesbian couples depends mainly on which partner gave birth to the child and the spouses relative earnings before childbirth.
Discussants:
Ann Mari May
(University of Nebraska-Lincoln)
Marlene Kim
(University of Massachusetts-Boston)
Jan 03, 2016 8:00 am, Marriott Marquis, Sierra H
International Banking, Economics and Finance Association
Banking Risk and Complexity
(G2)
Presiding:
Luigi Zingales
(University of Chicago)
The Corporate Complexity of Global Systemically Important Banks
Jacopo Carmassi
(CASMEF and LUISS University)
Richard Herring
(University of Pennsylvania)
[View Abstract]
[Download Preview] The financial crisis of 2007-2009 revealed that the corporate complexity of most of the Global Systemically Important Banks (G-SIBs) presented a formidable obstacle to any plausible orderly resolution of these institutions. This paper documents the extent of this complexity making use of an historical time series, developed by the authors, that shows the evolution of the number of majority-owned subsidiaries of G-SIBs over time. After a very significant increase in complexity before the crisis and until 2011, this trend may be reversing, possibly in response to regulatory and market pressures on banks since then. Nonetheless the reduction in complexity has been uneven across institutions and may not persist. The econometric analysis of this new set of panel data produces two key results with relevant policy implications: first, the relationship found in previous studies between the number of subsidiaries and bank size loses significance when time effects are introduced; second, large mergers and acquisitions are a key driver of complexity and their effect remains significant even when time effects are considered.
Organizational Complexity and Liquidity Management in Global Banks
Nicola Cetorelli
(Federal Reserve Bank of New York)
Linda Goldberg
(Federal Reserve Bank of New York)
[View Abstract]
Global banks are diverse in size, business models, and organizational structure, and are often part of financial conglomerates. We conjecture that the complexity of these conglomerates, including their business lines and locational choices, influences the management of the global banks. Conditional on size, organizational complexity, as defined by numbers of entities in the conglomerate, should lead to more specialization by the participating entities. In particular we posit and show that the more complex global conglomerates manage their banks to support the liquidity needs of the overall organization. Using micro data on global banks with branch operations in the United States and details about the conglomerates to which they belong, we show that those branches that belong to more complex conglomerates are larger, have relatively less lending within the US, relatively more reliance on wholesale funding, and more net lending to the financial conglomerate. In response to an exogenous positive funding shock in the US, the branches associated with more complex families exhibit statistically and economically weaker expansions of balance sheets, loans, and funding compared with branches in simpler organizations.
Complex Financial Institutions and Systemic Risk
Clas Wihlborg
(Chapman University)
Elisa Luciano
(University of Torino and Collegio Carlo Alberto)
[View Abstract]
[Download Preview] [Download PowerPoint] The objective of this paper is to identify the bank organizational structures that generate substantial systemic risk and to explain why banks have incentives to create them. We seek the explanation in a bank's incentives to exploit financial synergies by choosing an organizational structure that maximizes the benefits a bank can derive from an interest tax shield, reduced default costs and the possibility of a state bailout in the presence of limited liability for legally separate entities. In both a calibrated and some stressed scenarios we show that a subsidiary structure generates the highest value and the highest systemic risk. Complexity exacerbates the incentive to lever up in subsidiary structures. It blows up the expected loss without a comparable increase in value. The main sources of complexity in this paper are differences in asset size and risk across bank affiliates in different countries or with different financial activities. We also provide a perspective on current reform efforts with respect to the organization of banks.
Dynamic Network Model of Unsecured Interbank Lending Market
Falk Bräuning
(VU University Amsterdam and Tinbergen Institute)
Francisco Blasques
(VU University Amsterdam and Tinbergen Institute)
Iman van Lelyveld
(De Nederlandsche Bank)
[View Abstract]
[Download Preview] We introduce a dynamic network model of interbank lending and estimate the parameters by
indirect inference using network statistics of the Dutch interbank market from 2008 to 2011. We
find that credit risk uncertainty and peer monitoring are significant factors in explaining the
sparse core-periphery structure of the market and the presence of relationship lending. Shocks to
credit risk uncertainty lead to extended periods of low market activity, amplified by a reduction
in peer monitoring. Moreover, changes in the central bank’s interest rate corridor have both a
direct effect on the market as well as an indirect effect by changing banks’ monitoring efforts.
Discussants:
David Mayes
(University of Auckland)
Ralph de Haas
(European Bank for Reconstruction and Development)
Philip Strahan
(Boston College)
Leonardo Gambacorta
(Bank for International Settlements)
Jan 03, 2016 8:00 am, Parc 55, Davidson
Labor & Employment Relations Association
Aftermath of the Great Recession: Labor Markets in Flux
(J2)
Presiding:
William Spriggs
(Howard University)
Has the Large Firm Training Advantage Declined During the 2000s?
Jeff Waddoups
(University of Nevada-Las Vegas)
[View Abstract]
including higher pay, more lucrative fringe benefits packages, and greater access to<br />
employer-sponsored training – the trappings of equitably shared prosperity. Besides the<br />
advantages in compensation and training opportunities for workers in larger firms, it is<br />
reasonable to conclude that by investing in training at a higher rate than their smaller<br />
counterparts, larger firms have played a particularly prominent role in the formation of the<br />
economy’s human capital stock. Evidence is mounting, however, that employers in the<br />
U.S., especially larger employers, may be backing away from this critical function of human<br />
capital investor, potentially leaving a gap in the infrastructure that produces the nation’s<br />
human capital and compromising the potential productivity of the workforce. Arguably, this<br />
declining commitment to job training, especially among large firms, is an important, yet<br />
under-developed, dimension to our economy’s waning commitment to shared prosperity.<br />
The proposed study will provide empirical evidence on the contours of the overall decline in<br />
job training, with particular emphasis on the decline in training in large firms compared to<br />
their smaller counterparts. I will use the Survey of Income and Program Participation (SIPP),<br />
a large nationally-representative data set, to provide broad estimates of the reduction in<br />
training, and in particular, the change in the size-training effect over the first decade of the<br />
2000s. The data set is large enough to allow omparisons of how the size-training effect<br />
differs by gender, age, and other important d graphic characteristics, which will also be<br />
featured in the paper.
Skill Demands and Skill Mismatch in Fast-Growing Technical Occupations
Andrew Weaver
(University of Illinois-Urbana-Champaign)
[View Abstract]
Despite the recent recovery from the high unemployment rates that followed the Great
Recession, anxiety over the future direction of the labor market and the implications
for low- and moderate-income workers has remained at heightened levels. While some
analysts blame the sluggish recovery on the business cycle and insufficient demand, others
have interpreted the anemic performance of the labor market as a sign that some type
of fundamental mismatch exists between employer demands and the skills of available
workers. Many commentators have declared that the nation faces a severe shortage of
science, technology, engineering, and math (STEM) skills. Sorting out the type and degree
of skill mismatch is a critical matter for public policy. In this research I use detailed skill
surveys to gather data on both skill demands and the prevalence of skill gaps in two fastgrowing
technical occupations in the information technology and healthcare industries:
computer helpdesk technicians and clinical laboratory technicians. Following prior research
I have conducted on the manufacturing sector (Weaver and Osterman 2014), I rigorously
evaluate claims of skill mismatch by going beyond opinion questions and anecdotal reports.
Area Economic Conditions and the Labor Market Outcomes of Americans in the Current Recovery
William McKinley Rogers III
(Rutgers University)
[View Abstract]
[Download Preview] This paper has several goals. First, I show that during the “Great Recession”, alternative
measures of unemployment (e.g., part time for economic reasons) rose to record levels,
and during the current recovery remain elevated, especially for vulnerable workers.
Second, I demonstrate that alternative measures of unemployment are more sensitive to
changes in local macroeconomic conditions than the “official” BLS unemployment rate.
That is, a one percentage point increase in an area’s GSP has a greater impact on the
unemployment rate when it includes respondents that are working part-time for economic
reasons, discouraged, and out of the labor force but want a job. Third, I use metropolitan
area “official” unemployment rates to report how different recession and recovery patterns
(e.g., weak and strong) impact the employment outcomes of vulnerable workers. The results
affirm that any premature slowing of U.S. aggregate demand will diminish the hopes of
millions of Americans who are ready, willing, and able to expand their attachment to the
workforce. Some of the key findings are as follows: • The educational attainment, gender,
race, ethnicity and age of Americans who are discouraged, want a job, and working part time
for economic reasons are similar to the “officially” unemployed. • Discouraged workers,
those who want a job, and those who are working part time for economic reasons are more
sensitive to changes in local economic cond s as measured by local real GSP. • This
labor market slack is even present in local la markets that experienced the “best” or
“strongest” recoveries. • The strength of a local labor market’s recovery is linked to the
severity of its “Great Recession. Areas that had the most severe recessions are experiencing
the weakest recoveries. Areas with the mildest recessions are experiencing the strongest
recoveries.
The Great Recession and Its Aftermath: What Role for Structural Changes?
Jesse Rothstein
(University of California-Berkeley)
[View Abstract]
[Download Preview] The last eight years have been disastrous for many workers, and particularly so for those with low human capital or other forms of disadvantage. Although the Great Recession officially ended in 2009, the labor market has been very slow to recover. One explanation attributes the ongoing poor labor market outcomes of young and non-college workers to the combination of deficient aggregate labor demand and greater sensitivity of marginal workers to cyclical conditions. A second attributes the recent outcomes to structural changes in the labor market. These have importantly different policy implications: Cyclical explanations imply that the main challenge is to raise aggregate labor demand and that if this is done many of the patterns seen in the last several years will revert to their prior trends. Structural explanations, by contrast, suggest the recent experience is the “new normal,” absent policy responses to encourage more (or different) labor supply. This paper reviews recent data for evidence on the two explanations, focusing on wage trends as an indicator of the relative importance of labor supply and demand. I find little evidence of wage pressure in any quantitatively important labor markets before 2015. The most recent data is more mixed, but still suggests substantial ongoing slack.
Discussants:
Robert Valletta
(Federal Reserve Bank of San Francisco)
David Howell
(New School)
Jan 03, 2016 8:00 am, Parc 55, Balboa
Labor & Employment Relations Association
Data Gold! Exploiting the Rich Research Potential of Lifetime Administrative Earnings Data Linked to the Census Bureau's Household SIPP Survey
(J3)
Presiding:
Jeannette Wicks-Lim
(University of Massachusetts-Amherst)
Do Tax Incentives Increase 401(K) Retirement Saving? Evidence From the Adoption of Catch-Up Contributions
Matthew S. Rutledge
(Boston College)
April Yanyuan Wu
(Boston College and Mathematica Policy Research)
Francis Vitagliano
(Boston College)
[View Abstract]
[Download Preview] The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the “catch-up provision,” which allows workers age 50 and over to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. The study finds that contributions increased by $818 more among age-50-plus individuals constrained by the 401(k) tax-deferral limits relative to similar workers just under age 50, suggesting that constrained individuals respond to tax incentives. For this group, the elasticity of retirement savings to the tax incentive is relatively high: a 1-percentage-point increase in the tax-deferred limit leads to a 0.2 percentage-point increase in 401(k) contributions. But barely 1 percent of lower-saving participants took advantage of catch-up contributions, suggesting that raising the 401(k) limit is not likely to be a broad-based solution to retirement saving shortfalls.
Education, Earnings, and the Timing of Fertility
Lara Shore-Sheppard
(Williams College)
[View Abstract]
The relationship between income and the timing of fertility has long been of interest to
economists and demographers. This relationship has been studied in the aggregate,
including studies of changes in the timing of fertility with macroeconomic shocks, but little
is known about the time pattern of earnings (both of the woman and her spouse) prior to the
first birth. Using data on individuals? complete earnings histories and the year of first birth
from the SIPP Synthetic Beta, I describe the relationship between own and spousal earnings
and the timing of first birth. Since both theory and previous empirical work on the impact of
macroeconomic shocks on birth timing indicate that there is likely to be heterogeneity by
education, I focus on examining differences in the relationship between earnings and birth
timing between less-educated and more-educated women.
Education, Gender, and Earnings Volatility: Evidence from SIPP Linked Administrative
Michael D. Carr
(University of Massachusetts-Boston)
Emily E. Workers
(University of Massachusetts-Boston)
[View Abstract]
There is broad agreement that earnings volatility for men fell during the 1980's and early
1990's and has been rising since then. However, little is known about earnings volatility
for women. Importantly, given increases in the returns to education, the large increase in
educational attainment for women, and the large increase in female labor force participation,
there is reason to believe that trends in volatility for men and women could be quite different.
We use an underutilized dataset, the SIPP Synthetic Beta and associated Gold Standard
File, to trace trends in earnings volatility by educational attainment and gender over the last
thirty-five years. The SIPP SSB is better suited to this task then any other dataset previously
used to study earnings volatility in the U.S. because it links every individual in a SIPP panel
to their complete administrative earnings histories both prospectively and retrospectively,
resulting in both long panels and very large cross-sections. This allows us to disaggregate
earnings volatility by subgroup in a way that was previously impossible.
Low-Wage Careers in a Changing Labor Market
Jeannette Wicks-Lim
(University of Massachusetts-Amherst)
[View Abstract]
Since 1979, the U.S. labor market has experienced a rise in wage inequality as wage gains
concentrated among higher-wage workers. Average wages have stagnated while wages at
the low-end of the distribution have fallen in real value. Within those years, however, lowwage
workers have experienced two distinct trends. During the 1980s, low-wage workers
experienced pronounced wage declines. By contrast, low-wage workers achieved significant
wage gains by the end of the 1990s. Such changes in the U.S. labor market may have
important consequences for the earnings trajectories of low-wage workers. Presumably, the
decline in pay rates for low-to-average-wage workers during the 1980s would make it more
difficult for low-wage workers to make meaningful advances in their earnings and increase
the prevalence and length of low-wage careers. The reversal of this trend up through the
late 1990s may have, conversely, supported a decline in the number and length of low-wage
careers. This paper will focus on the question of whether these well-documented shifts in the
U.S. wage distribution have impacted two key features?prevalence and duration?of low-wage
careers using the SSB and associated Gold Standard files. These data uniquely links personlevel
micro-data from a nationally representative SIPP household survey with administrative
annual earnings data from the IRS spanning from 1978 to 2006. This paper also examines
how these dimensions of low-wage careers vary by educational attainment, gender, and race.
Discussants:
Ben Zipperer
(Washington Center for Equitable Growth)
Lori Reeder
(U.S. Census Bureau)
Jan 03, 2016 8:00 am, Hilton Union Square, Continental – Parlor 2
National Association for Business Economics/American Economic Association
The Equilibrium Real Interest Rate—Theory, Measurement, and Use in Monetary Policy
(E5) (Panel Discussion)
Panel Moderator:
George Kahn
(Federal Reserve Bank of Kansas City)
Stephen D. Williamson
(Federal Reserve Bank of St. Louis)
James D. Hamilton
(University of California-San Diego)
John B. Taylor
(Stanford University)
John C. Williams
(Federal Reserve Bank of San Francisco)
Stephanie Schmitt-Grohe
(Columbia University)
Jan 03, 2016 8:00 am, Marriott Marquis, Sierra I
Union for Radical Political Economics
Crises and Conflicts in the Global Economy
(J5)
Presiding:
Paddy Quick
(St. Francis College-Brooklyn)
A Gender Perspective of the Crisis: The Italian Case
Giovanna Vertova
(University of Bergamo)
[View Abstract]
[Download Preview] [Download PowerPoint] The object of this paper is to show that the recent financial and economic crisis in Italy has very different impacts on men and women, according to their role in society. The paper proposes an analysis of the current economic crisis with a gender perspective. In order to do so, the impact of the crisis must be investigated by looking at both the productive as well as the social reproductive systems. The paper is composed of two parts, a theoretical and an empirical one. The theoretical part presents a framework integrating different dimensions useful for a gender analysis. The empirical part uses this theoretical framework to analyze the gender impacts of the crisis in Italy. A general conclusion drawn is that while men were hit harder by the crisis (due to the industrial and constructions sectors involved), women are more likely to be hit at a 'second moment' due to austerity fiscal policy. This crisis might slow down the long and difficult process towards more gender equality
Labor Markets, Productivism, and Women’s Empowerment in Postapartheid South Africa
Jennifer Cohen
(University of the Witwatersrand)
[View Abstract]
Women’s empowerment and gender equality are posited as desired outcomes of postapartheid economic development by the South African state. However, the state’s framing of empowerment is grounded in productivist logic which gives primacy to economic growth, converting labor from human activity to an input into production and placing the employment relation at the core of ostensibly emancipatory politics. In South Africa productivist logic necessitated a postapartheid reconceptualization of wage work from “a condition of oppression, degradation, and precariousness into a prospect of inclusion and human dignity” (Barchiesi 2011: 2). In this discourse, empowerment and gender equality are thus thought to emerge only through (equal) access to wage work. Consequently, the state implemented market-oriented policies aimed at reducing labor market “distortions” like barriers to entry/mobility, sex discrimination, and poorly functioning credit markets. The state seeks to construct a freely functioning, real-world labor market in the image of the abstract labor market of economic models. However, structural inequalities that exist outside of the labor market gain materiality within the labor market, as they are reflected in wages but are not be mitigated by the elimination of supposed market distortions. Rather than combating structural inequalities, productivism, with a narrow focus on markets, seals off policy space, effectively eliminating prospects for social policies that could help address structural inequalities generated and maintained outside of the labor market proper. This foreclosing of policy space constrains the imaginations of policymakers but not of workers themselves, who express support for non-market-oriented policies.
Precarity and No Resistance? Towards an Explanation of an Apparent Paradox in European Societies
Svenja Flechtner
(European University Flensburg)
Gloria Kutscher
(Vienna University of Economy and Business)
[View Abstract]
[Download Preview] Labor markets of European countries have experienced an apparent paradox in recent years: trade union membership and labor disputes have decreased# while at the same time# working conditions have deteriorated in the context of liberalizations and flexibilization. Economic research on these topics suffers from serious shortcomings as it ignores the institutional contexts and adopts isolated perspectives. We develop a broader framework# integrating the individual’s with an institutional perspective. We join Varieties of Capitalism# Welfare State Typologies and similar institutional approaches in order to understand the systemic scope of structural changes that European labor markets have been undergoing in recent decades. Against this background# we deploy social psychologist Albert Bandura’s Social Cognitive Theory in order to analyze the interplay of an individual’s understanding of the institutional environment and her beliefs about personal capacities. Our main argument is that in order for labor protest to occur# individuals must believe that there are structural reasons for precarious working conditions. However# we claim# neoliberal reforms have increasingly been accompanied by discourses about and beliefs in individualism# implying that the individual is responsible if her working conditions are precarious. Moreover# for protest to occur# individuals must believe that they possess the necessary capacities to carry out protest. However# they may suffer from self-devaluation when working under precarious conditions. We use data from the European Social Survey (ESS) for a comparative analysis of several countries with differing institutional contexts in order to test our theoretical analysis. The results are supportive of our argument.
“Erst kommt das Fressen” – Food Insecurity in the Time of Austerity
Charalampos Konstantinidis
(University of Massachusetts-Boston)
[View Abstract]
According to Eurostat, 23% of the Greek population in 2013 was at risk of poverty, the highest such rate in the EU-28. I analyze how the Greek adjustment programs, and ensuing structural changes and overtaxation, accelerated the pauperization of the Greek population, and use individual-level data from the EU Social Inclusion and Living Conditions dataset to specifically examine the rise of food deprivation in Greece during the economic crisis. I show that food insecurity among the Greek population doubled in the period 2009-2012, but find significant differences in food insecurity along demographic and geographic lines. I subsequently examine the connection between food insecurity and indebtedness; as well as the role of formal and informal mechanisms, such as social transfers and family networks respectively, in helping Greek households cope with material deprivation. I conclude by discussing “food sovereignty” as an economic and political project to help Greece face food insecurity and its ongoing humanitarian crisis.
Building Post-Capitalist Worlds: Zapatistas, Via Campesina and Other Rebellions
David Barkin
(Universidad Autonoma Metropolitana-Xochimilco)
Blanca Lemus
(Universidad Autonoma Metropolitana-Xochimilco)
[View Abstract]
[Download Preview] In the context of the prevailing abundance of diversity (biological, ethnic), the profound social inequalities, and the trends and attitudes of hegemonic forces in Latin America, a coherent process of environmental governance is proving difficult and environmental injustice is aggravated. Regardless of where one turns in the region, there is an increase in the number and intensity of conflicts between groups committed to promoting economic development (i.e., growth), and those claiming to speak for the planet and/or the welfare of the large majority of the population or particular minorities, who feel excluded from these processes and are bearing the brunt of the negative impacts of these activities. This paper gives voice to the actors actually involved in developing alternatives to the development proposals of the hegemonic forces driving the transformations in their societies. These alternatives emerge from groups whose organizations are shaped by different cosmologies, products of their multiple ethnic origins, and by the profound philosophic and epistemological debates of the past half-century that emerged from numerous social movements proposing different strategies for achieving progress, improving well-being and conserving ecosystems.
Discussants:
Esther Jeffers
(University of Paris 8)
Elias Mouhoud Mouhoud
(University of Paris Dauphine)
Özgür Orhangazi
(Kadir Has University)
Jan 03, 2016 8:00 am, Marriott Marquis, Sierra J
Union for Radical Political Economics
Rethinking Macroeconomics: Microfoundations, Production Functions, and Policies
(B4)
Presiding:
Ann E. Davis
(Marist University)
"On the Cobb–Douglas and All That...": The Solow–Simon Correspondence Over the Aggregate Neoclassical Production Function
Scott Carter
(University of Tulsa)
[View Abstract]
The debate over the Cobb–Douglas production function has been raging ever since the mathematician Charles Cobb teamed up in 1928 with the economist Paul Douglas and developed this famous model of aggregate production and distribution. This article presents a heretofore unpublished exchange in 1971 over the efficacy of the Cobb–Douglas by two future Nobel Laureates, Robert Solow and Herbert Simon. Solow emerges as the defender of the Cobb–Douglas, and Simon the engaging critic. The correspondence demonstrates that the logical and empirical problems with the Cobb–Douglas were well known by the most advanced minds of mainstream economics. This calls into question the rationale for its continued use as an empirical corroboration of marginal productivity theory.
Braaaaaaaaaains!!! The Undead Humbug Production Function: Now With Human Capital!
Michael Isaacson
(New School)
[View Abstract]
[Download Preview] This paper traces the concept of human capital from its various descriptions in the history of economic thought to its eventual integration into aggregate production functions. Using an extension of the proof by Anwar Shaikh in the Review of Economics and Statistics, this paper shows how these human capital-augmented production functions are entirely derivative of accounting identities. This paper uses simulated data to demonstrate this fact in practice and problematizes the social and political meaning of various parametrizations of human capital.
Consumer and Production Behavior: From Micro to Macro Without Utility Function or Rational Choice
Anwar Shaikh
(New School)
Amr Ragab
(Doha Institute for Graduate Studies)
[View Abstract]
The classical economic tradition derives many economic patterns of capitalism without any reference to rational choice, utility maximizing or rational expectations. In this talk, I will show how the basic laws of microeconomics can be derived from perfectly sensible models of human behavior. This means that we do not have to rely on the standard (socially absurd) micro-foundations. The analysis can be extended to macroeconomics also. The material presented here is from a forthcoming book from Oxford University Press, December 2015.
Friendly as well as Unfriendly Commentators: The Lucas Critique Reconsidered
Katherine Moos
(New School)
[View Abstract]
In the face of a sustained recession, there is substantial disagreement about what, if anything, macroeconomic policy can do to create a more stable and prosperous society. This begs the question of why the economics profession fails to put forth a cogent policy framework. What explains our diminished ambition with respect to the theory of economic policy? Has mainstream macroeconomics undermined the belief in the ability of economists to make meaningful policy interventions? If so, does this imply that modern macroeconomics is founded in a belief in policy nihilism? Before we begin to entertain the question of policy nihilism, we must first consider if new classical economics, in superseding Keynesian policy activism, actually advanced the theory of economic policy. With this goal, this paper will focus on the contribution of Robert E. Lucas, Jr.’s influential 1976 paper, “Econometric Policy Evaluation: A Critique.” Reviewing a sample of papers that engage the Lucas critique (LC) will allow us to better assess if new classical economics is founded in a methodological rigorous, empirically valid, and theoretically sound framework. The papers under review cast a dark shadow of doubt upon Lucas’s central argument.
Discussants:
Noe Wiener
(New School)
Kevin D. Hoover
(Duke University)
Jan 03, 2016 10:15 am, Marriott Marquis, Walnut
African Finance & Economics Association
Human Capital Formation Role of Education, Health, and Food Security in African Economic Development
(O1, O1)
Presiding:
Diery Seck
(Center for Research on Political Economy)
Foreign Aid, Access to Water and Sanitation and Implications for Health Outcomes in Sub-Saharan African Countries
Leonce Ndikumana
(University of Massachusetts-Amherst)
Lynda Pickbourn
(Hampshire College)
[View Abstract]
[Download Preview] Abstract: Although sub-Saharan African countries have made impressive strides over the past decades towards improving health outcomes, they continue to lag behind other regions, in major part because of inadequate investments in the health sector. In particular, lack of access to safe sources of drinking water and modern sanitation is a key cause of ill health and high death rates, especially among women and children in rural areas and poor urban agglomerations. In this paper, we seek to explore two questions: 1) whether increased allocation of foreign aid to the water and sanitation sectors contributes to improved access to these services in sub-Saharan countries; 2) whether improved access to water and sanitation is associated with improvement in health outcomes in these countries. The paper is based on panel data from OECD/DAC that provides volumes of aid disbursements by sector, in conjunction with country-level data on access to water and sanitation and health outcomes. The analysis uses pooled cross-sectional and panel data estimation techniques controlling for country specific effects, potential outliers, and potential endogeneity of regressors. The results from this study may shed light on strategies to accelerate progress in reaching key development goals in the health sector in African countries and to improve aid effectiveness.
On the Impact of Income Per Capita on Health Outcomes: Is Africa Different?
Elizabeth Asiedu
(University of Kansas)
Neepa B. Gaekwad
(University of Kansas)
Malokele Nanivazo
(University of Kansas)
Mwanza Nkusu
(International Monetary Fund)
Yi Jin
(Monash University)
[View Abstract]
[Download Preview] Abstract: This paper examines the link between income per capita, adult life expectancy and mortality rates for children. We construct an overlapping generations model and derive conditions under which the impact of income per capita on health outcomes is: (i) linear and positive; (ii) non-linear, positive and the marginal effect of income diminishes as income increases; and (iii) non-linear, positive and the marginal effect of income increases as income rises. We next estimate a dynamic panel model using panel data from 128 developing countries over the period 1994-2014. We find that: (i) Global factors (i.e., non country-specific factors) have a positive and significant impact on health outcomes, and this effect has increased over time; (ii) Countries in Sub-Saharan Africa (SSA) have a higher mortality rate and lower life expectancy than countries outside SSA; (iii) An increase in income per capita improves health outcomes and the effect is stronger at higher levels of income; and (iv) The effect of income per capita on health outcomes is different for SSA countries.
Measuring Impacts of Health Insurance for the Poor: Bayesian Potential Outcomes Approach
Andinet Woldemichael
(African Development Bank)
Abebe Shimeles
(African Development Bank)
[View Abstract]
Abstract: One of the major reasons for low healthcare utilization rates in low-income counties is lack of affordable health insurance coverage. In recent years, Community-Based Health Insurance programs are widely implemented across developing countries to increase healthcare utilization of the poor. This study investigates the causal impact of Community Based Health Insurance schemes on utilization of healthcare services in Rwanda. In a Bayesian potential outcomes framework, we address issues of selection bias on observable and unobservable dimensions and heterogeneity in treatment effects by estimating treatment effects at the individual level. Using data from a nationally representative household survey, we find that the program significantly increases the likelihood of utilizing medical consultation and screening services but not the utilization of drug. We also find notable heterogeneity in the estimated treatment effects at the individual, intra-household, and area levels.
The Impacts of Improvements in the Delivery of Credit from Formal and Semi-Formal Institutions: Evidence from Ghana
Samuel Amponsah
(Tokyo International University)
[View Abstract]
[Download Preview] This study examines the impacts of improvements in delivery of credit from formal and semi-formal financial institutions to households in Ghana. My main interest is to exploit plausibly variations in access to credit from these institutions, due to the fact that before the passage of the new financial institution bills such as the Borrowers and Lenders Act, 2008 (Act 773) and the Non-Bank Financial Institutions Act, 2008 (Act 774) in 2008, households in the country could hardly borrow from the formal financial institutions. Particular attention is paid to a number of socioeconomic outcomes, including agriculture, non-farm businesses, and expenditure. This paper documents evidence of a decline in the share of households who have some informal borrowing, reduction in agricultural activities, and increases in non-farm business activities as well as increases in the number of non-farm business employees. This paper also find improvements in consumption, profits (both farm and non-farm activities) and loan repayments.
Flop or a Success? An Evaluation of the Welfare Impacts of the 6-3-3-4 Education System in Nigeria
Ruth U. Oyelere
(Emory University)
[View Abstract]
Abstract: With the introduction of the New National Policy on Education in 1981, plans were underway to overhaul the prior Nigerian education system. According to Fabunmi (1986) the previous education system was deemed archaic and there was need for a modern dynamic and progressive educational system. These plans gave birth to the 6-3-3-4 system. A system that allowed for six years in primary school, three years in Junior Secondary School (JSS), three years for Senior Secondary School (SSS) while the last four years are for tertiary education. Previously the country had a 6-5-4 system, which represents six years in primary school, five in secondary and four in tertiary. However, as there were debates on the inadequacy of the 6-5-4 system to prepare Nigerians to face whatever challenges, including employment problems, they may come across in future, the system was replaced. The move to the 6-3-3-4 system was not solely about increasing the time spent in secondary education but also a radical change in the subject structure of education in secondary school. Also at the tertiary level, a professional orientation was adopted with an aim to minimize unemployment and produce skilled labor in science and technology. The 6-3-3-4 system was setup to be different from the previous system in its goals and objectives. For example it was supposed to focus on \functional education" meaning an education that as noted in Uwaifo and Uddin (2009), allows those who pass through it function economically, intellectually, morally, politically and socially. Also, its main objective was to produce graduates who were more likely to be self-reliant, leading to a smooth school to work transition upon graduation. Despite the laudable objectives of the program, from its inception there were group who were opposed to it. By 2000 onwards, those opposed to the program increased rapidly and debates on the effectiveness of the system were at the core of this increased opposition. The diverse views of the program can be divided into two main ideas. One major view was that the 6-3-3-4 system if implemented correctly would yield success but in the Nigerian case had not been implemented properly. Those who hold this view further argue that despite the poor implementation, the 6-3-3-4 system better prepares students for success in the labor market compared to the prior system.
Effects of Agricultural Aid on Food Security
Kwabena Gyimah-Brempong
(University of South Florida and IZA Bonn)
Margaret Adesugba
(NSSP-IFPRI, Abuja, FCT Nigeria)
[View Abstract]
[Download Preview] Food security has been the bane of African countries even though these countries are agrarian economies. On average, about 50% of the labor force in African countries are engaged in agriculture which accounts for about 30% of GDP generally in Africa. This suggests that productivity in agriculture is very low in African countries. Low productivity in the largest sector of African economies has not only left many Africans poor, it has left African countries food insecure. The issue of food insecurity in African countries was brought to the fore during the 2008 world food crisis when grain prices in African countries almost doubled.
In spite of the fact that African countries are agrarian economies, the United Nations Food and Agricultural Organization (FAO) data indicate that Africa is the only region in the developing world where food production per capita decreased during the last two decades. Despite efforts to increase agricultural output, productivity continues to be low with the consequence that food security is not assured. As a result, African countries have come to rely on food aid to meet food short falls.
In addition to food aid, Sub-Saharan African countries have been, and continue to be, the recipients of large amounts of agricultural aid—including inputs, technology, infrastructural support, policy advice and capacity building to increase agricultural productivity and improve food security. For example the U.S. government has promised about half a billion US$ to the Nigerian government in support of its agricultural transformation agenda (ATA), and the G-8’s New Alliance for Nutrition (located at the World Economic Forum) has promised large infusion of aid and private sector investment to improve agricultural productivity in African countries. In spite of this large aid flows to the agricultural sector, very few studies have been conducted to test the effectiveness of this aid flows—studies that will inform aid policy of both donors and recipients.
This paper uses panel data from a large number of African countries to investigate the impact of agricultural aid on food security in recipient countries. Specifically, we investigate the effects of agricultural aid on agricultural productivity in African countries over the 1980–2012 period. Particularly, we investigate whether agricultural aid has significant positive impact on agricultural productivity and if so, which components of agricultural aid are effective in improving agricultural productivity. Controlling for several variables, we find that agricultural aid, especially the provision of improved seeds and capacity development improves agricultural productivity in African countries. On the other hand, the provision of mechanical aid does not significantly improve agricultural productivity in African countries, contrary to expectations. We also find regional differences in the effect of agricultural aid on agricultural productivity in Africa: the effects are highest in Southern Africa and lowest in West Africa.
Discussants:
Ruth U. Oyelere
(Emory University)
Leonce Ndikumana
(Depar University of Massachusetts-Amherst)
Kwabena Gyimah-Brempong
(University of South Florida and IZA-Bonn)
Malokele Nanivazo
(University of Kansas)
Jan 03, 2016 10:15 am, Marriott Marquis, Sierra C
Agricultural & Applied Economics Association
Targeting Nutrient Pollution to Protect Inland and Coastal Waterways: Tradeoffs Between Agriculture and Aquatic Ecosystem Services
(Q5)
Presiding:
Joseph Herriges
(Michigan State University)
The Implications of Environmental Policy on Nutrient Outputs in Agricultural Watersheds
Brent Sohngen
(Ohio State University)
[View Abstract]
[Download Preview] We examine whether federally sponsored voluntary environmental programs have reduced phosphorus pollution from agriculture over the past 30 years. To test the effects of federal programs on water quality, we employ a unique dataset derived from daily observations on nutrient emissions taken over 37 years in several tributaries to Lake Erie. These data are linked to important ecological, hydrological, and economic factors that influence nutrient concentrations in agricultural watersheds. To identify the influence of federal programs on nutrient concentrations, we separate nutrient outputs into attached and soluble phosphorus, and we test for structural changes in key estimated parameters over time. For example, federal programs have long focused on trapping attached phosphorus in farm fields with conservation tillage and conservation set-asides. We show that these programs and their effects have strengthened over time. As expected, federal programs have had their 4 strongest impact on attached phosphorus during winter. In contrast, our model estimates an increasing trend in soluble phosphorus concentrations over time, which is surprising, given that the empirical evidence suggests that phosphorus inputs into our watersheds have decreased since the 1970s. We show that the seasonal pattern of concentrations has changed, with lower concentrations in summer and no change in winter. Given that most of the flow occurs in winter and spring, this suggests that federal programs have not reduced soluble phosphorus emissions, and consequently total phosphorus emissions.
Robust Optimization of Agricultural Conservation Investments to Cost-Efficiently Reduce the Northern Gulf of Mexico Hypoxic Zone
Catherine Kling
(Iowa State University)
Sergey Rabotyagov
(University of Washington)
Adriana Valcu-Lisman
(Iowa State University)
Yongjie Ji
(Iowa State University)
[View Abstract]
[Download Preview] Reductions in nitrogen and phosphorus from agricultural cropland are needed to reduce the size of the Gulf of Mexico hypoxic zone. Recent estimates put the annual costs of achieving the average 5,000 km2 size at $2.7 billion per year. In this work, we incorporate an additional objective of solution robustness, i.e., the mix and spatial location of agricultural conservation measures is cost-efficient (lies on the Pareto-front) under weather uncertainty. We employ a multi-objective evolutionary optimization algorithm which draws from historic weather conditions to formulate the hypoxia reduction objective, allowing us to select solutions which are more robust to the changing “fitness landscape” induced by weather variability. The solution from robust optimization that achieves, in expectation, the hypoxia policy goal, is estimated to cost about $2.5 billion per year (7.4% cost reduction from the previous estimate associated with using land retirement as one of conservation investment options). Given historic weather variability, the goal is achieved in 47% of the 5-year time windows. Ex-post variability analysis suggests that an investment of approximately $4.7 billion per year would lead to at least a 75% chance (based on Chebyshev’s Inequality) of attaining the hypoxia policy goal.
Too Burdensome to Bid: Transaction Costs and Pay-for-Performance Conservation
Leah H. Palm-Forster
(University of Delaware)
[View Abstract]
[Download Preview] In a world free of transaction costs, reverse auctions can cost-effectively allocate payment for environmental service contracts by targeting projects that provide the most benefit per dollar spent. However, auctions only succeed if enough farmers choose to bid so that the auctioneer can evaluate numerous projects for targeted funding. A 2014 conservation auction to allocate payments for phosphorus reduction practices in NW Ohio experienced very thin bidding. According to a follow-up survey, auction participation was deterred by the complexity of the bidding process and the need to negotiate with renters. Due to low participation, the actual conservation auction made payments for phosphorus reduction that were surprisingly costly at the margin. Applying a farmer behavioral model to the Western Lake Erie Basin, we simulate participation choice and cost-effectiveness of environmental outcomes in reverse auctions and uniform payment conservation programs. Results reveal that when perceived transaction costs of bid preparation are high, reverse auctions are less cost-effective than spatially targeted, uniform payment programs that attract higher participation.
The Agricultural Phosphorus Pollution Puzzle: Knowledge Gaps on Costs, Ecosystem Services, Values and Policy
Frank Lupi
(Michigan State University)
[View Abstract]
Despite the success of efforts to reduce phosphorus (P) pollution from point sources, P from non-point agricultural sources remains a vexing problem that recent EPA assessments suggest impair half the nation’s lakes and rivers. We synthesize the state of knowledge and identify critical research priorities in four key areas related to reducing P pollution: costs, ecology, benefits, and policies. Key to the P pollution puzzle is to understand why it happens? We assess evidence from the economics literature, including issues of risk, input elasticities, and market failures, and contrast this with the common environmental science assertion that farmers “over-apply” P. Next, we assess the state of knowledge on ecological production functions linking P from farms to largely adverse, but sometimes positive, effects on downstream ecosystem services, including a critical look at EPA’s focus on metrics of ecological and biological condition rather than on connections to ecosystem services. This understanding then points to shortcomings in the valuation literature that limit the utility of most valuations studies, including inadequate linkages to policy relevant environmental quality metrics affected by P pollution. Putting these threads together, we address the effectiveness of alternative policies for reducing P pollution, including some successes and many failures with approaches such as trading, taxes, payments for environmental services, other conservation policies, and the potential for “green” labeling or supply chain pressures. We conclude by assessing critically needed innovations in the four areas.
Jan 03, 2016 10:15 am, Marriott Marquis, Pacific J
American Committee for Asian Economic Studies/American Economic Association
Money and Exchange Rates in Emerging Asia
(F3, E5)
Presiding:
Michael G. Plummer
(Johns Hopkins University)
Do Central Banks Target the Exchange Rates? Recent Experience in Emerging Asia
Kunihiro Hirao
(Kyoto University)
Akihiro Kubo
(Osaka City University)
[View Abstract]
This study investigates whether and how Asian central banks responded to exchange rate movements, employing relatively recent data. Using Bayesian methods, we estimate a small open economy dynamic stochastic general equilibrium model for four emerging market inflation-targeting countries in Asia, namely Indonesia, the Philippines, South Korea, and Thailand. Comparing with the results during the pre-crisis period when the emerging market countries tried to cope with currency appreciation, we find that almost all of the central banks of these countries targeted exchange rate movements during the crisis less than before. In addition, we find that in spite of the crisis, most monetary authorities did not fully intervene in the foreign exchange market. The findings suggest that emerging market countries did not offset currency depreciation as much as appreciation. This implies that asymmetry existed in the exchange rate management of these countries.
The Implications of Liquidity Expansion in China for the U.S. Dollar
Wensheng Kang
(Kent State University)
Ronald A. Ratti
(University of Western Sydney)
Joaquin L. Vespignani
(University of Tasmania)
[View Abstract]
This paper investigates the effect of liquidity shocks in China on the U.S. dollar exchange rate since 1996. The relative value of the U.S. dollar is important since it influences the debt burden of developing countries and impacts the tightness of global monetary policy. Under floating exchange rates, a monetary expansion results in depreciation of the domestic currency. However, the value of the Renminbi has either been tied to the U.S. dollar or been managed with reference to a basket of major currencies. Empirical results suggest that China’s liquidity expansion is associated with statistically significant decreases in the trade weighted values of the U.S. dollar and of the Japanese yen. A positive innovation in China’s M2 is associated with positive and statistically significant effects on oil and commodity prices. Shocks to China’s M2 have stronger impact on economic variables since about 2005, consistent with the growth of China’s economy.
Global Food Prices and Business Cycle Dynamics in an Emerging Market Economy
Oliver Holtemöller
(Martin Luther University)
Sushanta Mallick
(Queen Mary University of London)
[View Abstract]
This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyse these empirical results, we specify a small open economy New-Keynesian 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, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation 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.
Dynamic Shift to a Basket-Peg or Floating Regime in East Asian Countries in Response to the People’s Republic of China’s Transition to a New Exchange Rate Regime
Naoyuki Yoshino
(Asian Development Bank Institute)
Sahoko Kaji
(Keio University)
Tamon Asonuma
(International Monetary Fund)
[View Abstract]
[Download Preview] This paper analyzes a desirable transition path for East Asian countries given the People’s Republic of China’s (PRC’s) transition to a new exchange rate regime. It attempts to answer two main questions: (i) Would these countries be better off shifting to either a basket peg or a floating regime following the PRC’s transition to a basket peg regime? (ii) How and when should these countries shift to the desired regime? The paper captures the influence of the PRC’s predetermined shift in its exchange rate regime on East Asian countries’ decisions regarding their optimal transition policies based on a dynamic stochastic general equilibrium (DSGE) model of a small open economy. Our calibration exercise using Malaysian and Singapore data from the first quarter (Q1) of 2000 to Q4 2012 reveals that a gradual adjustment to a basket peg is the most desirable policy for both countries. A sudden shift to a basket peg is superior to maintaining a dollar peg in Malaysia, but not in Singapore. Finally, a sudden shift to a floating regime is even worse than maintaining a dollar peg in both countries.
Discussants:
Reid Click
(George Washington University)
Menzie D. Chinn
(University of Wisconsin)
Michael G. Plummer
(Johns Hopkins University)
Calla Wiemer
(University of the Philippines)
Jan 03, 2016 10:15 am, Hilton Union Square, Franciscan C
American Economic Association
AEA/CSMGEP Dissertation Session
(J1, I1)
Presiding:
Rucker C. Johnson
(University of California-Berkeley)
The Effects of Outside Options on Neighborhood Tipping Points
Peter Quatermaine Blair
(University of Pennsylvania)
[View Abstract]
[Download Preview] Current estimates of tipping points in the literature suggest that racial progress in the US has been slow. According to these estimates, the mean tipping point of US cities increased from 12% in 1970 to 14% in 1990, an average of 1 percentage point per decade (Card et. al 2008). In this paper, I develop a new method for estimating tipping points which exploits the with-in city sorting of households to estimate tipping points at a finer level of geography – the census tract. These new results paint a more optimistic picture of racial progress in the US. According to these estimates, from 1970 to 2010, the mean tract-level tipping point in the US has increased from 15% to 42%. To compare these results to the literature, I aggregate my tract tipping points to the city level and find that the mean MSA tipping points also increase from 13% to 35%, an average growth rate of 5 percentage points per decade. I show that prior estimates understated city tipping points because they reflected the average tipping points of marginal census tracts in the city, i.e. those that were close to tipping, whereas my estimates are an average of the tipping points of both the marginal and inframarginal census tracts in a city.
The War on Drugs: Estimating the Effect of Prescription Drug Supply-Side Interventions
Angelica Meinhofer
(Brown University)
[View Abstract]
[Download Preview] Prescription drug abuse is America’s fastest-growing drug problem, with
overdose deaths from opioid pain relievers increasing by 313% from 1999 to
2010. This paper estimates the effect of supply-side interventions on prescription
drug availability, abuse, public health, and crime. The study is based in
Florida, the epicenter of the prescription drug abuse epidemic in the late-2000s,
where physicians prescribing and dispensing oxycodone from pain clinics were
the main source of drug diversion. In mid-2010, government officials initiated
a sweeping crackdown on Florida’s pain clinic suppliers, reducing the number
of pain clinic licenses by 59%. Using novel online and administrative data and
exploiting the timing and geographic location of the crackdown, I find that enforced
regulation of pharmaceuticals’ legal supply chain can reduce prescription
drug abuse substantially and sustainably. Between 2008-12, oxycodone street
prices increased by 238% and average supply decreased by 59%. In turn, indicators
of oxycodone consumption decreased significantly. There is no evidence
of an oxycodone price, supply, or consumption recovery. There is substitution
to heroin, but this offsetting effect is small relative to substantial public health
gains from decreases in oxycodone deaths and hospitalizations. In addition,
there is weak evidence of a decrease in drug arrests and index crimes.
The Impact of Trade on Managerial Incentives & Productivity
Cristina Tello-Trillo
(Yale University)
[View Abstract]
[Download Preview] This paper examines the importance of trade-induced managerial incentives as a source of productivity gains. I introduce a principal-agent problem in a trade model with monopolistic competition and firm level heterogeneity, in which firms provide incentives to their managers to reduce costs. The model shows that trade liberalization, given by a reduction in trade costs, induces stronger managerial incentives among firms productive enough to export and weaker incentives for firms not productive enough to export. Among the exporters, the increase in incentives is higher for low-productive exporters than high-productive exporters. Examination of U.S. manufacturing firms yields evidence consistent with the model. I find that between 5% and 8% of the industry productivity growth during the 1993-1998 period can be attributed to productivity gains through managerial incentives.
Which New Yorkers Vote With Their Wallets? New York City Teacher Quality, Housing Prices, & Residential & School Demographics
Elizabeth Rivera Rodas
(Rutgers University)
[View Abstract]
In February 2012, New York City released value added scores for its grade 4 through 8 public school teachers. There was little concern about the potential impact of the release of this public information on the housing values, residential segregation or school segregation for New York City dwellers. Since people “vote with their feet” (Tiebout, 1956), it is logical to believe that public information on teacher quality measures influences housing price, and resident and student mobility.
Hedonic, fixed effects models were used to analyze the teacher quality, school report card, residential housing sales, and American Community Survey data. The housing market responds significantly to the new information provided by the release of the teacher quality information. The results also suggest that the highly debated release of teacher quality information has large implications on housing choices and an impact on school demographics.
The results provide the first evidence of the effects of teacher quality scores on New York City’s housing market. An increase in teacher quality increases housing prices and this influences the demographics of neighborhoods and schools. The release of the data had some impact on increasing the average household income and educational levels in less affluent and less educated neighborhoods. The results also indicate that homebuyers are responding to the data release are predominately White and are displacing Hispanic and Black residents.
Discussants:
Rucker C. Johnson
(University of California-Berkeley)
Jan 03, 2016 10:15 am, Hilton Union Square, Continental – Parlor 3
American Economic Association
Culture, Prosocial Behavior and Ethnicity
(Z1)
Presiding:
Khawaja Mamun
(Sacred Heart University)
Is the Call to Prayer a Call to Cooperate? A Field Experiment on the Impact of Religious Salience on Prosocial Behavior
Erik Duhaime
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] While religiosity is positively correlated with self-reported prosociality, observational and experimental studies on the long-hypothesized connection between religion and prosocial behavior have yielded mixed results. Recent work highlights the role of religious salience for stimulating prosocial behavior, but much of this research has relied on priming Christian subjects in laboratory settings, limiting generalization to the real world. Here I present a field study conducted in the Medina of Marrakesh, Morocco, which shows that religious salience can increase prosocial behavior with Muslim subjects in a natural setting. In an economic decision making task similar to a dictator game, shopkeepers demonstrated increased prosocial behavior when the Islamic call to prayer was audible compared to when it was not audible. This finding complements a growing literature on the connection between cultural cues, religious practices, and prosocial behavior, and supports the hypothesis that religious rituals play a role in galvanizing prosocial behavior.
Does Culture Matter to Prosocial Behavior? Evidence from a Cross-Ethnic Lab Experiment
Xunzhou Ma
(Southwest University for Nationalities)
Fengwei Sun
(Southwest University for Nationalities)
Xiaoxiao Wang
(Southwest University for Nationalities)
Quanlan Yi
(Southwest University for Nationalities)
[View Abstract]
[Download Preview] [Download PowerPoint] Abstract: Objectives: Recent investigations have uncovered large, consistent deviations from the predictions of Homo economicus that individuals are entirely self-regarding. Our study undertook a cross-cultural study of behavior search for the evidences of other-regarding behaviors and its ethnic difference, and accounted for by anatomy of culture.
Method: This study recruited 90 subjects of three ethnic groups from market trade-based (ethnic Han), nomadism-based (ethnic Zang) and agriculture-based (ethnic Bouyei) areas in China and conducted public good provision experiment with stranger-treatment design.
Results: Under the assumption of self-regarding preferences, the Nash equilibrium is zero contribution by all in public account using backward induction. However, we found contributions did not reduce to zero over all three sessions. Besides, the differences in contributions between ethnicities strongly depended on the degree of ethnic dominance, and Zang harbored the strongest reciprocal preference generally over all group structures. A particular set of measurable factors was identified as proxies for cultural influences on behavioral differences observed in experiments between ethnicities. The results showed all of the cultural factors accounted for the behavioral differences between the ethnic Han and the other two minor ethnicities. However, behavioral difference between minor ethnicities was attributed to group structure only.
Conclusions: (1) People may harbor various forms of prosocial emotions in economic affairs, and especially exhibit stronger at the initial phase rather than what canonical model assumes. (2) Behavioral differences between ethnicities are prominent and can be explained by differences in cultural influence.
Bargaining and Ethnicity: A Field Experiment with Students and Villagers
Pedro Pablo Romero
(Universidad San Francisco de Quito)
Sebastián Oleas
(Universidad San Francisco de Quito)
[View Abstract]
[Download Preview] We report data from a field experiment aimed at determining the extent of both in-group favoritism and out-group discrimination, known as parochial altruism, within a multiethnic society, Ecuador. The main ethnic groups studied were: mestizos, indigenous, montubios, and african-ecuadorians. We worked with standard subject, college students (116), and non-standard subjects, villagers (110). We took the experimenter and the students out into the field. Participants played an ultimatum game twice under an in-group and an out-group condition. The second time the game was played we switched the roles of the players. We do not find a systematic evidence for in-group favoritism and out-group discrimination across groups. However, for values above the fair division, students favor their own groups more than villagers do. Villagers present more hyper-fair or confused profile preferences compared to students, while the latter are more monotonically rational.
National Culture and Income Inequality: A Cross–Country Analysis
Khawaja Mamun
(Sacred Heart University)
Mohammad Elahee
(Quinnipiac University)
Farid Sadrieh
(Quinnipiac University)
[View Abstract]
[Download Preview] This paper examines the causal relationship between culture and income inequality in a cross-country analysis. The four original dimensions of national culture developed by Hofstede (1980, 2001) are used to explore the effect of culture on the income inequality in a country. Our Instrumental Variable analysis suggests that the people in countries with large power distance and high collectivism tend to tolerate more income inequality than people from individualistic and small power distance countries. Our analysis failed to establish any causal link between income inequality and uncertainty avoidance and masculinity.
Discussants:
Khawaja Mamun
(Sacred Heart University)
Pedro Pablo Romero
(Universidad San Francisco de Quito)
Xunzhou Ma
(Southwest University for Nationalities)
Erik Duhaime
(Massachusetts Institute of Technology)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 25
American Economic Association
Determinants of Labor Supply
(J2)
Presiding:
Lee Lockwood
(Northwestern University)
Government Old-Age Support and Labor Supply: Evidence from the Old Age Assistance Program
Daniel Fetter
(Wellesley College)
Lee Lockwood
(Northwestern University)
[View Abstract]
[Download Preview] Many major government programs transfer resources to older people and implicitly or explicitly tax their labor. In this paper, we shed new light on the labor-supply effects of such programs by investigating the Old Age Assistance Program (OAA), a means-tested and state-administered pension program created by the Social Security Act of 1935. Using newly available Census data on the entire US population in 1940, we exploit the large differences in OAA programs across states and the rules that governed eligibility for OAA within states to estimate the labor supply effects of OAA. Our estimates imply that OAA reduced the labor force participation rate among men aged 65-74 by 5.7 percentage points, relative to a base of roughly 50 percent. Estimating a standard model of labor supply, we find that the majority of the OAA-induced reduction in late-life labor supply was due to income effects, despite the high implicit tax rates imposed by OAA's earnings tests. Our results suggest that OAA and Social Security could account for a significant share of the large reduction in late-life work during the mid-20th century.
The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries
David Cesarini
(New York University)
Erik Lindqvist
(Stockholm School of Economics)
Mathew J. Notowidigdo
(Northwestern University)
Robert Ostling
(Institutet för Internationell Ekonomi)
[View Abstract]
[Download Preview] We study the effect of wealth on individual and household labor supply using administrative data for approximately 3 million lottery players in Sweden. We find that winning a lottery prize modestly reduces labor earnings, with roughly 10 percent of the prize spent reducing earnings over the first 10 years. Earnings reductions are fairly similar by age and gender, but increase with pre-win earnings levels. We show that a calibrated dynamic labor supply model can account for our results both over the life cycle and across the earnings distribution, and we use the model to estimate key labor supply elasticities. Lastly, we find much larger earnings responses for winners than for their spouses, regardless of the gender of the winner; this is inconsistent with unitary household labor supply models which pool exogenous unearned income.
Nonparametric Evidence on the Effects of Financial Incentives on Retirement Decisions
Dayanand Manoli
(University of Texas-Austin)
Andrea Weber
(University of Mannheim)
[View Abstract]
This paper presents new evidence on the effects of retirement benefits on labor force participation decisions. The analysis is based on a mandated rule for employer-provided retirement benefits in Austria that creates discontinuities in the incentives for workers to delay retirement. We present graphical evidence on labor supply responses and present a conceptual framework that accounts for frictions and for the dynamic incentive structure. Using bunching methods we estimate a semi-elasticity of participation which ranges from 0.1 to 0.3 and is highest for incentives targeted at a delay in retirement by 6 to 9 months.
The Effect of Pension Income on Elderly Earnings: Evidence from the Social Security Notch and Full Population Data
Alexander Gelber
(University of California-Berkeley)
Adam Isen
(U.S. Department of the Treasury)
Jae Song
(Social Security Administration)
[View Abstract]
[Download Preview] We estimate the effect of Social Security benefits on earnings by examining the Social Security “Notch,” which cut Old Age and Survivors Insurance (OASI) benefits by over $500 per year on average for individuals in the 1917 birth cohort relative to the 1916 cohort. This led to sharply different benefits for similar individuals born one day apart. Using Social Security Administration microdata on earnings in the full U.S. population by day of birth, we document a very large, visually clear, and statistically significant increase in elderly earnings when moving from the end of the 1916 cohort to the beginning of the 1917 cohort. The evidence suggests that the effect of OASI benefits on earnings is driven primarily by an income effect, and we are able to rule out more than a modest substitution elasticity. Our results suggest that the slowdown in the growth rate of mean OASI benefits in the mid-1980s can account for a substantial fraction of the sharp increase in the yearly growth of the elderly employment rate around this time.
Jan 03, 2016 10:15 am, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Evaluating Survey Data Quality Using Administrative Records
(C8)
Presiding:
Christopher Bollinger
(University of Kentucky)
The Wealth of Wealthholders
John Ameriks
(Vanguard Group)
Andrew Caplin
(New York University)
Minjoon Lee
(University of Michigan)
Matthew Shapiro
(University of Michigan)
Christopher Tonetti
(Stanford University)
[View Abstract]
[Download Preview] This paper introduces the Vanguard Research Initiative (VRI), a new panel survey of
wealthholders designed to yield high-quality measurements of a large sample of older Americans who arrive at retirement with significant financial assets. The VRI links survey data with a variety of administrative data from Vanguard. The survey features an account-by-account approach to asset measurement and a real-time feedback and correction mechanism that are shown to be highly successful in eliciting accurate measures of wealth. Specifically, the VRI data reflect unbiased and precise estimates of wealth when compared to administrative account data. The VRI sample has characteristics similar to populations meeting analogous wealth and Internet access eligibility conditions in the Health and Retirement Study (HRS) and Survey of Consumer Finances (SCF). To illustrate the value of the VRI, the paper shows that the relationship between wealth and expected retirement date is very different in the VRI than in the HRS and SCF— mainly because those surveys have so few observations where wealth levels are high enough to finance substantial consumption during retirement.
Do Imputed Earnings Earn Their Keep? Evaluating SIPP Earnings and Non-Response with Administrative Records
Rebecca L. Chenevert
(U.S. Census Bureau)
Mark A. Klee
(U.S. Census Bureau)
Kelly R. Wilkin
(U.S. Census Bureau)
[View Abstract]
[Download Preview] Recent evidence suggests that labor earnings reported in household surveys compare favorably with labor earnings in administrative records. On the other hand, imputed labor earnings in household surveys seem to match labor earnings in administrative records less closely. This finding has led many researchers to question the reliability of imputed labor earnings and to exclude these observations from wage analyses. However, this strategy might result in sample selection bias if labor earnings are not missing at random. In this paper, we compare reported and imputed labor earnings from the 2008 and 2014 panels of the Survey of Income and Program Participation (SIPP) to labor earnings from the Social Security Administration’s Detailed Earnings Record. We examine how the relationship between survey data and administrative records varies across demographic groups. Finally, we characterize survey non-respondents in order to improve our understanding of whether and how individuals select out of response on observable dimensions.
Measuring Levels and Trends in Earnings Inequality with Nonresponse, Imputations, and Topcoding
Christopher Bollinger
(University of Kentucky)
Barry Hirsch
(Georgia State University)
Charles Hokayem
(Centre College)
James P. Ziliak
(University of Kentucky)
[View Abstract]
[Download Preview] Measures of U.S. earnings (and income) inequality rely heavily on the Current Population Survey Annual Social and Economic Supplement (ASEC). A substantial and increasing share of individuals and households surveyed in the CPS either do not participate in the ASEC supplement, or participate but fail to report earnings. Imputation procedures assume that nonresponse is missing at random, conditional on measured covariates (MAR). Yet little is known how deviations from MAR affect inequality measures. We explore how nonresponse bias affects measures of the level and trends in earnings inequality using ASEC data for calendar years 1997-2010 matched to Social Security Detailed Earnings administrative tax records (DER). We find that nonresponse bias causes inequality to be understated, with ASEC earnings responses including too few low earners and too few very high earners. Census hot-deck imputations for nonrespondents do not fully correct the bias. Earnings shares among the top 1% of earners are lower by at least 20 percent in the ASEC compared to matched administrative tax records, with about half accounted for nonresponse and half to topcoding in the ASEC. Hybrid measures using ASEC earnings for CPS respondents and administrative DER earnings for nonrespondents produce intermediate estimates.
SRMI Multiple Imputation in the CPS ASEC
Charles Hokayem
(Centre College)
Trivellore Raghunathan
(University of Michigan)
Jonathan Rothbaum
(U.S. Census Bureau)
[View Abstract]
[Download Preview] [Download PowerPoint] The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) serves as the data source for official income, poverty, and inequality statistics in the United States. The Census Bureau has used a “hot deck” procedure to impute missing income values since 1962. This paper implements an alternative imputation methodology, sequential regression multiple imputation (SRMI), to impute missing income values in the CPS ASEC. SRMI is a model-based approach to imputation. It offers several potential advantages over the hot deck, including 1) greater flexibility to add additional covariates and 2) using multiple imputation to account for uncertainty in the imputation process. We implement a baseline SRMI with data from the CPS ASEC and then augment this with tax records on earnings from the Social Security Detailed Earnings Records (DER) file. We compare imputed income values from SRMI to those from the hot deck procedure along several dimensions including the mean, median, variance, and common official statistics derived from income (poverty and inequality).
Discussants:
Joanne Hsu
(Federal Reserve Board)
David Johnson
(U.S. Bureau of Economic Analysis)
Nikolas Mittag
(CERGE-EI)
Jeff Larrimore
(Federal Reserve Board)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 13
American Economic Association
Financial Stability
(G2)
Presiding:
Chiara Scotti
(Federal Reserve Board)
Financial Stability and Optimal Interest-Rate Policy
Andrea Ajello
(Federal Reserve Board)
Thomas Laubach
(Federal Reserve Board)
David Lopez-Salido
(Federal Reserve Board)
Taisuke Nakata
(Federal Reserve Board)
[View Abstract]
[Download Preview] We study optimal interest-rate policy in a New Keynesian model in which the economy is at risk of experiencing a financial crisis and the probability of a crisis depends on credit conditions. The optimal adjustment to interest rates in response to credit conditions is (very) small when the model is calibrated to match an estimated historical relationship between credit conditions, output, inflation and the likelihood of financial crises. Given the imprecise estimates of a number of key parameters, we also study optimal policy taking parameter uncertainty into account. We find that both Bayesian and robust-control central banks will respond more aggressively to financial stability risks when the probability and severity of financial crises are uncertain.
Systemic Risk, Contagion and Joint Default Probability: A Copula Approach
Jacob Kleinow
(Freiberg University)
Fernando Moreira
(University of Edinburgh)
[View Abstract]
This paper investigates the drivers of systemic risk and contagion among European banks. First, we use copulas to estimate the systemic risk contribution and systemic risk sensitivity based on CDS spreads of European banks from Jan 2005 to Dec 2014. We then run panel regressions for our systemic risk measures using idiosyncratic bank characteristics and country control variables. Our results comprise highly significant drivers of systemic risk in the European banking sector and have important implications for bank regulation. We argue that banks which receive state aid and have risky loan portfolios as well as low amounts of available liquid funds contribute most to systemic risk whereas relatively poorly equity equipped banks, mainly engaged in traditional commercial banking with strong ties to the local private sector, headquartered in highly indebted countries are mostly affected by systemic risk.
From Financial to Real Economic Crisis – Evidence from Individual Firm-Bank Relationships in Germany
Martin Simmler
(DIW Berlin and Oxford University)
Nadja Dwenger
(Max Planck Institute for Tax Law and Public Finance)
Frank M. Fossen
(Freie Universitaet-Berlin, DIW Berlin and IZA)
[View Abstract]
[Download Preview] What began as a financial crisis in the United States in 2007-2008 quickly evolved into a massive crisis of the global real economy. We investigate the importance of the bank lending and firm borrowing channel in the international transmission of bank distress to the real economy—in particular, to real investment and labor employment by nonfinancial firms. We analyze whether and to what extent firms are able to compensate for the shortage in loan supply by switching banks and by using other types of financing. The analysis is based on a unique matched data set for Germany that contains firm-level financial statements for the 2004-2010 period together with the financial statements of each firm's relationship bank(s). We use instrumental variable estimations in first differences to eliminate firm- and bank-specific effects. The first stage results show that banks that suffered losses due to proprietary trading activities at the onset of the financial crisis reduced their lending more strongly than non-affected banks. In the second stage, we find that firms whose relationship banks reduce credit supply downsize their real investment and labor employment significantly. This effect is larger for firms that are unable to provide much collateral. We document that firms partially offset reduced credit supply by establishing new bank relationships, using internal funds, and issuing new equity.
International Banking Flows and "Bad" Credit Booms: Do Booms Go with the Flow?
Regina Martinez
(George Washington University)
[View Abstract]
[Download Preview] This paper analyzes the impact of international banking flows on domestic credit booms and examines the drivers of the composition of banking flows by type of borrower: banking sector and non-banking sector. First, using a panel of 80 countries from 1980 to 2012, I find that international bank flows to the banking sector increase the probability of credit booms, while flows to the non-banking sector do not. Second, the paper shows that the composition of these flows is partly driven by the monitoring effort of the international bank lender. Using a partial equilibrium CAPM model, I find that, since monitoring is costly, international banks find it optimal to place more funds on the sector that requires less monitoring. I test this theoretical result and show that countries with mechanisms in place to make their banking sector less likely to fail - such as government guarantees, fiscal capacity to execute them and high institutional quality - attract more international bank funds to their banking sector. Thus, mechanisms to make the banking sector safer should be properly designed to reduce the distortions they may generate on the lending behavior of international banks.
Endogenous Uncertainty and Credit Crunches
Ludwig Straub
(Massachusetts Institute of Technology)
Robert Ulbricht
(Toulouse School of Economics)
[View Abstract]
[Download Preview] Abstract We develop a theory of endogenous uncertainty where the ability of investors to learn about firm-level fundamentals declines during financial crises. At the same time, higher uncertainty reinforces financial distress of firms, giving rise to “belief traps”---a persistent cycle of uncertainty, pessimistic expectations, and financial constraints, through which a temporary shortage of funds can develop into a long-lasting funding problem for firms. At the macro-level, belief traps provide a rationale for the long-lasting recessions that typically entail financial crises. In our model, financial crises are characterized by high levels of credit misallocation, an increased cross-sectional dispersion of growth rates, endogenously increased pessimism, uncertainty and disagreement among investors, highly volatile asset prices, and high risk premia. A calibration of our model to U.S. micro data on investor beliefs matches the slow recovery after the 08/09 crisis quite well.
The Risky Capital of Emerging Markets
Ina Simonovska
(University of California-Davis)
Joel M. David
(University of Southern California)
Espen Henriksen
(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).
Jan 03, 2016 10:15 am, Hilton Union Square, Imperial A
American Economic Association
Gender Gaps in Childhood: Skills, Behavior, and Labor Market Preparedness
(I2)
Presiding:
David Autor
(Massachusetts Institute of Technology)
Gender Differences in Intergenerational Mobility Across the U.S.
Raj Chetty
(Harvard University)
Nathaniel Hendren
(Harvard University)
[View Abstract]
We study the variation in upward mobility for low-income boys and girls in the U.S. While overall patterns are similar for boys and girls, the variation in upward mobility for low-income boys is larger than for low-income girls. In particular, there is a notably thicker lower tail for boys in some counties such as Baltimore. We document the correlations of these patterns with a range of factors. Places with more residential segregation, more income inequality, and fewer two-parent households have particularly low rates of upward mobility for low-income boys.
Family Disadvantage and the Gender Gap in Behavioral and Educational Outcomes
David Autor
(Massachusetts Institute of Technology)
David Figlio
(Northwestern University)
Krzysztof Karbownik
(University of Uppsula)
Jeffrey Roth
(University of Florida)
Melanie Wasserman
(Massachusetts Institute of Technology)
[View Abstract]
U.S. females graduate high school and complete college at higher rates than U.S. males, but the female-male educational advantage is far larger among black and low-SES students than among white and high-SES students. We explore why the female advantage in educational attainment is systematically larger among minority and low-SES households, focusing on three hypotheses: boys are differentially sensitive to family disadvantage (what we term the 'Fragile-Y' effect), so that given variation in family disadvantage generates greater dispersion in behavioral and academic outcomes among boys than girls; girls in disadvantaged families receive larger family investments than boys; and girls born to disadvantaged families have superior health at birth relative to boys. We distinguish these mechanisms by exploiting a unique matched database of birth certificate, and academic, disciplinary, and high school graduation records for over one million children born in Florida between 1994 and 2002. To account for unobserved heterogeneity across families, we contrast outcomes of opposite-sex siblings linked by public school records to the same mother. Relative to their sisters, boys born to low-education and unmarried mothers, raised in low-income neighborhoods, and enrolled at poor-quality public schools, have a higher incidence of truancy and behavioral problems throughout elementary and middle school, perform worse on standardized tests, and are less likely to graduate high school. These findings are strongly supportive of the differential sensitivity and differential investment hypotheses. By contrast, family structure and neighborhood attributes have no measurable relationship to the sibling gender gap in birth outcomes, including birthweight, APGAR scores, prenatal care adequacy, and maternal health, suggesting that post-natal rather than pre-natal factors cause the gender-SES gradient in behavioral and educational outcomes. A surprising implication of these findings is that relative to white siblings, black boys fare worse than their sisters in substantial part because black children---both boys and girls---are raised in more disadvantaged family environments.
What Explains the Gender Gap in Education? Experimental and Administrative Evidence
Ingvild Almas
(Norwegian School of Economics)
Alexander Cappelen
(Norwegian School of Economics)
Kjell G. Salvanes
(Norwegian School of Economics)
Erik Sorensen
(Norwegian School of Economics)
Bertil Tungodden
(Norwegian School of Economics)
[View Abstract]
[Download Preview] A new gender gap has emerged in many societies: males lag behind in terms of educational outcomes. In a largely representative sample of Norwegian adolescents, we examine why males make different school choices than females and why they are more likely to drop out of high school. We construct a data set combining a lab experiment with high quality register data, to study how family background influences educational outcomes. In particular, we study how family background influences non-cognitive skills as well as risk, time and competitiveness preferences that are critical for the educational outcomes.
Discussants:
David Figlio
(Northwestern University)
Melissa S. Kearney
(University of Maryland)
Abigail Payne
(McMaster University)
Jan 03, 2016 10:15 am, Hilton Union Square, Yosemite C
American Economic Association
Health, Education and Families
(I1) (Poster Session)
Presiding:
Magda Tsaneva
(Clark University)
Estimating Hospital Choices when the True Choice Set is Unknown
Andrew Sfekas
(Temple University)
Fertility and Early-Life Mortality: Evidence from Smallpox Vaccination in Sweden
Philipp Ager
(University of Southern Denmark)
Casper Worm Hansen
(University of Copenhagen)
Peter Sandholt Jensen
(University of Southern Denmark)
[Download Preview] Can Policy Interventions Mitigate Early Disadvantage? Evidence from Bundled Shocks in Colombia
Maria Rosales-rueda
(University of California-Irvine)
Valentina Duque
(Columbia University)
Fabio Sanchez
(Universidad de los Andes)
'Til Death: Taxes and Students Loans
Kathryn Birkeland
(University of South Dakota)
Samuel Raisanen
(Central Michigan University)
Transgenerational Effects of Childhood Conditions on Third Generation Health and Education Outcomes
Pia Pinger
(University of Bonn)
Gerard J. van den Berg
(University of Mannheim, IFAU, and IZA)
The Effect Of Financial Literacy On Dissaving From Retirement Accounts, Before Retiring
Ashley Tharayil
(Austin College)
William B. Walstad
(University of Nebraska-Lincoln)
[Download Preview] Enforcing Government Policy: Privatization and the Weakening Effects of China's One-child Policy
Hua Cheng
(University of Texas-Austin)
[Download Preview] Who Succeeds in Distance Learning? Evidence from Quantile Panel Data Estimation
Marigee Bacolod
(Naval Postgraduate School)
Steve Mehay
(Naval Postgraduate School)
Elda Pema
(Naval Postgraduate School)
The Lazarus Drug: The Short-run Macroeconomic Impact of the Expansion of Access to Antiretroviral Therapy for HIV/AIDS
Anna Tompsett
(Stockholm University)
[Download Preview] The Effect of a Compressed High School Curriculum on University Performance
Michael Doersam
(University of Konstanz)
Verena Lauber
(University of Heidelberg)
[Download Preview] Information Delivery, Nutrition and HIV Treatment: Evidence from a Randomized Field Experiment on Women Living with HIV in Uganda
Patrick Lubega
(Makerere University)
Frances Nakakawa
(Makerere University)
Gaia Narciso
(Trinity College Dublin)
Carol Newman
(Trinity College Dublin)
[Download Preview] Intended College Enrollment and Educational Inequality: Do Students Lack Information?
Frauke Peter
(DIW Berlin)
Vaishali Zambre
(DIW Berlin)
Long-Term Effects of Access to Health Care: Medical Missions in Colonial India
Rossella Calvi
(Boston College)
Federico G. Mantovanelli
(Analysis Group)
[Download Preview] How Does Daddy at Home Affect Marital Stability?"
Herdis Steingrimsdottir
(Copenhagen Business School)
Arna Vardardottir
(Copenhagen Business School)
[Download Preview] Eating Healthy in Lean Times - The Relationship between Unemployment Levels and Grocery Purchasing Patterns
Jessica Rider
(Government Accountability Office)
Sofia Villas-Boas
(University of California-Berkeley)
Peter Berck
(University of California-Berkeley)
[Download Preview] The Effects of State Medicaid Expansions for Working-Age Adults on Senior Medicare Beneficiaries’ Healthcare Spending
Melissa McInerney
(Tufts University)
Jennifer Mellor
(College of William and Mary)
Lindsay Sabik
(Virginia Commonwealth University)
[Download Preview] The "Sort of" Americans: American Children of Undocumented Migrants
Anne Nathalie Le Brun
(Harvard University)
[Download Preview] Effects of Early Childhood Intervention on Fertility and Maternal Employment: Evidence from a Randomized Controlled Trial
Malte Sandner
(Lower Saxony Institute for Economic Research (NIW) and Leibniz Universität Hannover)
[Download Preview] The Effect of Health Insurance Mandate on Labor Market Activity and Time Allocation: Evidence from the Federal Dependent Coverage Provision
Vinish Shrestha
(Emory University)
Otto Lenhart
(Emory University)
[Download Preview] Soda Consumption in the Tropics: The Trade-Off between Obesity and Diarrhea in Developing Countries
Patricia Ines Ritter Burga
(University of Chicago)
[Download Preview] Availability of School Resources, District Expenditure, and School Quality: Evidence from a Regression Discontinuity of School Property Tax Elections
Corbin Leonard Miller
(Cornell University)
Jason Cook
(Cornell University)
It’s (Still) a Man’s World: Why Marriage Market Competition in China is Bad for Women’s Welfare but Good for Fertility
Melissa A. Knox
(University of Washington)
[Download Preview] Unexpected Windfalls, Education, and Mental Health: Evidence from Lottery Winners in Germany
Christian Raschke
(Sam Houston State University)
[Download Preview] Jan 03, 2016 10:15 am, Hilton Union Square, Imperial B
American Economic Association
Information Design and Bayesian Persuasion
(D7, D8)
Presiding:
Drew Fudenberg
(Harvard University)
Information Design and Multi-Player Bayesian Persuasion
Dirk Bergemann
(Yale University)
Stephen Morris
(Princeton University)
[View Abstract]
Consider a strategic environment where we fix some initial information structure for the players. Suppose that a sender wants to give the players additional information in order to influence players’ choices. We have shown in earlier work the set of outcomes that can be induced corresponds to the set of Bayes correlated equilibria of the underlying game.
Thus we provide an approach for studying a many receiver version of “Bayesian Persuasion” by Kamenica and Gentzkow (2011) where receivers have prior information. We illustrate the approach (and relate it to our prior work) by (i) analyzing a stylized model of bank runs and (ii) games of strategic substitutes and complements. We show that the best information design in games with strategic substitutes requires the agents to receive private and idiosyncratic information, whereas in games with strategic complements the socially optimal information requires public and common information. We highlight the importance of different assumptions about what the sender knows about the receivers’ prior information.
Credit Rating Inflation and Firms' Investment Behavior
Itay Goldstein
(University of Pennsylvania)
Chong Huang
(University of California-Irvine)
[View Abstract]
[Download Preview] Certified experts play crucial roles in the modern economy, providing people with professional opinions to mitigate information asymmetries. Credit rating agencies (CRAs) provide a leading example, generating large controversy for possibly contributing to the 2007-2009 financial crisis. Many questions surround CRAs. Why do investors rely on credit ratings to make investment decisions, even though they understand that credit ratings may be inflated? How do CRAs affect the real economy, and how should they be regulated?
We develop a model in which an informed CRA publishes credit ratings to persuade creditors to roll over short-term debt. Observing the credit rating, creditors with heterogeneous private information about a firm’s liquidity management ability simultaneously make rollover decisions. Creditors’ behavior affects the firm’s financial cost and thus its investment choice, which determines the CRA’s credit ratings.
In the unique equilibrium, credit ratings are commonly known to be inflated, but still provide positive signals. Because the CRA never wants to be caught lying, and the firm’s early default choice is verifiable, a strong credit rating implies that the firm’s fundamentals are not extremely bad. The inflated ratings may either hurt or improve overall welfare. The inflated credit rating, together with creditors’ dispersed beliefs and strategic complementarities, reduce the firm’s financial cost, helping to avoid an inefficient run but also incentivizing the firm to gamble for resurrection.
The model predicts that rating inflation increases when firms are more opaque, when upside returns from risky projects are higher, and when fewer creditors encounter liquidity shocks. We analyze two potential policies aiming to regulate CRAs: one involves verifying firms’ investment choices and the other involves stress tests. Both policies can mitigate the adverse effects of CRAs. One operates via pressuring the CRAs to provide more accurate information, and the other one operates through weakening the CRAs’ informational role.
Dynamic Multi-Agent Persuasion
Jeff Ely
(Northwestern University)
[View Abstract]
I consider dynamic, multi-agent persuasion mechanisms. The agents are depositors at a bank which is at risk of default. The bank releases public and private information to the agents over time in order to prevent them from
coordinating a run on deposits. In such an environment information disclosures control not just the agents beliefs about the underlying state (here the health of the bank) but also their higher-order beliefs. A depositors incentive to withdraw is determined not just by the likelihood of default, but also the likelihood that the other depositor is already running. Thus, in addition to managing the depositors pessimism about default, the bank will try to manage each depositors beliefs about the others pessimism. I analyze this problem and show how the bank optimally uses private and minimally correlated disclosures to achieve this.
In the two agent case there exists a mechanism which is optimal in a strong sense: the (random) time at which each agent withdraws as well as the time at which the last agent withdraws rst-order stochastically dominate all other feasible mechanisms. With more than two agents however there is a trade-off and the optimal mechanism depends on the bank's payoffs as a function of the number of withdrawing depositors. I characterize the maximal delay before a bank run as the number of agents tends to innity and as a function of the degree of strategic complementarity. When strategic complementarity is weak the delay approaches innity asymptotically.
A Rothschild-Stiglitz Approach to Bayesian Persuasion
Emir Kamenica
(University of Chicago)
Matthew Gentzkow
(Stanford University)
[View Abstract]
[Download Preview] Abstract Rothschild and Stiglitz (1970) introduce a way to represent random variables as convex functions (integrals of the cumulative distribution function). Combining their result with Blackwell's Theorem (1953), we characterize the set of distributions of posterior means that can be induced by a signal. This characterization provides a novel way to analyze a class of Bayesian persuasion problems
Discussants:
Drew Fudenberg
(Harvard University)
Laura Veldkamp
(New York University)
Marina Halac
(Columbia University)
Michael Woodford
(Columbia University)
Jan 03, 2016 10:15 am, Hilton Union Square, Franciscan D
American Economic Association
Information, Expectations, and Education Choices I
(D8, I2)
Presiding:
Matthew Wiswall
(Arizona State University)
Human Capital and Expectations about Career and Family
Matthew Wiswall
(Arizona State University)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
While researchers have collected rich data on career and family outcomes for individuals with various levels of human capital, relatively little research has studied individual perceptions of how they believe human capital would affect their future. These perceptions, not realized actual outcomes, are the key to understanding human capital investments. This paper studies how individuals believe human capital investments would affect their future career outcomes and family life. We use a survey to elicit the beliefs of a high ability sample of currently enrolled college students. The survey includes rich information on student beliefs about future earnings, labor supply, marriage, spousal characteristics, and fertility, all conditional on college major choice and college completion. We find that students believe that there are not only large differences in earnings across potential human capital investments, but also they believe there are large differences in non-pecuniary aspects of human capital as well, including consequences for labor supply, marriage, types of spouses, and the timing and number of children.
College Attrition and the Dynamics of Information Revelation
Arnaud Maurel
(Duke University)
Peter Arcidiacono
(Duke University)
Esteban Aucejo
(London School of Economics)
Tyler Ransom
(Duke University)
[View Abstract]
[Download Preview] This paper investigates the determinants of college attrition in a setting where individuals have imperfect information about their schooling ability and labor market productivity. We estimate a dynamic structural model of schooling and work decisions, where high school graduates choose a bundle of education and work combinations. We take into account the heterogeneity in schooling investments by distinguishing between two- and four-year colleges and graduate school, as well as science and non-science majors for four-year colleges. Individuals may also choose whether to work full-time, part-time, or not at all. A key feature of our approach is to account for correlated learning through college grades and wages, thus implying that individuals may leave or re-enter college as a result of the arrival of new information on their ability and productivity. We use our results to quantify the importance of informational frictions in explaining the observed school-to-work transitions and to examine sorting patterns.
Beliefs, Information and the Education Plans of Middle School Children in the Dominican Republic
Christopher A. Neilson
(Princeton University)
James W. Berry
(Cornell University)
Lucas Coffman
(Ohio State University)
Daniel Morales
(IDEICE)
Ryan Cooper
(Cientifika)
[View Abstract]
In this paper we present the results of a large scale evaluation of an information/persuasive social marketing campaign. This policy implementation and evaluation was conducted in conjunction with the government of the Dominican Republic and had the objective of lowering high school dropout rates. The evaluation includes 25% of all public schools with middle school students and provides information on the returns to education, the availability of financial aid and also contain non informative persuasive content. The information was provided through a series of four 20min videos with a telenovela format that include info graphic segments and are shown in school to students in 7th and 8th grade. We develop the videos so that we can differentiate a treatment that has no statistical facts at all but is otherwise identical to an informative series of videos that include info graphic information on earnings. We use a baseline and follow up survey covering 40,000 students to measure how self reported beliefs change regarding expected returns for self vs the population, beliefs regarding the feasibility of different options and more generally how students educational plans change with the treatment. In addition we develop an interactive survey application that explains the statistical concepts that are then asked in a repeated panel form as in Wiswall and Zafar (2015). This allows us to elicit detailed information about expectations and model the different mechanisms through which this policy affects outcomes. In particular we differentiate between salience of options, updating regarding the dispersion of earnings, updating regarding the conditional distribution of earnings given education and the change in feasibility or availability of options.
Discussants:
Adam Osman
(University of Illinois-Urbana Champaign)
James W. Berry
(Cornell University)
Eleanor W. Dillon
(Arizona State University)
Jan 03, 2016 10:15 am, Hilton Union Square, Plaza A
American Economic Association
Institutional Transition with Application to Ukraine: Escape from the Post-Soviet Legacy
(O1, P3) (Panel Discussion)
Panel Moderator:
Yuriy Gorodnichenko
(University of California-Berkeley)
Gerard Roland
(University of California-Berkeley)
Dealing with Corruption in Post Communist States
Erik Berglof
(London School of Economics)
Building the Architecture of Reform
Daniel Treisman
(University of California-Los Angeles)
How Russians See Ukraine: Evidence from Recent Surveys
Tymofiy Mylovanov
(University of Pittsburgh)
Structure of Political Competition in Ukraine
Yuriy Gorodnichenko
(University of California-Berkeley)
Macroeconomic Outlook for Ukraine
Jan Svejnar
(Columbia University)
Lessons from Ukraine from the Transition Economics of Central-East Europe
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 14
American Economic Association
Labor Productivity and Wage Determination
(J3)
Presiding:
Kara D. Smith
(Belmont University)
Returns to ICT Skills
Oliver Falck
(University of Munich)
Alexandra Heimisch
(University of Munich)
Simon Wiederhold
(Ifo Institute)
[View Abstract]
[Download Preview] How important is mastering information and communication technologies (ICT) in modern labor markets? We present the first evidence on this question, drawing on unique data that provide internationally comparable information on ICT skills in 19 countries. Our identification strategy relies on the idea that Internet access is important in the formation of ICT skills, and we implement instrumental-variable models that leverage exogenous variation in Internet availability across countries and across German municipalities. ICT skills are substantially rewarded in the labor market: returns are at 8 percent for a one-standard-deviation increase in ICT skills in the international analysis and are almost twice as large in Germany. Placebo estimations show that exogenous Internet availability cannot explain numeracy or literacy skills, suggesting that our identifying variation is independent of a person’s general ability. Our results further suggest that the proliferation of computers complements workers in executing abstract tasks that require ICT skills.
The Long-Lasting Effect of Technological Change on the Careers of Young Workers: Evidence from Changes of Mandatory Training Regulations
Simon Janssen
(Institute for Employment Research)
Jens Mohrenweiser
(Bournemouth University)
[View Abstract]
[Download Preview] This paper investigates how the increasing labor supply of fresh graduates with modern IT (information technology) skills impacts the careers of incumbent workers during periods of fundamental technological change. To identify the causal effect within a difference-in-difference framework, we exploit a regulatory change in a mandatory German apprenticeship training regulation that obligated fresh graduates of a large manufacturing occupation to acquire modern IT skills. By analyzing the careers of incumbent workers who graduated shortly before the mandatory change in the training regulation occurred, we can investigate how incumbent workers respond to the increasing supply of modern-skilled fresh graduates. We separate the causal effect from differences in unobserved ability, unrelated institutional changes, and macroeconomic developments by using a difference-in-differences approach. Thus we compare wage trajectories of incumbent workers in the affected occupation to wage trajectories of incumbent workers of a comparable occupation, which was not affected by a similar regulatory change in their training occupation. As workers of both occupations learned and work in the same firms, have otherwise similar training contents, general schooling requirements,
produce similar goods, and are represented by the same unions, both groups are exposed to exactly the same labor market institutions and macroeconomic conditions.
The paper shows that fresh graduates with modern IT skills crowd incumbent workers out of their jobs and occupations. As a result, even young incumbent workers, who lack modern IT skills, experience long-lasting earnings reductions. The earnings effects prevail for more than 20 years and incumbent workers are more likely to leave their occupation or to become unemployed.
In contrast to most prior studies on skill-biased technological change, which relate the timing of important technological innovations and relative changes in the level of skills to macroeconomic trends in wage inequality, this paper contributes to the literature by providing micro-evidence based on a quasi-experimental setting.
Do Agents Care for the Mission of their Job? A Field Experiment
Sabrina Jeworrek
(IAAEU and University of Trier)
Vanessa Mertins
(IAAEU and University of Trier)
[View Abstract]
[Download Preview] Economic theory suggests that agents care for the outcomes they produce. This paper studies the conditions under which a pro-social mission of a job affects workers’ motivation to perform well. In particular, we investigate whether it makes a difference if workers actively decide upon doing a mission-oriented job or are exogenously assigned. We find that a pro-social mission itself affects only a small group of workers in a positive way whereas self-selection into a mission-oriented job leads to a highly significant overall performance boost.
Transferability of Human Capital and Immigrant Assimilation: An Analysis for Germany
Anica Kramer
(RWI and Ruhr University Bochum)
Thomas K. Bauer
(RWI, Ruhr University Bochum, and IZA Bonn)
Leilanie Basilio
(Ruhr University Bochum)
[View Abstract]
[Download Preview] This paper investigates the transferability of human capital across countries and the contribution of imperfect human capital portability to the explanation of the immigrant-native wage gap. The majority of the existing studies on the wage assimilation of immigrants treat education and labor market experience obtained in different countries as perfect substitutes. Only a few studies allow the returns to human capital to vary not only for immigrants and natives, but also according to where the human capital was obtained. Therefore, we investigate whether human capital accumulated in different countries is rewarded differently in the German labor market - an aspect that hitherto has not been dealt with. Using panel data from the German Socio-Economic Panel (SOEP), we are able to approximate the years of education and labor market experience undertaken abroad and in Germany in order to analyze this issue. While most of the earlier studies only consider male immigrants, we also carry out the analysis for females. Given the immigration history of Germany, we examine immigrants by region of origin, arrival cohort and whether they consider themselves as temporary or permanent migrants. Our results reveal that, overall, education and in particular labor market experience accumulated in the home countries of the immigrants receive significantly lower returns than human capital obtained in Germany. We further find evidence for heterogeneity in the returns to human capital of immigrants across countries. Finally, imperfect human capital transferability appears to be a major factor in explaining the wage differential between natives and immigrants. Our results remain stable for various robustness checks, as for instance the inclusion of part- and fulltime workers or a Heckman selection procedure in order to account for the selective labor market supply of women.
Jan 03, 2016 10:15 am, Hilton Union Square, Yosemite B
American Economic Association
Macro, Money, and Finance
(E5, G2)
Presiding:
Markus K. Brunnermeier
(Princeton University)
Gradualism in Monetary Policy: A Time-Consistency Problem?
Adi Sunderam
(Harvard Business School)
Jeremy Stein
(Harvard University)
[View Abstract]
[Download Preview] We develop a model of monetary policy with two key features: (i) the central bank has private information about its long-run target for the policy rate; and (ii) the central bank is averse to bond-market volatility. In this setting, discretionary monetary policy is gradualist, or inertial, in the sense that the central bank only adjusts the policy rate slowly in response to changes in its privately-observed target. Such gradualism reflects an attempt to not spook the bond market, but this effort ends up being thwarted in equilibrium, as long-term rates rationally react more to a given move in short rates when the central bank moves more gradually. The same desire to mitigate bond-market volatility can lead the central bank to lower short rates sharply when publicly-observed term premiums rise. In both cases, there is a time-consistency problem, and society would be better off appointing a central banker who cares less about the bond market. We also discuss the implications of our model for forward guidance once the economy is away from the zero lower bound.
The Deposits Channel of Monetary Policy
Itamar Drechsler
(New York University)
Alexi Savov
(New York University)
Philipp Schnabl
(New York University)
[View Abstract]
[Download Preview] We propose and test a new channel for the transmission of monetary policy. We show that when the Fed funds rate increases, banks widen the interest spreads they charge on deposits, and deposits flow out of the banking system. We present a model in which imperfect competition among banks gives rise to these relationships. An increase in the nominal interest rate increases banks' market power, inducing them to increase deposit spreads and hence restrict deposit supply. Households respond to the increase in deposit prices by substituting from deposits into less liquid, but higher-yielding assets. Using branch-level data on the universe of U.S. banks, we show that following an increase in the Fed funds rate, deposit spreads increase by more, and supply falls more, in areas with less deposit competition. We control for changes in banks' lending opportunities by comparing branches of the same bank in the same state. We control for changes in macroeconomic conditions by showing that deposit spreads widen immediately after a rate change and even if this change is fully anticipated. Our results imply that monetary policy has a significant impact on how the financial system is funded, on the quantity of safe and liquid assets it produces, and on its provision of loans to the real economy
Risk-Taking Dynamics and Financial Stability
Anton Korinek
(Johns Hopkins University)
Martin Nowak
(Harvard University)
[View Abstract]
[Download Preview] We study how compositional effects in the financial sector drive the dynamics of aggregate risk-taking and lead to novel effects of financial policy interventions. When financial market participants differ in their risk-taking, good shock realizations increase the capital of high-risk investors more than that of low-risk investors. This raises the fraction of wealth controlled by risk-takers in the population and, under incomplete markets, increases aggregate risk-taking. The opposite conclusions apply for bad shocks. As a result, aggregate risk-taking is pro-cyclical, capturing Minsky's financial instability hypothesis that "booms sow the seeds of the next crisis." Public policy interventions (like financial regulation, bailouts, etc.) work primarily by affecting the composition of the financial sector, in contrast to the static restriction on choice sets that is the focus of most conventional economic frameworks. Interventions to stabilize aggregate risk-taking bring the economy closer to the first-best, increasing expected growth and reducing aggregate volatility.
Monetary Shocks and Bank Balance Sheets
Pablo Kurlat
(Stanford University)
Sebastian Di Tella
(Stanford University)
[View Abstract]
[Download Preview] We propose a model to explain why banks’ balances sheets are exposed to interest rate risk despite the existence of markets where that risk can be hedged. A rise in nominal interest rates raises the opportunity cost of holding currency; since bank liabilities are close substitutes of currency, demand for bank liabilities rises and banks earn higher spreads. If risk aversion is higher than 1, the optimal dynamic hedging strategy is to sustain capital losses when nominal interest rates rise and, conversely, capital gains when they fall. A traditional bank balance sheet with long duration nominal assets achieves that. If the production side of the economy is sensitive to the distribution of wealth between banks and the rest of the economy, this could create debt-deflation dynamics.
Discussants:
Valentin Haddad
(Princeton University)
Samuel Hanson
(Harvard Business School)
Martin Oehmke
(Columbia University)
Skander Van den Heuvel
(Federal Reserve Board)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 21
American Economic Association
Migration
(J1)
Presiding:
Fernando Lozano
(Pomona College)
Education Policies and Migration across European Countries
Ainhoa Aparicio Fenoll
(Collegio Carlo Alberto)
Zoe Kuehn
(Universidad Autonoma de Madrid)
[View Abstract]
This paper tests whether and how differences in education policies affect migration across Europe. We focus on two policies: (i) increasing the length of compulsory education and (ii) introducing foreign languages into compulsory school curricula. The former shifts educational attainment for a significant fraction of the population from low towards medium levels. Using cohort data on migration flows across European countries we find that an additional year of compulsory education significantly reduces the number of emigrants. This is in line with lower emigration rates of medium educated individuals compared to low educated in the majority of European countries. A model in which transferring education across countries is costly gives rise to this result and is also able to replicate the empirical u-shaped pattern of migration by education, with high educated also migrating more than medium educated. We find that introducing a foreign language into compulsory school curricula more than doubles the number of emigrants to the country where the language is spoken. Therefore, depending on the specific content of an education policy, ``more education'' can have very different implications for migration.
Risk Attitudes and Migration
Mehtap Akgüҫ
(Center of European Policy Studies and IZA)
Xingfei Liu
(Institute for the Study of Labor)
Massimiliano Tani
(University of New South Wales-Canberra and IZA)
Klaus Zimmermann
(University of Bonn and IZA)
[View Abstract]
[Download Preview] To contribute to a scarce literature, in particular for developing and emerging economies, we study the nature of measured risk attitudes and their consequences for migration. We also investigate whether substantial changes in the risk environment influences risk tolerance. Using the 2009 RUMiC data for China, we find that rural-urban migrants and their family members are substantially less risk-averse than stayers. We further provide suggestive evidence that individual risk attitudes are unaffected by substantial changes in the environment and that risk tolerance is correlated across generations.
Why are Immigrants and the Children of Immigrants More Likely to Obtain a STEM Degree? The Role of English Proficiency
Pavel Dramski
(Partnership for a New American Economy)
[View Abstract]
Policy makers have struggled with the question of how best to increase the science, technology, engineering, and mathematics (STEM) workforce. The key to understanding the role of comparative advantage in skills in determining who goes into STEM fields may be held by U.S.-educated immigrants and the U.S.-born children of immigrants, both of whom are more likely to obtain a bachelor’s degree in STEM than are natives with U.S.-born parents. Using data on recent college graduates from the Baccalaureate and Beyond Longitudinal Survey of 2008, I find that measures of English proficiency fully explain the gap between U.S.-educated immigrants and natives with U.S.-born parents, as well as about 35 percent of the gap between U.S.-born children of immigrants with two foreign-born parents and natives with U.S.-born parents, conditional on demographics, mathematical ability, and college preparation. Using pooled cross-sectional data on adults from the American Community Survey from 2009 to 2012, I also find that measures of English proficiency fully explain the STEM obtainment gap between U.S.-educated immigrants and U.S.-born adults, conditional on demographics. There is little supporting evidence that academic preparation, mathematical ability, or country effects are creating the intergenerational gaps.
Do Immigrants Spur Offshoring? Firm-Level Evidence
Andreas Hatzigeorgiou
(Ratio Institute)
Patrik Karpaty
(Örebro University)
Richard Kneller
(University of Nottingham)
Magnus Lodefalk
(Örebro University)
[View Abstract]
[Download Preview] Offshoring provides firms with opportunities for internationalization and growth. But, offshoring comes at a cost, especially in presence of inadequate information and trust friction. Immigrant employees could reduce such offshoring transaction costs through their knowledge of former home countries and via access to foreign networks. This is the first firm-level study on migration and offshoring. In estimating a firm-level gravity model on new employer-employee data for approximately 12,000 Swedish firms during the time period 1998-2007, we are able to show that immigrant employees have a significant and positive impact on offshoring. Hiring one additional foreign-born worker can spur offshoring with up to three percent on average, and even more to low-income countries. The findings of this study could have potentially important policy implications. In addition to showing that immigrants could provide options for countries that aim to promote offshoring, the results introduce a completely new channel through which migration may promote development, through offshoring. This could encourage governments of developed nations to enhance their emphasis on migration as a tool for supporting private sector development in emerging economies.
Expropriation with Hukou Change: Evidence from a Quasi-Natural Experiment
Massimiliano Tani
(University of New South Wales-Canberra)
Xingfei Liu
(IZA)
Mehtap Akgüҫ
(Center of European Policy Studies and IZA)
[View Abstract]
[Download Preview] We study the labor market outcomes of males aged 18-60 and their female spouses changing their registration status (hukou) from rural to urban as a result of land expropriation across a number of provinces in China. Using 2008 and 2009 RUMiC data pooling urban, rural and migrant samples, we find that those obtaining an urban hukou have better labour market outcomes than comparable stayers in rural areas and rural-urban migrants whose hukou status does not change. The urban hukou enables the expropriated to access permanent jobs, some in state-owned enterprises, and rely less on self-employment relative to migrants and rural stayers. We also find that children in expropriated households experiencing a hukou change make similar investments in human capital as the children of native urban hukou holders, suggesting that leveling the hukou status amongst children in an urban area may be a first step towards reducing intergenerational inequality.
Jan 03, 2016 10:15 am, Hilton Union Square, Golden Gate 8
American Economic Association
Online Commerce
(L1)
Presiding:
David Reiley
(Pandora)
Profitably Bundling Information Goods: Evidence from the Evolving Video Library of Netflix
Scott Hiller
(Fairfield University)
[View Abstract]
[Download Preview] Using a unique dataset of the Netflix video on demand library, this article measures the characteristics of information goods important for strategically employing a mixed bundling strategy. By matching the titles entering and exiting the library to their relevant properties, I use a characteristic approach to determine when the value to Netflix of adding a title exceeds the licensing fee and when the displacement effect associated with a presence in the library dictates that the title will be offered only as a pure component. Results show that new products are more profitable to bundle, but are offered for shorter lengths of time, and that titles of median commercial success are bundled more frequently than the most and least successful. The number of similar films exiting the library is important to how likely a film is to enter, indicating strategic bundling. These results are generalizable to the streaming video industry and any information goods with rapidly diminishing marginal utility.
Online Shopping and Platform Design with Ex Ante Registration Requirements
Florian Morath
(Max Planck Institute for Tax Law and Public Finance)
Johannes Muenster
(University of Cologne)
[View Abstract]
[Download Preview] Our paper highlights an important aspect of online shopping: When buying at online shops, consumers incur a non-monetary 'registration cost' caused privacy and security concerns and by the time it needs to set up a user account. Privacy concerns have become increasingly important in e-commerce where buying usually requires the disclosure of address and payment information. We show that firms have an incentive to shift this registration cost to an earlier stage of the shopping process and detach it from the actual buying decision, which has implications for the firms' platform design. Intuitively, making the registration cost sunk at the point in time when consumers decide to buy increases the consumers' willingness to buy, for instance, when credit card information is already entered and stored in the consumer's user account.
In our model, the consumers are ex ante uncertain about the price and their product valuation. This information can be released to the consumers at zero cost. Firms decide when to release this information: before or after the consumer has signed in to the website. We show that a monopoly firm's equilibrium platform choice involves ex ante registration requirements unless privacy and security concerns become very important. This result is reinforced when incorporating future purchases with the same user account or an informational value of consumer registration to the firm. Moreover, it is robust to introducing price competition; in particular, firms with loyal consumers benefit from requiring ex ante registration. We also show that discounts (store credit) can increase the share of consumers who register and hence a firm's profit even though discounts distort the equilibrium price, which the consumers anticipate. Overall, the choice of the timing of when the 'registration cost' has to be incurred is an important additional instrument for platform design in online markets, which is not available in traditional markets and for other types of transaction costs.
Markets for Leaked Information
Georg Weizsacker
(Humboldt University Berlin)
Steffen Huck
(WZB)
[View Abstract]
[Download Preview] We study the implications of introducing a market for leaked personalized information. An agent wants to reveal her own type to another party in order to receive the best possible treatment. But the information about her type may also be relevant for a third party whose reaction may harm the agent. The existence of a market where the revealed information is traded enables a sorting effect that is adverse for the agent: the information is allocated to those types of third parties who harm the agent most. The agent therefore rationally reveals only little information about her type. However, a naive provision of infor- mation to the market harms not only the naive agent herself but also the more sophisticated agent who acts in the same role. Moreover, we show that the agent may benefit from the introduction of oligopolistic competition in the market for information, relative to a monopolistic market.
Do Coupons Expand or Cannibalize Revenue? Evidence from an e-Market
Imke Reimers
(Northeastern University)
Chunying Xie
(NERA)
[View Abstract]
[Download Preview] We empirically study the effectiveness of a popular attempt to increase a firm's sales and customer
base: the use of coupons. We develop a model of consumer demand to ask whether firms can indeed
use coupons as a means to price discriminate by attracting new consumers without losing (cannibalizing)
revenue from existing ones, and whether these consumers return to the firm after the price promotion.
In addition, we ask what types of businesses are most likely to benefit from such promotions. We use a
novel method to connect demand for e-coupons through daily-deal sites with regular firm sales. We find
that offering a coupon increases demand both during and after the promotion, suggesting that coupons
can be used both to price discriminate and to advertise. Still, while coupons increase profits on average,
the effect on each firm's profits depends on the type of firm.
The "Amazon Tax": Empirical Evidence from Amazon and Main Street Retailers
Brian Baugh
(Ohio State University)
Itzhak Ben-David
(Ohio State University)
Hoonsuk Park
(Ohio State University)
[View Abstract]
[Download Preview] Online retailers have maintained a price advantage over brick-and-mortar retailers since they were not required to collect sales tax. Recently, several states have required that the online retailer Amazon collect sales tax during checkout. Using transaction-level data, we document that households living in these states reduce Amazon purchases by 8% after sales taxes were implemented, implying an elasticity of –1.1. The effect is more pronounced for large purchases, for which we estimate a reduction of 11% in purchases and an elasticity of –1.5. Studying competitors in the electronics field, we detect substitution of the lost purchases towards competing retailers.
Jan 03, 2016 10:15 am, Hilton Union Square, Golden Gate 5
American Economic Association
Research in Economic Education: Efficacy of Interventions in Economic Education
(A2)
Presiding:
Sam Allgood
(University of Nebraska-Lincoln)
Classroom Experiments: Is more more?
Tisha L.N. Emerson
(Baylor University)
Linda K. English
(Baylor University)
[View Abstract]
[Download Preview] A number of studies have demonstrated that employing classroom experiments (as opposed to a standard chalk-and-talk pedagogy) has a positive effect on student achievement in economics courses. These findings have raised interest in the classroom experiment pedagogy, but also questions about the requisite number of experiments to achieve these positive outcomes. In the current study we attempt to determine whether more intensive use of classroom experiments is associated with greater student achievement. Our data contains variation in the number of experiments administered in a principles of microeconomics course. We find that students’ course scores improve with the number of experiments in which they participate; however, the impact is diminishing as the number of experiments increases. We also find that classroom experiments can bridge some achievement gaps (between older and younger students and between whites and minorities).
Measuring the Effect of Blended Learning: Evidence from a Selective Liberal Arts College
Lauren Feiler
(Carleton College)
Aaron Swoboda
(Carleton College)
[View Abstract]
[Download Preview] We compare introductory microeconomics courses that employ a blended learning approach to more traditional control courses at a selective liberal arts college. The blended learning courses required students to complete online homework and watch video lectures before problem-based class sessions, while the control courses used paper homework and primarily traditional lecturing. We use the Test of Understanding in College Economics to measure improvement and use the Student Opinion Survey to control for students’ self-reported effort and amount of importance placed on the test. We find that students in the blended courses improve more than those in traditional courses.
The Impact of Challenge Quizzes on Student Knowledge
KimMarie McGoldrick
(University of Richmond)
Peter W. Schuhmann
(University of North Carolina-Wilimington)
[View Abstract]
Abstract: Assessment in economics is primarily summative in nature, providing students with a final measurement of performance. The purposes of assessment, however, are more broadly defined than simply measuring student achievement and/or assigning grades, and include providing self-assessment for students and feedback to instructors. Formative assessment practices receive far less attention in the economic education literature. We evaluate the efficacy of a blended formative/summative assessment tool- the "challenge quiz"- developed to support mastery learning by students without placing undue burden on instructors. Mastery learning is based on the idea that students should demonstrate comprehensive knowledge of a set of ideas before moving on to new topics. Our innovation provides students with an opportunity to take a more difficult “challenge” quiz to demonstrate their command of the material and improve their grade on regular in-class quizzes. The structure of these quizzes (limited opportunity to exercise option, automatic grade replacement, and more challenging open-ended essay format) motivates students to modify study behaviors (formative component) and take responsibility for knowledge acquisition (summative component). This mastery-based testing approach serves to bring the student's objective of a quality grade in line with the instructor's objective of quality learning.
A Randomized Assessment of Online Learning
William T. Alpert
(University of Connecticut)
Kenneth A. Couch
(University of Connecticut)
Oskar R. Harmon
(University of Connecticut)
[View Abstract]
[Download Preview] Abstract: An economics principles course employing random assignment across three sections with different teaching models is used to explore learning outcomes as measured by a cumulative final exam for students who participate in traditional face-to-face classroom instruction, blended face-to-face and online instruction with reduced instructor contact time, and a purely online instructional format. Evidence indicates learning outcomes were reduced for students in the purely online section relative to those in the face-to-face format by 5 to 10 points on a cumulative final exam. Disadvantage students appear to do worse in the online and blended formats.
Discussants:
Robert Rebelein
(Vassar College)
William Bosshardt
(Florida Atlantic University)
Wayne Grove
(Le Moyne College)
Christiana E. Hilmer
(San Diego State University)
Jan 03, 2016 10:15 am, Hilton Union Square, Golden Gate 1 & 2
American Economic Association
Social Insurance Policy Over the Business Cycle: New Advances
(E6, E3)
Presiding:
Fatih Guvenen
(University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER)
The Optimal Use of Government Purchases for Macroeconomic Stabilization
Pascal Michaillat
(London School of Economics)
Emmanuel Saez
(University of California-Berkeley)
[View Abstract]
[Download Preview] This paper extends Samuelson's theory of optimal government purchases by accounting for the contribution of government purchases to macroeconomic stabilization. Using a matching model of the macroeconomy, we derive a sufficient-statistics formula for optimal government purchases. The formula implies that the deviation of optimal government purchases from the Samuelson level is proportional to the elasticity of substitution between government and personal consumption times the government-purchases multiplier times the deviation of the unemployment rate from its efficient level. Hence, with a positive multiplier, optimal government purchases are above the Samuelson level when unemployment is inefficiently high and below it when unemployment is inefficiently low. We calibrate the formula to US data. A first implication is that US government purchases are optimal with a small multiplier of 0.04; if the multiplier is larger, US government purchases are not countercyclical enough. Another implication is that optimal government purchases significantly increase during recessions. With a multiplier of 0.5 the optimal government purchases-output ratio increases from 16.6% to 20.0% when the unemployment rate rises from the US average of 5.9% to 9%. With multipliers higher than 0.5 the optimal ratio increases less because fewer government purchases are required to fill the unemployment gap: with a multiplier of 2 the optimal ratio only increases from 16.6% to 17.6%; this is the same increase as with a multiplier of 0.07.
Asymmetric Business Cycle Risk and Government Insurance
Christopher Busch
(University of Cologne)
David Domeij
(Stockholm School of Economics)
Fatih Guvenen
(University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER)
Rocio Madera
(University of Minnesota)
[View Abstract]
[Download Preview] This paper studies how higher-order income risk varies over the business cycle as well as the extent to which such risks can be smoothed within households or with government social insurance policies. To provide a broad perspective on these questions, we study panel data on individuals and households from the United States, Germany, and Sweden, covering more than three decades of data for each country. We find that the underlying variation in higher-order risk is remarkably similar across these countries that differ in many details of their labor markets. In particular, in all three countries, the variance of earnings shocks is almost entirely constant over the business cycle, whereas the skewness of these shocks becomes much more negative in recessions. Government provided insurance, in the form of unemployment insurance, welfare benefits, aid to low income households, and the like, plays a more important role reducing downside risk in all three countries; the effectiveness is weakest in the United States, and most pronounced in Germany. For Sweden, we find that insurance provided within households plays a similar role. We calculate that the welfare benefits of social insurance policies for stabilizing higher-order income risk over the business cycle range from 1% of annual consumption for the United States to 4.5% for Sweden.
Optimal Automatic Stabilizers
Alisdair McKay
(Boston University)
Ricardo Reis
(Columbia University and NBER)
[View Abstract]
We characterize the design of fiscal automatic stabilizers when there are incomplete markets and inefficient business cycle fluctuations. We provide a model that combines nominal rigidities, idiosyncratic income shocks and incomplete markets, but which is sufficiently simple that it can be analyzed with AS-AD diagram. Sticky prices and incomplete markets interact to determine both the effectiveness of the stabilizers as well as the costs of business cycles and the desirability of stabilization policy. In a calibration of the model to match the main facts about both inequality and business cycles, the optimal stabilizers call for a more progressive income and more generous unemployment benefits and income support policies relative to the status quo.<br />
Taxes, Debts, and Redistributions with Aggregate Shocks
Anmol Bhandari
(University of Minnesota)
David Evans
(New York University)
Mikhail Golosov
(Princeton University and NBER)
Thomas Sargent
(New York University, Hoover Institution, and NBER)
[View Abstract]
[Download Preview] This paper models how transfers, a tax rate on labor income, and the distribution of government debt should respond to aggregate shocks when markets are incomplete. A planner sets a lump sum transfer and a linear tax on labor income in an economy with heterogeneous agents, aggregate uncertainty, and a single asset with a possibly risky payoff. Limits to redistribution coming from incomplete tax instruments and limits to hedging coming from incomplete asset markets affect optimal policies. Two forces shape long-run outcomes: the planner's desire to minimize the welfare cost of fluctuating transfers, which calls for a negative correlation between agents' assets and their skills; and the planner's desire to use fluctuations in the return on the traded asset to compensate for missing state-contingent securities. In a multi-agent model calibrated to match facts about US booms and recessions, the planner's preferences about distribution make policies over business cycle frequencies differ markedly from Ramsey plans for representative agent models.
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 22
American Economic Association
Supranational Regulation and Supervision, Cross-Border Banking, and Systemic Risk
(F3, G1)
Presiding:
Manuel Buchholz
(Halle Institute for Economic Research)
Cross-Border Regulatory Spillovers: How Much? How Important? A Project of the International Banking Research Network
Claudia M. Buch
(Deutsche Bundesbank)
Linda Goldberg
(Federal Reserve Bank of New York)
[View Abstract]
Empirical evidence on regulatory spillovers in the international setting is limited. Addressing this gap is the subject of the multi-study initiative of the International Banking Research Network (IBRN). This paper reports on cross-country evidence from studies by approximately 20 countries: How do lending, risk-taking, and funding of banks respond to prudential policies implemented in home and foreign markets? What is the evidence on the inward transmissions to the domestic economy and the outward transmission to foreign economies? The comprehensive analysis performed by a team in each country uses micro-banking data for the period between 2000 and 2013 and relies on more precise measures of prudential regulation than were available to prior researchers studying cross-border spillovers. The project is an ideal approach for meta-analysis as it brings evidence from detailed examinations, using similar methodology, but conducted by distinct IBRN countries using their own country’s confidential regulatory data. As researchers apply a common research methodology to the experiences of each country and common prudential policy database for responses, the IBRN generates broadly relevant insights, going well beyond the interesting single country case studies.
Cross-border banking cooperation: From actual to optimal arrangements
Thorsten Beck
(City University London)
Consuelo Silva-Buston
(Universidad Alberto Hurtado)
Wolf Wagner
(Tilburg University)
[View Abstract]
[Download Preview] Countries and regions differ widely in the degrees to which they coordinate
their banking policies -- this may be optimal if the gains from cooperation
vary accordingly. Based on a model that identifies externalities as the key
benefit to cooperation, and country heterogeneity as the cost, we show that
actual cooperation arrangements among countries are consistent with
predicted gains: pairs of countries with high bilateral externalities are
more likely to have formed cooperation, while the propensity to cooperate
declines with measures capturing dimensions of country heterogeneity.
Applying the framework to regions, we show that there are large variations
in the extent to which they can expect to gain from cooperation. For
instance, while for the European Union overall gains appear to be limited as
high externalities are offset by similarly high heterogeneity, the group of
countries that form the Banking Union display characteristics more conducive
to cooperation. Our analysis also allows drawing insights as to how existing
regional arrangements may be expanded (or narrowed down) to reap higher
cooperation gains.
Drivers of Systemic Risk: Do National and European Perspectives Differ?
Claudia M. Buch
(Deutsche Bundesbank)
Thomas Krause
(Halle Institute for Economic Research)
Lena Tonzer
(Halle Institute for Economic Research)
[View Abstract]
[Download Preview] Mitigating the negative externalities that systemic risk can create for the financial system is the goal of macroprudential supervision. In Europe, macroprudential supervision is conducted both, at the national and at the European level. In principle, national regulators are responsible for macroprudential policies. Since the establishment of the Banking Union in 2014, the largest banks in the Euro Area are under the direct supervision of the European Central Bank (ECB). In this capacity, the ECB can tighten macroprudential measures implemented at the national level. In this paper, we ask whether the drivers of systemic risk differ when applying a national versus a European perspective. We use market data for about 100 listed European banks to measure each bank's contribution to systemic risk (SRISK) at the national and at the Euro Area level. Our research has three main findings. First, on average, systemic risk has increased during the financial crisis. The difference between systemic risk at the national and the European level is not very large but there is a considerable degree of heterogeneity both across countries and banks. Second, we explore the drivers of systemic risk. A bank’s contribution to systemic risk increases in bank size, in bank profitability, and in the share of banks’ nonperforming loans. It decreases in the share of loans to total assets and in the importance of non-interest income. Third, the qualitative determinants of systemic risk are similar at the national and at the European level while the quantitative importance of some factors differs.
Discussants:
John C. Driscoll
(Federal Reserve Board)
Cathérine Koch
(Bank for International Settlements)
Jana Ohls
(Deutsche Bundesbank)
Jan 03, 2016 10:15 am, Hilton Union Square, Continental – Parlor 1
American Economic Association
Tax Experiments
(H2, C9)
Presiding:
Erzo F.P. Luttmer
(Dartmouth College)
Shaming Tax Delinquents
Ricardo Perez-Truglia
(Microsoft Research)
Ugo Troiano
(University of Michigan)
[View Abstract]
[Download Preview] Many federal and local governments rely on shaming penalties to achieve policy goals, but little is known about whether these penalties work as intended. Shaming penalties may be ineffective or may backfire by crowding-out intrinsic motivation. In this paper, we measure the effects of shaming penalties in the collection of tax delinquencies. We sent letters to 34,344 tax delinquents who owed half a billion dollars in three U.S. states. We randomized some of the information contained in the letter to vary the salience of financial and shaming penalties. We then measure how the salience of these penalties affected subsequent re-payment rates. We find that increasing the salience of financial and shaming penalties reduces tax delinquency. The effects of shaming penalties are only significant for individuals with smaller debts. We show that publishing lists with tax delinquents does not seem to affect the decision to pay through peer comparisons of the amount owed.
Demand for Redistribution in Large and Small Groups
Johanna Mollerstrom
(George Mason University)
Dmitry Taubinsky
(Harvard University)
[View Abstract]
The standard economic approach to optimal taxation assumes that when financial resources are transferred from one group to another, the group giving up resources is necessarily made worse off. Building on recent behavioral and experimental economics work on social preferences, we show that this may not always be the case. We use theory and empirical evidence to investigate the extent to which the most widely used social preference models can explain people's behavior in tax-like settings, in both small and large groups. We conclude that the traditional social preferences models are particularly flawed when it comes to understanding large group behavior. Even though people show aversion to economic inequality in groups of all sizes, people in large groups are significantly less willing to make a private, voluntary donation than what previous experimental studies have indicated. Our results suggest that redistributive taxation can serve as an important social coordination mechanism: many high income earners can be made better off when inequality is reduced through mandatory taxation, while at the same time most would not be willing to make a private, voluntary donation.
Heuristic Perceptions of the Income Tax: Evidence and Implications
Alexander Robert Rees-Jones
(University of Pennsylvania)
Dmitry Taubinsky
(Harvard University)
[View Abstract]
A large literature studies the design of income taxes, typically relying on the assumption that people's responses to taxes are optimal. However, taxpayer behavior is governed by perceptions of taxes, rather than the taxes that are actually in place, and thus a precise understanding of taxpayer (mis)perceptions is crucial for policy design (cf. Farhi and Gabaix 2015). This paper reports a new survey experiment—sampling nearly 5000 American taxpayers approximating the US adult population—designed to provide a direct assessment of heuristic perceptions of the US federal income tax. In the survey experiment, participants are asked a series of questions about the tax that would be owed by a hypothetical taxpayer. This taxpayer is nearly identical to the participant in all ways, but household income is varied across questions. The new richness of this design enables direct tests and quantifications of heuristic perceptions that are not possible with existing observational or survey data. In particular, we distinguish between, and separately quantify, systematic biases arising from an over-reliance on own average tax rate (“ironing”), own marginal tax rate (“spotlighting”), and generic over- or under-estimation of tax rates. We find that tax perceptions are well explained by a model with about three-quarters weight on the true tax, one-quarter weight on the forecast of an ironing heuristic, no spotlighting, and some residual overestimation of taxes on low incomes and underestimation of taxes on high incomes. We also find that over-reliance on average tax rates is most prevalent amongst consumers who are not financially literate, have low educational attainment, and do not file their taxes themselves. Using our estimates, we study the implications for informational nudges and optimal tax design.
Raising the Stakes: Experimental Evidence on the Endogeneity of Taxpayer Mistakes
Tatiana Homonoff
(Cornell University)
Jacob Goldin
(Princeton University)
Naomi Feldman
(Federal Reserve Board)
[View Abstract]
[Download Preview] Recent evidence suggests consumers fail to account for taxes that are excluded from a good’s displayed price. Bounded rationality models predict such “salience effects” should decline with tax size but empirical evidence is lacking. We conducted a laboratory shopping experiment with real stakes to study the effect of tax size on salience. Our results rule out all but a modest effect: at most, taxpayers were 86 percent more unresponsive to an 8 percent tax compared to a 22 percent tax. Salience effects may persist at tax rates substantially greater than those currently employed in the United States.
Discussants:
Stefanie Stantcheva
(Harvard University)
David Seim
(University of Toronto)
Judd Kessler
(University of Pennsylvania)
Ugo Troiano
(University of Michigan)
Jan 03, 2016 10:15 am, Hilton Union Square, Continental Ballroom 4
American Economic Association
The United States Economy: Where To From Here?
(E2, F4)
Presiding:
Dominick Salvatore
(Fordham University)
U.S. Macro Policy in the Future
Olivier J. Blanchard
(Peterson Institute for International Economics)
[View Abstract]
[Download Preview] Revisiting the Phillips curve. Implications for monetary policy.
Dealing with Long Term Deficits
Martin Feldstein
(Harvard University)
[View Abstract]
[Download Preview] The American economy has now recovered to full employment. It is time to shift the focus of policy from monetary policy to the longer term budget issues. The national debt has more than doubled relative to GDP in the past decade. Although the debt to GDP ratio will remain relatively stable for the next few years, it is forecasted to rise substantially after that. Large deficits and debt are serious problems for the country. This cannot be fixed by cutting spending for defense and for non-defense discretionary programs which are both projected to decline to less than 3 percent of GDP during the coming decade, lower than we have had in the past half century. Reducing the ratio of debt to GDP must concentrate on raising the rate of GDP growth and on slowing the growth of entitlement spending and raising revenue. It is also possible to raise revenue while lowering marginal tax rates by focusing on tax expenditures and gasoline taxes.
Central Banking: What’s Next?
Stanley Fischer
(Federal Reserve Board)
[View Abstract]
The Great Recession forced central bankers to confront the limitations of using short-term interest rates to combat a large downturn at the zero lower bound. In recent years, policymakers have used large-scale asset purchases (quantitative easing) and forward guidance to deliver additional stimulus once short rates were pinned at zero. Looking ahead, central bankers will need to confront whether and how to use these tools when short rates are normalized. The pace at which to unwind a large balance sheet and its appropriate size in the long run will be important questions. In addition, central banks that have been communicating the path of short rates in some detail will need to decide how much of that path they can credibly communicate going forward.
How to Restore Equitable and Sustainable Economic Growth in the United States
Joseph Eugene Stiglitz
(Columbia University)
[View Abstract]
Reforms to corporate and personal income taxes will be essential in restoring economic vitality. This involves implementing financial transaction taxes; increasing corporate tax rates while incentivizing investment in the U.S. and closing loopholes; increasing taxes on rent-seeking; reforming estate and inheritance taxes; and making personal income taxes more progressive. All reforms must be made with the understanding that deficit reduction in and of itself is not a worthy goal. Rather, taxation must be reformed to help grow the economy, improve distribution, and encourage socially beneficial behavior on the part of firms and individuals.
Can We Restart the Recovery All Over Again?
John B. Taylor
(Stanford University)
[View Abstract]
I have argued that a change in policy could transform the not-so-great American economic recovery of recent years into a great recovery of the kind experienced following earlier financials crises. Yet some argue that it’s too late: if you missed the fast growth of a V-shaped recovery at the start, you’re not going to get it now. In this paper I show that the current position of the economy is like the bottom of a recession. The labor force participation rate has declined for every year of the recovery and is lower than at the bottom of the recession. Productivity growth has averaged only .9 percent per year for the past 5 years, less than half the 2.4% rate of the previous 20 years. From this position a change in policy can generate a post-recession-like boom for several years and a higher steady state growth rate thereafter.
Discussants:
Dominick Salvatore
(Fordham University)
Jan 03, 2016 10:15 am, Hilton Union Square, Plaza B
American Economic Association
Unfamiliar Psychologies: Applications of Behavioral Science Not Commonly Used in Economics
(D3)
Presiding:
Sendhil Mullainathan
(Harvard University)
The Cognitive Accessibility of Crime: Behavioral Science and Criminal Behavior
Jens Ludwig
(University of Chicago)
Anuj K. Shah
(University of Chicago)
[View Abstract]
[Download Preview] Before people weigh the costs of a criminal action, what affects whether they think of the action in the first place? We suggest that criminal behavior enters into consideration to the extent that it is cognitively accessible. Specifically, people form interpretations of the context and have beliefs about which behaviors are common and adaptive in that context. These interpretations and beliefs are shaped by past experiences and expectations, and they influence which courses of action readily come to mind (i.e., are accessible). Critically, accessibility depends on three parameters: automaticity, identity, and privacy. These parameters make it possible to identify new interventions which would not necessarily stem from the standard economic view.
The Psychology of Conflict and Reconciliation
Oeindrila Dube
(New York University)
[View Abstract]
I describe interventions--and the psychology underlying them--aimed at helping people and societies move past conflict and reconcile with each other.
Beyond Beta-Delta: Understanding the Disconnect between Our Intentions and Our Actions
John Beshears
(Harvard Business School)
Katherine L. Milkman
(University of Pennsylvania)
[View Abstract]
This paper describes a set of psychologies beyond beta-delta that are important in determining time preference and illustrates them with applications from health and many other areas
Psychological Lives of the Poor
Sendhil Mullainathan
(Harvard University)
Frank Schilbach
(Massachusetts Institute of Technology)
Heather Schofield
(University of Pennsylvania)
[View Abstract]
We describe several psychological findings on the poor, including mental consequences of poverty as well as of factors such as alcohol and nutrition.
Discussants:
Stefano DellaVigna
(University of California-Berkeley)
Ulrike Malmendier
(University of California-Berkeley)
James A. Robinson
(Harvard University)
Richard Thaler
(University of Chicago)
Jan 03, 2016 10:15 am, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Weather and United States Economic Activity
(E2, Q5)
Presiding:
Francois Gourio
(Federal Reserve Bank of Chicago)
Does the Environment Still Matter? Daily Temperature and Income in the United States
Tatyana Deryugina
(University of Illinois-Urbana-Champaign)
Solomon M. Hsiang
(University of California-Berkeley)
[View Abstract]
[Download Preview] It is widely hypothesized that incomes in wealthy countries are insulated from environmental conditions
because individuals have the resources needed to adapt to their environment. We test this idea in the
wealthiest economy in human history. Using within-county variation in weather, we estimate the effect
of daily temperature on annual income in United States counties over a 40-year period. We find that
this single environmental parameter continues to play a large role in overall economic performance:
productivity of individual days declines roughly 1.7% for each 1°C (1.8°F) increase in daily average
temperature above 15°C (59°F). A weekday above 30°C (86°F) costs an average county $20 per person.
Hot weekends have little effect. These estimates are net of many forms of adaptation, such as factor
reallocation, defensive investments, transfers, and price changes. Because the effect of temperature
has not changed since 1969, we infer that recent uptake or innovation in adaptation measures have
been limited. The non-linearity of the effect on different components of income suggest that temperature
matters because it reduces the productivity of the economy's basic elements, such as workers and crops.
If counties could choose daily temperatures to maximize output, rather than accepting their geographically determined
endowment, we estimate that annual income growth would rise by 1.7 percentage points.
Applying our estimates to a distribution of "business as usual" climate change projections indicates
that warmer daily temperatures will lower annual growth by 0.06-0.16 percentage points in the United
States unless populations engage in new forms of adaptation.
Weather Adjusting Employment Data
Michael Boldin
(Federal Reserve Bank of Philadelphia)
Jonathan H. Wright
(Johns Hopkins University)
[View Abstract]
This paper proposes and implements a statistical methodology for adjusting
employment data for the effects of deviation in weather from seasonal norms.
This is distinct from seasonal adjustment, which only controls for the normal
variation in weather across the year. Unusual weather can distort both the data
and the seasonal factors. We control for both of these effects by integrating a
weather adjustment step in the seasonal adjustment process. We use several
indicators of weather, including temperature, snowfall and hurricanes. Weather
effects can be very important, shifting the monthly payrolls change number by
more than 100,000 in either direction. The effects are largest in the winter and
early spring months and in the construction sector.
Weather and Climate Data Sets Useful for Economic Modeling
Michael Squires
(National Oceanic and Atmospheric Administration)
[View Abstract]
[Download Preview] There is a growing body of research literature that uses various modeling techniques to examine how weather and climate affect various economic outcomes. Weather and climate variables have been shown to impact agriculture, industrial output, labor productivity, energy demand, health, current employment statistics as well as other measures of interest to economists. The purpose of this presentation is to give an overview of existing data sets that are useful for economic modeling. In addition there are several new data sets now being developed at the National Centers for Environmental Information (NCEI) that would be useful for both cross-sectional and panel methods in economic research. Every environmental data set has attributes that make it attractive to users, but will likely have some issues that users needs to be aware of. For example, the number of stations in a given region usually changes over time or the observational methods may change. These changes may or may not have an effect on a particular application or project, but it is important for the investigator to be aware of such issues. One possible barrier to effective collaboration between economists and atmospheric scientists is vocabulary and jargon. Some of the known disconnects between economic and weather vocabularies are discussed. A final desired outcome of this presentation is to open a dialogue between scientists at the NCEI and the economic community to enhance the usability and guide future development of weather and climate data sets.
Estimating Weather Effects
Francois Gourio
(Federal Reserve Bank of Chicago)
Justin Bloesch
(Federal Reserve Bank of Chicago)
[View Abstract]
Building on Bloesch and Gourio (2015), this paper measures the sensitivity of various economic activity measures to weather shocks at the state level using a large panel data set. We find strong evidence of weather effect on monthly economic indicators, but these are quickly reversed the next month. We also find that these effects are highly heterogeneous. Notably, the effect of an inch of snowfall is strongly negatively related to the average snowfall in the state. This has consequences for the appropriate weighting of weather data for aggregate forecasting. We provide estimates of the historical effect of temperature and snowfall.
Discussants:
Olivier Deschenes
(University of California-Santa Barbara)
William Wascher
(Federal Reserve Board of Governors)
Marshall Burke
(Stanford University)
Daniel Wilson
(Federal Reserve Bank of San Francisco)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
CEOs/CFOs/Boards
(G3)
Presiding:
Carola Frydman
(Northwestern University)
Knighthoods, Damehoods and CEO Behaviour
Konrad Raff
(Norwegian School of Economics)
Linus Siming
(Università Bocconi and IGIER)
[View Abstract]
[Download Preview] We study whether and how politicians can influence the behaviour of CEOs and firm performance with prestigious government awards. We present a simple model to develop the hypothesis that government awards have a negative effect on firm performance. The empirical analysis uses two legal reforms in New Zealand for identification: Knighthoods and damehoods were abolished in April 2000 but reinstated in March 2009. The findings are consistent with the predictions of the model. The results suggest that awards serve as an incentive tool through which politicians influence firms in favour of employees to the detriment of shareholders.
The Contract Year Phenomenon in the Corner Office: An Analysis of Firm Behavior During CEO Contract Renewals
Ping Liu
(University of Illinois-Urbana-Champaign)
Yuhai Xuan
(University of Illinois-Urbana-Champaign)
[View Abstract]
This paper investigates how executive employment contracts influence corporate financial policies during the final year of the contract term, using a new, hand-collected data set of CEO employment agreements. On the one hand, the impending expiration of fixed-term employment contracts creates incentives for CEOs to engage in strategic window-dressing activities. We find that, compared to normal periods, CEOs manage earnings more aggressively when they are in the process of contract renegotiations. Correspondingly, during CEO contract renewal times, firms are more likely to report earnings that meet or narrowly beat analyst consensus forecasts. Moreover, CEOs also reduce the amount of negative firm news released during their contract negotiation years. On the other hand, we find that merger and acquisition deals announced during the contract renegotiation year yield higher announcement returns than deals announced during other periods, suggesting that the upcoming contract expiration and renewal can also have disciplinary effects on potential value-destroying behaviors of CEOs. In addition, we show that firms whose CEOs are not subject to contract renewal pressure do not experience such corporate policy changes and that CEOs who engage in manipulation during contract renewal obtain better employment terms in their new contracts, in terms of contract length, severance payment, and salary and bonus. Overall, our results indicate that job uncertainty created by expiring employment contracts induces changes in managerial behaviors that have significant impacts on firm financial activities and outcomes.
Playing it Safe? Managerial Preferences, Risk, and Agency Conflicts
Todd Gormley
(University of Pennsylvania)
David Matsa
(Northwestern University)
[View Abstract]
[Download Preview] This paper examines managers’ incentive to “play it safe.” We find that, after managers are insulated by the adoption of an antitakeover law, managers take value-destroying actions that reduce their firms’ stock volatility and risk of distress. To illustrate one such action, we show that managers undertake diversifying acquisitions that target firms likely to reduce risk, have negative announcement returns, and are concentrated among firms whose managers gain the most from reducing risk. Our findings suggest that instruments typically used to motivate managers, like greater financial leverage and larger ownership stakes, exacerbate risk-related agency challenges.
Discussants:
Geoffrey Tate
(University of North Carolina)
Dirk Jenter
(Stanford University)
Joshua Rauh
(Stanford University)
Jan 03, 2016 10:15 am, Marriott Marquis, Nob Hill A & B
American Finance Association
Environmental Information and Asset Pricing
(G1)
Presiding:
Augustin Landier
(Toulouse School of Economics)
SRI Funds: Investor Demand, Exogenous Shocks and ESG Profiles
Jedrzej Bialkowski
(University of Canterbury)
Laura Starks
(University of Texas-Austin)
[View Abstract]
[Download Preview] We provide evidence that not only have flows to socially responsible or sustainable and responsible (SRI) mutual funds shown greater growth, more persistence and less performance sensitivity than flows to conventional funds, but also that these attributes appear to result from investors’ nonfinancial considerations. Using a differences-in-differences approach, we find that the greater flows to SRI funds arise from exogenous events expected to heighten investors’ considerations of such funds. We also find a high level of persistence in SRI funds’ ESG profiles, which are generally different from those of conventional funds, consistent with their charters.
Do Analysts Curb Corporate Social Irresponsibility? Evidence from Natural Experiments
Hui Dong
(Shanghai University of Finance and Economics)
Lin Chen
(University of Hong Kong)
Xintong Zhan
(Chinese University of Hong Kong)
[View Abstract]
[Download Preview] We examine whether financial analysts curb firms' socially irresponsible activities, relying on brokerage closures and mergers as natural experiments that create exogenous drop in analyst coverage. Our difference-in-differences approach demonstrates that a reduction in analyst coverage causes firms to engage more aggressively in corporate social irresponsibility, especially in the dimensions of environmental issues and product quality and safety concerns. The findings are consistent with the view that pressure from external monitors reduces firms' irresponsible behavior. The effects of analyst coverage on irresponsible activities are more pronounced in firms with lower initial analyst coverage, weaker corporate governance and higher financial constraints. Our paper identifies the deterrent effect of financial analysts as an important determinant in firms' CSR choice, and sheds light on the impact of financial analysts on non-financial stakeholders.
Climate Change and Firm Valuation: Evidence from a Quasi-Natural Experiment
Philipp Krueger
(University of Geneva and Swiss Finance Institute)
[View Abstract]
In this article, I estimate the effect of mandatory greenhouse gas (GHG) emissions disclosure on corporate value. Using the introduction of mandatory GHG emissions disclosure requirements for firms listed on the Main Market of the London Stock Exchange as a source of exogenous variation in disclosure policies, I find that firms most heavily affected by the new regulation experience significantly positive valuation effects. Consistent with the notion that climate change is more relevant to larger firms and to firms belonging to carbon-intensive industries, the effect is strongest for the largest firms and for firms operating in the oil and gas and basic materials industries. Overall, the evidence shows that investors value increased transparency regarding corporate climate change risks positively. The results have important implications for security markets regulation in other jurisdictions, e.g., the United States.
Discussants:
Sebastien Pouget
(Toulouse School of Economics)
Leonard Kostovetsky
(Boston College)
Kelly Shue
(University of Chicago)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Equity Factors
(G1)
Presiding:
Stefan Nagel
(University of Michigan)
Leverage Constraints and Asset Prices: Insights from Mutual Fund Risk Taking
Oliver Boguth
(Arizona State University)
Mikhail Simutin
(University of Toronto)
[View Abstract]
Prior theory suggests that time variation in the degree to which leverage constraints bind affects the pricing kernel. We propose a demand-based measure for this leverage constraint tightness by inverting the argument that constrained investors tilt their portfolios to riskier assets. We show that the average market beta of actively managed mutual funds -- intermediaries facing leverage restrictions -- captures their borrowing demand and thus the tightness of leverage constraints. Consistent with theory, it strongly predicts returns of the betting-against-beta portfolio, and is a priced risk factor in the cross-section of mutual funds and stocks. Funds with low exposure to the factor outperform high-exposure funds by more than 5% annually, and for stocks this difference reaches 7%. Our results show that the tightness of leverage constraints has important implications for asset prices.
The Level, Slope and Curve Model for Stocks
Charles Clarke
(University of Connecticut)
[View Abstract]
[Download Preview] I develop a method to extract only the priced factors from stock returns. First, I use multiple regression on anomaly characteristics to predict expected returns. Next, I form portfolios of stocks sorted by their expected returns. Then, I extract statistical factors from these sorts using principal components. The procedure isolates and emphasizes the comovement across assets that is related to expected returns as opposed to firm characteristics. The procedure produces level, slope and curve factors for stock returns. The factors perform better than the Fama and French (1993, 2014) three and five factor models and comparably to the four factor models of Carhart (1997), Novy-Marx (2013) and Hou, Xue, and Zhang (2012). Horse races show that other factors add little to the Level, Slope and Curve factors. The Level, Slope and Curve factors have macroeconomic interpretations. The factors capture strong variation in consumption growth across the sorted portfolios, and when embedded in an ICAPM, proxy for innovations to dividend yield, credit spread and stock volatility.
Lucky Factors
Campbell Harvey
(Duke University)
Yan Liu
(Texas A&M University)
[View Abstract]
[Download Preview] We propose a new method to select amongst a large group of candidate factors -- many of which might arise as a result of data mining -- that purport to explain the cross-section of expected returns. The method is robust to general distributional characteristics of both factor and asset returns. We allow for the possibility of time-series as well as cross-sectional dependence. The technique accommodates a wide range of test statistics. Our method can be applied to both asset pricing tests based on portfolio sorts as well as tests using individual asset returns. In contrast to recent asset pricing research, our study of individual stocks finds that the original market factor is by far the most important factor in explaining the cross-section of expected returns.
Discussants:
Dong Lou
(London School of Economics)
Serhiy Kozak
(University of Michigan)
Bryan Kelly
(University of Chicago)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salon 8
American Finance Association/American Economic Association
Is the Refereeing Process Broken? Perspectives of Top-Journal Editors
(A1) (Panel Discussion)
Panel Moderator:
David Hirshleifer
(University of California-Irvine)
Liran Einav
(Stanford University)
Glenn Ellison
(Massachusetts Institute of Technology)
Pinelopi Goldberg
(Yale University)
David Hirshleifer
(University of California-Irvine)
Preston McAfee
(Microsoft)
Toni M. Whited
(University of Michigan)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Liquidity, Frictions, and Limits to Arbitrage
(G1)
Presiding:
Nicolae Garleanu
(University of California-Berkeley )
Government Intervention and Arbitrage
Paolo Pasquariello
(University of Michigan)
[View Abstract]
[Download Preview] We model and document the novel notion that direct government intervention in a market --- e.g., central bank trading in exchange rates --- may induce violations of the law of one price (LOP) in other, arbitrage-related markets --- e.g., the market for American Depositary Receipts (ADRs, dollar-denominated securities fully convertible in a preset amount of foreign shares). We show that the introduction of a stylized government pursuing a non-public, partially informative price target in a model of strategic, multi-asset trading and segmented dealership generates equilibrium price differentials among fundamentally identical assets --- especially when markets are less liquid, speculators are more heterogeneously informed, or uncertainty about government policy is greater. We find empirical evidence consistent with these predictions in a sample of all available ADRs traded in the major U.S. exchanges and intervention activity of developed and emerging countries in the currency markets between 1980 and 2009.
Financial Intermediation Chains in an OTC Market
Ji Shen
(London School of Economics)
Bin Wei
(Federal Reserve Bank of Atlanta)
Hongjun Yan
(Yale University)
[View Abstract]
[Download Preview] This paper analyzes financial intermediation chains in a search model with an endogenous intermediary sector. We show that the chain length and price dispersion among inter-dealer trades are decreasing in search cost, search speed, and market size, but increasing in investors' trading needs. Using data from the U.S. corporate bond market, we find evidence broadly consistent with these predictions. Moreover, as search speed approaches infinity, the search equilibrium does not always converge to the centralized-market equilibrium: prices and allocation converge, but the trading volume may not. Finally, the efficiency of the intermediary sector size is analyzed.
The Shorting Premium and Asset Pricing Anomalies
Itamar Drechsler
(New York University )
Freda Drechsler
(University of Pennsylvania)
[View Abstract]
[Download Preview] Short-rebate fees are a strong predictor of the cross-section of stock returns, both gross and net of fees. We document a large ``shorting premium'': the cheap-minus-expensive-to-short (CME) portfolio of stocks has a monthly average gross return of 1.31%, a net-of-fees return of 0.78%, and a 1.44% four-factor alpha. We show that short fees interact strongly with the returns to eight of the largest and most well-known cross-sectional anomalies. The anomalies effectively disappear within the 80% of stocks that have low short fees, but are greatly amplified among those with high fees. We propose a joint explanation for these findings: the shorting premium is compensation for the concentrated short risk borne by the small fraction of investors who do most shorting. Because it is on the short side, it raises prices rather than lowers them. We proxy for this short risk using the CME portfolio return and demonstrate that a Fama-French + CME factor model largely captures the anomaly returns among both high- and low-fee stocks.
Dash for Cash: Month-End Liquidity Needs and the Predictability of Stock Returns
Erkko Etula
(Goldman, Sachs & Co.)
Kalle Rinne
(University of Luxembourg)
Matti Suominen
(Aalto University )
Lauri Vaittinen
(Mandatum Life)
[View Abstract]
[Download Preview] [Download PowerPoint] We present broad-based evidence that the monthly cash needs of institutions induce systematic patterns in global stock returns. First, we document strong reversals in stock index returns around the last monthly trading day that guarantees cash settlement before month end. Second, we present direct evidence that links these reversals to institutional trading activity and funding conditions. Third, we find that the reversals are stronger for larger and more liquid stocks, and those more commonly held by mutual funds, a popular implementation vehicle among institutions. Finally, we show that mutual funds’ sensitivity to month-end reversals predicts their performance.
Discussants:
Dmitry Livdan
(University of California-Berkeley)
Pierre-Olivier Weill
(University of California-Los Angeles)
Jianfeng Yu
(University of Minnesota)
David Sraer
(University of California-Berkeley)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Macroprudential Regulation and Financial Crises (Sponsored by the U.S. Office of Financial Research)
(G2)
Presiding:
Gregory Feldberg
(U.S. Office of Financial Research)
Beyond Capital Regulation: An Underestimated Risk Source
Frederic Schweikhard
(University of Oxford)
Zoe Tsesmelidakis
(University of Oxford)
[View Abstract]
Leverage constraints are an important pillar of bank regulation. Yet, this paper argues that in times of economic turmoil affecting a bank's borrower base at large, the traditional bank risk measures of leverage and capital ratios understate the total increase in bank risk. In a sequence of systematic shocks hitting the borrowers, the impact on a bank's asset value grows disproportionately with every bump due to the concavity of the loan value in the borrower's assets. Although this increase in credit exposure cannot be reflected by capital ratios, a structural default model can capture the added sensitivity. Using a sample of 334 non-financial firms and 27 banks, we demonstrate the nonlinear nature of the changes in banks' risk exposures after a series of shocks to their borrowers and show that the effect is more severe for firms with low ratings. We also simulate the impacts of the same series of shocks under different leverage scenarios and are thus able to assess the magnitude of asset risk relative to leverage risk. Further it appears that the benefit of ex-post deleveraging after a shock is limited despite its high cost. The results emphasize the importance of systematic risk among borrowers and of the ongoing monitoring of changes in economic climate so as to induce banks to provision adequately for risk changes.
Decision-Making During the Crisis: Did the Treasury Let Commercial Banks Fail?
Ettore Croci
(Università Cattolica del Sacro Cuore di Milano)
Gerard Hertig
(ETH Zurich)
Eric Nowak
(University of Lugano and Swiss Finance Institute)
[View Abstract]
[Download Preview] Limited attention has been paid to the comparative fate of banks benefiting from TARP Capital Purchase Program (CPP) funding and less fortunate banks subject to FDIC resolution. We address this omission by investigating two core issues. One is whether commercial banks that ended up being subject to FDIC resolution received CPP funds. The other is whether the non-allocation of CPP funds led viable commercial banks into FDIC receivership. Our findings show almost no overlap between CPP-funded and FDIC-resolved commercial banks, but we provide evidence that a significant number of FDIC-resolved banks could have avoided receivership if they had been allocated CPP funding. By comparing estimated funding and resolution costs we also show that bailing out more banks would have been cost-efficient. While our results do not allow for any policy suggestion on the optimality of bail-outs per se, they suggest that once a bail-out program is already on the table, it is better to err on the side of rescuing too many rather than too few banks.
Does Lack of Financial Stability Impair the Transmission of Monetary Policy?
Viral Acharya
(New York University )
Bjorn Imbierowicz
(Copenhagen Business School)
Sascha Steffen
(University of Mannheim and ZEW)
Daniel Teichmann
(Goethe University-Frankfurt)
[View Abstract]
[Download Preview] We investigate the transmission of central bank liquidity to bank deposit and loan spreads of European firms over the January 2006 to June 2010 period. When the European Central Bank (ECB) allocated liquidity to banks in a competitive tender at the beginning of the crisis, higher “aggregate” central bank liquidity (i.e. the total liquidity in the banking system that is held at the ECB) reduces bank deposit rates of low risk banks but has no effect on deposit rates of high risk banks or on corporate loan spreads of high or low risk banks. After the ECB started to fully allot all liquidity requested by banks via its refinancing operations on October 8, 2008, an increase in liquidity decreases deposit rates of both high and low risk banks. While loan spreads of low risk banks decrease, those of high risk banks remain unchanged also under full allotment of liquidity. We find that borrowers of high risk banks refinance term loans drawing down loan commitments. They have lower payouts, lower capital expenditures and lower asset growth compared with borrowers of low risk banks. Our results suggest a differential transmission of central bank liquidity of low versus high risk banks, and an impaired transmission to corporate borrowers of high risk banks.
Discussants:
Mark Flannery
(Securities Exchange Commission)
Allen Berger
(University of South Carolina)
Jamie McAndrews
(Federal Reserve Bank of New York)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
R&D, Patents and Innovation
(G3)
Presiding:
Gustavo Manso
(University of California-Berkeley)
Do Stock Markets Promote Innovation? Evidence from the Enforcement of Insider Trading Laws
Ross Levine
(University of California-Berkeley)
Lin Chen
(University of Hong Kong)
Lai Wei
(University of Hong Kong)
[View Abstract]
[Download Preview] This paper assesses whether more effective enforcement of insider trading laws increases the rate of technological innovation. Based on over 100,000 industry-country-year observations across 97 economies from 1976 to 2006, we find evidence consistent with the view that enforcement of insider trading laws spurs innovation—as measured by patent intensity, scope, impact, generality, and originality—after controlling for country-year and industry fixed effects. Consistent with theory, the relationship between innovation and insider trading laws is strongest in industries that are naturally innovative, opaque, and dependent on equity, where we use the U.S. to benchmark industries.
Top Management Human Capital, Inventor Mobility, and Corporate Innovation
Thomas Chemmanur
(Boston College)
Lei Kong
(Boston College)
Karthik Krishnan
(Northeastern University)
Qianqian Yu
(Boston College)
[View Abstract]
[Download Preview] We analyze the effect of the human capital or “quality” of the top management of a firm on its innovation activities. We extract a “management quality factor” using common factor analysis on various individual proxies for the quality of a firm's management team, such as management team size, fraction of managers with MBAs, the average employment- and education-based connections of each manager in the management team, fraction of members with prior work experience in a top management position, the average number of prior board positions that each manager serves on, and the fraction of managers with doctoral degrees. We find that firms with higher quality management teams not only invest more in innovation (as measured by R&D expenditures), but also have a greater quantity and quality of innovation, as measured by the number of patents and citations per patent, respectively. We control for the endogenous matching of higher quality managers and higher quality firms using an instrumental variable analysis where we use a function of the number of top managers who faced Vietnam War era drafts (and therefore had an incentive to go to graduate school to get a draft deferment) as an instrument for top management human capital. We also show that an important channel through which higher management quality firms achieve greater innovation success is by hiring a larger number of inventors (controlling for R&D expenditures), and also by hiring higher quality inventors (as measured by their prior citations per patent record). Finally, we show that firms with higher quality top management teams are able to develop a larger number of both exploratory and exploitative innovations.
Unleashing Innovation
Yifei Mao
(Cornell University)
Xuan Tian
(Indiana University)
Xiaoyun Yu
(Indiana University)
[View Abstract]
[Download Preview] Using a sample of venture capital (VC)-backed initial public offering (IPO) firms, we study the effect of financial intermediaries’ tight leash on entrepreneurs’ innovation productivity. We find that financial intermediaries’ tight leash impedes innovation: IPO firms are significantly less innovative when VCs interfere with their development more frequently through staging—as measured by a larger number of VC financing rounds. To establish causality, we exploit plausibly exogenous variation in the frequency of direct flights between VC domiciles and IPO firm headquarters that are due to airline restructuring. Our identification tests suggest a negative, causal effect of VC staging on firm innovation. Furthermore, staging is more detrimental to innovation when innovation is more difficult to achieve and when VCs are less experienced with the industry in which their entrepreneurial firms operate. By documenting a previously under-recognized adverse consequence of VC stage financing, our evidence suggests that short-termist incentives can be cultivated even in a private equity market populated with long-term, sophisticated investors.
Competition and R&D Financing Decisions: Evidence from the Biopharmaceutical Industry
Richard Thakor
(Massachusetts Institute of Technology)
Andrew Lo
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] How does competition affect innovation and how it is financed in R&D-intensive firms? We study the interaction between competition, R&D investments, and the financing choices of such firms using data on biopharmaceutical firms. To motivate the empirical hypotheses, we develop a model for such firms in which their capital structure and amounts invested in R&D as well as existing assets are all determined in response to the degree of competition in the industry. The key predictions are that, as competition increases, such firms will: (1) increase R&D investment relative to investment in assets-in-place that support existing products; (2) carry more cash and maintain less net debt; and (3) experience declining betas but greater total stock return volatility due to higher idiosyncratic risk. While the focus is on the biopharmaceutical industry, the results are broadly applicable to other R&D-intensive industries as well. We provide empirical support for these predictions. In order to deal with the endogeneity issue introduced by the fact that a firm's R&D investments and the product-market competition it faces influence each other, we provide further evidence through a differences-in-differences analysis.
Discussants:
Amit Seru
(University of Chicago)
Michael Ewens
(California Institute of Technology)
Shai Bernstein
(Stanford University)
Matthew Rhodes-Kropf
(Harvard University)
Jan 03, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Raising Capital
(G3)
Presiding:
N.R. Prabhala
(University of Maryland-College Park and CAFRAL)
The U.S. listing gap (formerly, Why Does the U.S. Have So Few Listed Firms?)
Craig Doidge
(University of Toronto)
Andrew Karolyi
(Cornell University)
Rene Stulz
(Ohio State University)
[View Abstract]
[Download Preview] Relative to other countries, the U.S. has abnormally few listed firms today given its level of economic development and the quality of its institutions. We call this the “U.S. listing gap” and show that it is consistent with a decrease in the net benefit of a listing for U.S. firms. We find that the probability that a firm is listed is lower than at the listing peak in 1996 for all firm size categories though more so for smaller firms. From 1997 to the end of our sample period in 2012, the new list rate is low and the delist rate is high compared to U.S. history and to other countries. The high delist rate accounts for roughly 46% of the listing gap and the low new list rate for 54%. The high delist rate is explained by an unusually high rate of acquisitions of publicly-listed firms compared to previous U.S. history and to other countries. We rule out industry changes, changes in listing requirements, and the reforms of the early 2000s as explanations for the gap.
Institutional Bidding in IPO Allocation: Evidence from China
Jerry Cao
(Singapore Management University)
Tiecheng Leng
(Lingnan College, Sun Yat-sen University)
Bo Liu
(University of Electronic Science and Technology of China)
William Megginson
(University of Oklahoma)
[View Abstract]
[Download Preview] [Download PowerPoint] Using a proprietary database of institutional investor bidding for shares in Chinese IPO allocations, we examine the information content and predictive ability of bidding dispersion. IPOs with higher levels of bid dispersion experience greater first-day return than other IPOs by discounting the offer price as a compensation for investors’ bearing valuation uncertainty and estimation risk, as well as greater trading volume and price volatility. Our results hold after controlling for potential endogeneity and using alternative dispersion measures. Dispersion of bidding prices is negatively predictive both of one-year operating performance post-IPO and three-month stock performance. Bid characteristics, such as the timing of the bid and the frequency and the type of the bidder, matter in the pricing of IPOs, as does the geographic distance between bidders and the IPO firm. Using a 2010 regulation change in the IPO share allocation rule as a natural experiment, we show that the new rule decreases dispersion among institutional bidders but increases the effect of dispersion on first-day return. The evidence highlights the role of institutions and regulatory policies on IPOs in China.
The Real Effects of Equity Issuance Frictions
Matthew Gustafson
(Pennsylvania State University)
Peter Iliev
(Pennsylvania State University)
[View Abstract]
[Download Preview] We study the consequences of an exogenous U.S. deregulation allowing small firms to accelerate public equity issuance. Post-deregulation, firms double their reliance on public equity (both overall and compared to a control group), transition away from private investments in public equity, and increase their total annual equity issuance by 45%. This is accompanied by a significant reduction in equity issuance costs, an 18% increase in investment, and a 12% decline in financial leverage. The effects are larger for growth firms and financially constrained firms. Our findings provide evidence that reducing issuance frictions benefits issuers even in highly developed markets.
Discussants:
Jonathan Reuter
(Boston College)
N.R. Prabhala
(University of Maryland-College Park and CAFRAL)
Joan Farre-Mensa
(Harvard Business School)
Jan 03, 2016 10:15 am, Parc 55, Mission I
American Real Estate & Urban Economic Association
Banking
(G2, R3)
Presiding:
Erwin Quintin
(University of Wisconsin)
Bank Competition, Credit Supply, and Risk-Taking: Evidence from the Real Estate Market
Yongqiang Chu
(University of South Carolina)
[View Abstract]
This paper studies how bank competition affects real estate prices via its impact on credit supply and risk taking in the real estate market. Using interstate banking deregulation and the regression discontinuity design (RDD) for identification, I find that banking competition has a causal and positive effect on real estate prices. Specifically, relaxing one of the four banking restrictions increases real estate prices by about 1.5%. I find that banking deregulation leads to higher loan-to-value ratios and lower mortgage interest rates. In examining the effect on risk-taking, I find that banking deregulation leads to higher commercial real estate default rates. Finally, I show that the results are not only from commercial banks that are directly affected by deregulation but also from non-bank mortgage lenders that are not directly impacted by deregulation, which suggests that the results are driven by the competitive effect of interstate banking deregulation.
Under the Lender's Looking Glass
Mariya Letdin
(Florida State University)
[View Abstract]
[Download Preview] This paper studies the impact of bank monitoring on the risk of US equity REITs. Using a unique, hand-collected data sample of mortgage balances, I show that bank screening and monitoring of REIT assets via utilizing secured mortgage financing (vs unsecured, recourse debt) lowers the overall company risk of a REIT. At the asset level, screening results in primarily retail and office assets located in primary markets, i.e. more transparent assets, being pledged as collateral. Further, I find evidence consistent with the role of lender monitoring for secured, non-recourse mortgage loans.
Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters
Kristle Cortes
(Federal Reserve Bank of Cleveland)
Philip Strahan
(Boston College)
[View Abstract]
[Download Preview] Multi-market banks reallocate capital when local credit demand increases after natural disasters. Following such events, credit in unaffected but connected markets declines by about 50 cents per dollar of additional lending in shocked areas, but most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear better able than smaller ones to shield credit supplied to their core markets (those with branches) by aggressively cutting back lending outside those markets.
Banking, Geographic Restrictions and Consumer Bankruptcy: A Closer Examination
Chintal Desai
(Virginia Commonwealth University)
David Downs
(Virginia Commonwealth University)
[View Abstract]
[Download Preview] This paper analyzes the effect on consumer bankruptcy filings as a result of removing geographic restrictions on intrastate banking. The empirical strategy is to examine this issue more closely by considering three distinct methodologies applied to U.S. county-level data. The analysis based on (i) panel data for all counties, and (ii) panel data of contiguous counties along state borders reveals an insignificant effect. When we use a quasi-natural experiment based on 186 (treatment) events and 4,870 non-event (i.e., placebo) pairs of contiguous counties, we find that bankruptcy filings increase (decrease) in only five (one) of seventeen states with treatment counties.
Discussants:
Daniel Carvalho
(University of Southern California)
Moussa Diop
(University of Wisconsin)
Matthieu Chavaz
(Bank of England)
Manuel Adelino
(Duke University)
Jan 03, 2016 10:15 am, Parc 55, Mission II & III
American Real Estate & Urban Economic Association
Liquidity in Real Estate Markets
(R3, E5)
Presiding:
Robert Connolly
(University of North Carolina-Chapel Hill)
Shadow Inventory, Liquidity Constraints, and the Impact on Home Prices
Zhenguo Lin
(Florida International University)
Ping Cheng
(Florida Atlantic University)
Yingchuan Liu
(Florida International University)
[View Abstract]
This paper studies the impacts of two widespread phenomena on home prices in down cycles of the real estate market – rampant delisting of properties that fail to sell despite genuine marketing effort, and large number of motivated sellers who are pressured to sell because of various liquidity constraints. While there is a general belief that both these factors exert negative impacts on home prices, we extend the literature by formally examining such impacts. We provide a set of simple quantitative tools that enable analysts to infer the true market condition, and sellers to form realistic selling expectations, by adjusting the market average to reflect such impact. Empirically, we demonstrate that the market average, based solely on sold properties, tends to be significantly biased if rampant property delisting exists. In addition, sellers under liquidity constraints are expected to receive a much lower return and bear higher risk than the market average. The findings of this paper can help market participants and policy makers to understand the true housing market conditions, especially in the down cycles of the market during which proper policy responses are most needed.
Volatility and Liquidity in the Real Estate Market
Zhenguo Lin
(Florida International University)
Xin He
(Dongbei University of Finance and Economics)
Yingchuan Liu
(Florida International University)
[View Abstract]
Empirical evidence suggests that when the market becomes increasingly volatile, trading activities may be depressed or even halted. This paper develops a model and formally studies the relationship between the market volatility and its liquidity in the real estate market. Different information structures are examined in the context of a seller-offer, ultimatum bargaining game. We show that an increase in the market volatility negatively affects its liquidity when information is asymmetric between the buyer and the seller. However, market volatility has no effect on liquidity under symmetric information when the buyer and the seller are either both informed or both uninformed.
Unconventional Monetary Policy and U.S. Housing Market Dynamics
Jay Sa-Aadu
(University of Iowa)
Yao-Min Chiang
(National Taiwan University)
James D. Shilling
(DePaul University)
[View Abstract]
[Download Preview] This study investigates whether the unprecedented liquidity injected in the economy by the U.S Fed through unconventional monetary policy measure, popularly known as quantitative easing (QE), is a systematic factor that can explain the abnormally low U.S. investments in new single family housing (housing starts) of recent years. We specify and estimate a model of new housing investments supply that incorporates constructed aggregate liquidity factors that capture QE liquidity injections. The results suggest that new housing investments liquidity betas, their sensitivities to liquidity shocks from QE transmitted through the constructed aggregate liquidity factors significantly influence the level of U.S. investments in new single family housing over the study period. Further, there is evidence of heterogeneity in the responsiveness of new housing investments to shocks from the aggregate liquidity factors in that housing markets constrained by excessive land use controls exhibit relatively muted sensitivities to fluctuations in the aggregate liquidity factors induced by QE. Remarkably, we also find that in the absence of GSE and FHA capital market activities induced by QE that channel credit into housing market, the contraction in new housing investments would have been worse. Additionally, the build-up in the inventory of single family homes-for-rent, a structural factor that emerged in housing markets during the recession, exerts a down-ward pressure on the supply of new single family housing investments.
Sex and Selling: Real Estate Agent Gender, Bargaining, House Price and Liquidity
Bennie D. Waller
(Longwood University)
Duong Pham
(University of Central Florida)
Geoffrey Turnbull
(University of Central Florida)
[View Abstract]
[Download Preview] This paper introduces Nash bargaining into a search model in order to identify various channels through which agent gender affects selling price and selling time in the resale market for houses. The theory can be used in conjunction with the empirical model to determine agent bargaining power and how it is affected by dealing with the same or opposite sex agents. A decade of MLS data from Virginia reveals that listing agent sex and the mix of listing and selling agents involved in a transaction affect prices and liquidity. The bargaining power of agents depends on their sex and that of the agent on the other side of the transaction, but it also depends on housing market conditions. Female selling agents have stronger bargaining power when facing female listing agents than when facing male agents in rising or falling markets. The bargaining power of male selling agents is stronger when facing female listing agents than when facing male agents in the rising market, but it is invariant with respect to listing agent sex in the declining market.
Discussants:
Steve Slezak
(University of Cincinnati)
Andrea Heuson
(University of Miami)
Rodney Ramcharan
(University of Southern California)
John Clapp
(University of Connecticut)
Jan 03, 2016 10:15 am, Parc 55, Powell I
American Real Estate & Urban Economic Association
Securitization
(G2, D5)
Presiding:
Scott Frame
(Federal Reserve Bank of Atlanta)
The Other (Commercial) Real Estate Boom and Bust: The Effects of Risk Premia and Regulatory Capital Arbitrage
David Ling
(University of Florida)
John V. Duca
(Federal Reserve Bank of Dallas)
[View Abstract]
The last decade’s boom and bust in U.S. commercial real estate (CRE) prices was at least as large as that in the housing market and also had a large effect on bank failures. Nevertheless, the role of CRE in the Great Recession has received little attention. This study estimates cohesive models of short-run and long-run movements in capitalization rates (rent-to-price-ratio) and risk premiums across the four major types of commercial properties. Results indicate that CRE price movements were mainly driven by sharp declines in required risk premia during the boom years, followed by sharp increases during the bust phase. Using decompositions of estimated long-run equilibrium factors, our results imply that much of the decline in CRE risk premiums during the boom was associated with weaker regulatory capital requirements. The return to normal risk premia levels in 2009 and 2010 was first driven by a steep rise in general risk premia that occurred after the onset of the Great Recession and later by a tightening of effective capital requirements on commercial mortgage-backed securities (CMBS) resulting from the Dodd-Frank Act. In contrast to the mid-2000s boom, the recovery in CRE prices since 2010 has been mainly driven by declines in real Treasury yields to unusually low levels. Our findings have important implications for the channels through which macro-prudential regulation may or may not be effective in limiting unsustainable increases in asset prices.
CMBS and Conflicts of Interest: A Natural Experiment in Servicer Ownership
Maisy Wong
(University of Pennsylvania)
[View Abstract]
[Download Preview] I study a natural experiment in commercial mortgage-backed securities (CMBS) where some special servicers changed owners (treatment group) from 2009-2010 but not others (placebo group). The ownership change linked sellers (special servicers who liquidate CMBS assets on behalf of bondholders) and buyers (new owners), presenting a classic self-dealing conflict. Average loss rates for liquidations are 11 percentage points higher (implying additional losses of $3.2 billion for bondholders) after treated special servicers changed owners, but not for the placebo group. I provide the first direct measure of self-dealing that links buyers and sellers in securities markets in the United States.
A Theory of Subprime Mortgage Lending, with Applications to the Rise and Fall of the Subprime Conduit Market
Jaime Luque
(University of Wisconsin-Madison)
Timothy Riddiough
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] We present a general equilibrium model of a subprime economy characterized by limited recourse mortgages, asymmetric borrower credit quality information, and mortgage lenders that either own or sell the loans they originate. Because portfolio lenders can acquire soft information at low cost and are capacity constrained, there is another potential funding source for consumers: the conduit loan market. Conduit lenders originate mortgages based on hard information only, but have access to the securitized investment market. This trade-off between adverse selection and secondary market liquidity determines the equilibrium size of the portfolio and conduit loan markets in our model. Our theory rationalizes the emergence of the subprime conduit mortgage market and subsequent collapse of the traditional lending model, and also the recent rise and fall of the subprime conduit mortgage market. In addition, the model sheds some light on the access to and fragmentation of the rental and owner-occupied segments of the housing market, and also illustrates how house prices respond to changes in the credit scoring technology and mortgage securitization rate, among other things.
Complexity in Structured Finance: Financial Wizardry or Smoke and Mirrors?
Rossen Valkanov
(University of California-San Diego)
Andra Ghent
(Arizona State University)
Walter Torous
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We use data from prospectus supplements to measure the complexity of securitized products. We find that securities in more complex deals default more. The higher likelihood of default is economically meaningful: a one standard deviation increase in complexity represents a 17% increase in default on AAA securities. However, yields of more complex securities are not higher indicating that investors do not perceive them as riskier. The relation between complexity and default is not primarily due to issuers masking low quality loans as it persists after controlling for the collateral default rate. Rating agencies are more lenient in rating complex deals.
Discussants:
James Wilcox
(University of California-Berkeley)
Kristopher Gerardi
(Federal Reserve Bank of Atlanta)
Wayne Passmore
(Federal Reserve Board)
Craig Furfine
(Northwestern University)
Jan 03, 2016 10:15 am, Parc 55, Market Street
Association for Comparative Economic Studies
Institutions, Markets, and International Trade in the Transitional Economies and Around the World
(P5, O1) (Poster Session)
Presiding:
Michael Alexeev
(Indiana University-Bloomington)
The Impact of Oil-Shocks, Counter-Shock Policies and Institutions on the Decreasing Growth in Russia
Masaaki Kuboniwa
(Hitotsubashi University)
[Download Preview] Does Institutional Development Matter for Nutrition? A Dynamic Panel Study of the Effects on Caloric Intake
Nadia Doytch
(City University of New York-Brooklyn College and City University of New York-Graduate Center)
Dhaval Dave
(Bentley University and NBER)
Inas Rashad Kelly
(Queens College-City University of New York and NBER)
Schooling Forsaken: Education, Migration and Remittances (Migration, Education and Brain Loss)
Ilhom Abdulloev
(Open Society Institute Assistance Foundation in Tajikistan and IZA-Bonn)
Gil S. Epstein
(Bar-Ilan University, CReAM-London and IZA-Bonn)
Ira N. Gang
(Rutgers University, CReAM-London, IOS Regensburg and IZA-Bonn)
Land Costs, Government Power, and Migration of Firms: The Case of China
Zhigang Li
(AnShun Research Institute)
Jia Yuan
(University of Macau)
Trade, Factor Endowments and Income Inequality: Evidence from China
Yanyan Xiong
(Southeast University)
Shengdan Zhang
(Southeast University)
[Download Preview] (In)efficiency of Nontradable Sectors as an Important Determinant of Exporting Firms' Efficiency: Evidence from a Panel of European Firms
Polona Domadenik
(University of Ljubljana)
Aleš Gorišek
(University of Ljubljana)
Janez Prašnikar
(University of Ljubljana)
[Download Preview] Patent, Innovation and Market Structure: Evidence from Pharmaceutical Industry in China
Lihong Yang
(Renmin University of China)
Investigating First-Stage Exchange Rate Pass-Through: Macro and Sectoral Evidence from 12 Euro Area Countries
Christophe Rault
(Laboratoire d'Economie d'Orléans, CESifo, IZA and William Davidson Institute)
Nidhaleddine Ben Cheikh
(ESSCA School of Management)
Toothless Reforms? The Remarkable Stability of Female Labor Force Participation in a Top-Reforming Country
Maka Chitanava
(ISET-PI and Tbilisi State University)
Norberto Pignatti
(Tbilisi State University)
Karine Torosyan
(Tbilisi State University)
Inflation Persistence Around the World
Evžen Kočenda
(Charles University)
Balázs Varga
(Corvinus University)
The Intergenerational Transmission of Entrepreneurial Propensities: Comparative Evidence from Pre- to Post-Communism in Eastern Europe, Russia, and China
John S. Earle
(George Mason University, IZA, and Central European University)
Kyung-Min Lee
(George Mason University)
[Download Preview] Is Privatization Working in Ukraine? New Estimates from Comprehensive Manufacturing Firm Data, 1989-2013
J. David Brown
(U.S. Census Bureau and IZA-Bonn)
John S. Earle
(George Mason University, IZA, and Central European University)
Solomiya Shpak
(George Mason University)
Volodymyr Vakhitov
(Kyiv School of Economics, Ukraine)
[Download Preview] Jan 03, 2016 10:15 am, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Why Labor Is Not Like Broccoli: Session in Honor of Robert E. Prasch III
(B5, J1)
Presiding:
Barbara Wiens-Tuers
(Pennsylvania State University-Altoona)
Commodification of Labor, Teaching, and Higher Education
Dell P. Champlin
(Oregon State University)
Janet T. Knoedler
(Bucknell University)
[View Abstract]
[Download Preview] A marked trend in the 21st century higher education academic workforce is the growth of contingent and part time academic labor, both in the growing for-profit sector as well as in the traditional non-profit sector. This change, which has been unfolding for at least two decades, has implications for the employment prospects of Ph.D.’s across the disciplines, particularly in fields considered part of the traditional liberal arts and sciences, as well as for one of the most highly educated workforces in the U.S., college professors. What some have dubbed the ‘artisan’ model of education, which relies on labor-intensive construction of classes and close mentoring of students, seems to be changing to a more transactional delivery of content and provision of credential model. Some analysts have predicted that, as colleges and universities continue to struggle with the ‘affordability crisis’ in higher education, costs must be further cut by greater use of online classes and pre-packaged modules, with the result that the traditional full time faculty will become a thing of the past. If so, university education could devolve into a very different system than has existed for centuries, serious implications for the future of educated workers across the spectrum. We will use Veblen’s critique of the business management of universities as a framework for our argument and analysis.
Institutionalist Theories of the Wage Bargain: Beyond Demand and Supply
Daphne T. Greenwood
(University of Colorado-Colorado Springs)
[View Abstract]
[Download Preview] This paper synthesizes institutionalist theories of wage determination for teaching pluralist labor economics. They focus on relative bargaining power, on productivity which is primarily inherent in the job and on how institutions set the context for wage bargaining. The institutionalist view of bargaining power goes beyond market structures, such as monopsony or collective bargaining. Relative bargaining power, like pre-market or social discrimination, is based in a wider context. It is shaped by social norms and attitudes about appropriate behavior as well as public policies that a) exclude or restrict certain ages or genders from the potential labor force, b) separate the potential labor force into non-competing groups, c) affect incentives for individuals in particular categories to participate in labor supply and d) affect the responsibilities of businesses with the workers who produce their goods. Where variations in productivity underlie differentials in wages (or more correctly, total compensation) this is primarily based in the job rather than the individual (see Thurow 1986). Workers in a particular job have access to a given quantity and quality of capital and other resources and are dependent on revenues brought in for the product or service. Individual skills and motivation are valuable in competing for the job but cannot affect firm investments in capital or firm demand.
John Kenneth Galbraith on Labor Market Institutions
Richard P.F. Holt
(Southern Oregon University)
[View Abstract]
John Kenneth Galbraith follows a long line of institutionalist economists who supported the market economy but were critical of its structure and it treatment of workers and the poor. This paper looks at Galbraith’s view of those structural factors and how they influence the development of labor market institutions.
John Kenneth Galbraith rejected the methodological approach of mainstream economics and emphasized an evolutionary process of both formal and informal institutions (habits of mind). While best known for extensions of Veblenian ‘conspicuous consumption’ and theories of corporate behavior, his work reveals also insights about labor. This paper will deal with three: Over fifty years ago, Galbraith included the work experience in what he called ‘quality of life’ and called for translating productivity gains into reduced work hours, greater safety, and more satisfying work as well as the higher pay that would provide more consumer demand. He also recognized that technological change drove new market structures to effectively use specialized knowledge, group decision-making and a more advanced division of labor, all of which would affect workers, positively or negatively. Thirdly, Galbraith realized the need for countervailing power to the large corporation, which he saw in unions. They had the ability to bargain for better working conditions as well as a more fair structure of wages. Galbraith would not be surprised that the developing imbalance of power has led large corporations to avoid direct bargaining with workers through outsourcing and contracting.
Inside Institutions: The Contemporary Significance of the Employment Relationship
Janice A. Peterson
(California State University-Fresno)
[View Abstract]
The nature and significance of the relationship between employers and employees has always been at the heart of the institutionalist tradition in labor economics. In Robert Prasch’s essay “How is Labor Distinct from Broccoli?” (The Institutionalist Tradition in Labor Economics, Dell P. Champlin and Janet T. Knoedler, eds., 2004), he articulated the qualities of labor that define fundamental differences between labor and other marketable commodities and make the employment relationship uniquely different from other market transactions. He also noted that these difference were “once well understood by economists.” Consequently, he argued: “It follows that what is needed is not a project of discovery so much as one of recovery.” Current labor policy discussions focus our attention once again on the relationship between employers and employees, as we seek to understand and develop policies to address the problems of labor market fissuring, contingent and precarious employment, irregular work scheduling, overemployment and underemployment. This requires looking “inside institutions” at the evolving definitions and relationships of employment. This paper will examine the significance and uniqueness of the employment relationship in institutional labor economics, and the insights to be gained from “rediscovering” this perspective and applying it to the analysis of contemporary employment trends, outcomes and policies, as well as introducing this analysis as the foundation of labor economics education.
How Important are Institutions? A Cross-Country Comparison GDP, Employment and Job Quality in the Aftermath of the Great Recession
David Howell
(New School)
[View Abstract]
By most metrics, the financial crisis of 2007-9 produced the most severe recession since the Great Depression of the 1930s, but labor market outcomes show remarkable differences across the countries of the rich world. More specifically, patterns of GDP and productivity growth between 2007 and 2014 do a poor job of accounting for differences in wage and employment performance during and after the crisis. With a new measure of decent jobs (adequate wages and hours), this paper describes trends in GDP, productivity growth, the decent job share of employment, the low wage share, and the real wage by gender and large economic sector for the US, Canada, the UK, France and Germany. It then considers these trends in light of cross-country differences in how labor markets function, with the labor market understood not just in terms of the interaction of labor supply and demand, but more broadly as the set of social mechanisms that coordinate terms of employment. These mechanisms are called for convenience “institutions”, which include not just legal and informal rules and social norms, but also the consequential actions of organizations (e.g., government policies and programs, and the policies of firms, trade unions and advocacy organizations) and the effects of social structures (e.g., race, gender and immigration dynamics).
Jan 03, 2016 10:15 am, Marriott Marquis, Pacific B
Association for Social Economics
Great Thinkers on Ethics, Economics, and Financial Markets
(A1, D6)
Presiding:
Jonathan Wight
(University of Richmond)
The Space Between Choice and Our Models of It: Practical Wisdom and Normative Economics
Andrew M. Yuengert
(Pepperdine University)
[View Abstract]
[Download Preview] The gap between the economic theory of action and the practical reality of choice (analyzed in the Aristotelian practical wisdom tradition) cannot be bridged through the development of more complex models. This poses a challenge for the use of economic models for policy analysis: they cannot help but leave out of their formal analysis aspects of actual decision making (practical wisdom) which are crucial to the operation of the economy. Insights from three different treatments of the gap between the formal analysis of choice and the reality of human behavior (Suchman’s studies of human-machine interaction, Scott’s analysis of mētis, and Vernon Smith’s studies of ecological rationality) offer guidance for how economists might modify the insights of their models of choice when offering policy advice.
Kant on Modern Finance: Are We Treating People Simply as Means?
Mark D. White
(City University of New York-College of Staten Island)
[View Abstract]
This paper, by White, asks whether modern finance, with its increasing reliance on intermediation and the resulting moral hazard, violates Immanuel Kant's dictum not to treat person simply as means. White will explore the meaning of markets and the role of ethics therein in order to divine the responsibility of actors and regulators in financial markets.
Faction and the Warping of Moral Imagination: When Trade Becomes a Zero Sum
Sandra J. Peart
(University of Richmond)
David M. Levy
(George Mason University)
[View Abstract]
[Download Preview] For Smith and, even more, for James Mill, factions are associated with zero-sum outcomes. In Mill’s view, unchecked power is the means by which an individual or a group promotes its interest to the detriment of others. In the context of the financial crisis this played out as those within the circle of front running traders such as Bernie Madoff were well aware of the front running, of taking from some – outside the faction – to benefit those on the inside of the faction. This paper, accordingly, explores the darker side of sympathy in classical economic analysis, as well as the potential means of weakening the impulse to form factions.
Financialization and Economic Democracy
Robert McMaster
(University of Glasgow)
Andrew Cumbers
(University of Glasgow)
[View Abstract]
This paper centres around the basic proposition that societies with strong economic democracy are more likely to achieve crucial public policy goals; such as combating climate change, reducing inequalities and creating more sustainable forms of economic activity. In doing so, we attempt to construct an index of economic democracy (EDI) as both a tool to test the basic proposition and as a key indicator of individual country performance in the pursuit of open and democratic governance of the economy. A key argument advanced here is that dominant economic policy regimes in many OECD countries - where decision making is increasingly monopolised and centralised among financial and economic elites and “experts” - have had negative effects in terms of greater income and wealth equalities, increasing susceptibility to financial crises and fragility, and arguably a failure to effectively address the causes of climate change.<br />
<br />
We make a broad definition of economic democracy – employing four dimensions: (i) workplace (nature and structure of employment relations, levels of co-determination, etc); (ii) degree of associational economic governance (e.g. level of cooperatives within economy, number and extent of business and labour associations in economic policy forums); (iii) distribution of economic decision-making powers across space and sector (e.g. ownership structure, size structure of firms, spatial division of labour between regions); (iv) transparency, openness and democratic engagement of broader population in macro-economic decision-making (e.g. central bank governance structures).<br />
<br />
In articulating our case, we draw from the work of John Dewey (1963), for example, in emphasising the deliberative aspect of economic democracy. We anticipate that greater economic democracy does not resonate with financialisation.
Comparing Adam Smith to J.M. Keynes on Financial Markets
Jonathan Wight
(University of Richmond)
[View Abstract]
The 2016 ASE theme centers on the increasing role of financialisation in economic life, and the inherent ethical tensions created by the profit motive in the presence of moral hazards, lack of transparency, regulatory capture, and other issues. The papers in this session would explore how five historical thinkers might view modern financial institutions and the boundaries of private and social action. The “great thinkers” to be explored are Aristotle, Kant, Smith, Mill, and Keynes. This session will argue that these thinkers provide much of interest to social economists, and the specific focus on financial intermediation may provide a new twist to an old story. All of the authors have published extensively about the great thinker to be explored, and bring of a depth of insight to the implications for the financial crisis of 2008.
Jan 03, 2016 10:15 am, Hilton Union Square, Sutter A & B
Association of Environmental & Resource Economists
Microeconomics of Technology Adoption
(Q5)
Presiding:
Katrina Jessoe
(University of California-Berkeley)
An RCT of RCTs: Climate Change Adaptation through Resource Conserving Technologies (RCTs)
Paul Ferraro
(Johns Hopkins University)
Francisco Álpizar
(Centro Agronómico Tropical de Investigación y Enseñanza)
María Bernedo
(Georgia State University)
[View Abstract]
We report results from the first (to our knowledge) randomized controlled trial to test the impact of water-efficient technology adoption on water use. Encouraging humans to adopt technologies that use less water per unit of activity has been highlighted in numerous government and multilateral plans as a key component of climate change adaptation strategies. For example, a State of California report (2008) urges the region to “aggressively increase water use efficiency” for climate change adaptation. In a drought-prone area of Central America that is forecasted to experience more frequent droughts in the future, engineers have estimated that more efficient technologies in rural homes will reduce water use by almost 25%. Two prominent reasons why such technologies will not reduce water use by as much as engineers predict are: (a) residents change their behavior in response to the new technology (as one might see in the energy efficiency context); and (b) disadoption of the technology. We randomly offered free water-efficient technology and installation to over one thousand rural residential homes who expressed an interest in acquiring the technology. To test hypotheses related to disadoption, we also randomly required some households to hand over their old technology to the implementers prior to receiving the new technology, and randomly offered some households a performance bonus for continuing to use the technology for up to six months. We conducted audits of households 5-6 months after treatment assignment to determine if the technologies remain installed. These additional treatments are used to test the popular hypothesis that people disadopt resource-conserving technologies because of insufficient time with the technology, which prevents them from reducing the marginal costs (learning by doing) and forming more accurate beliefs about the marginal benefits (learning by observing).
Measuring the Accuracy of Engineering Models in Predicting Energy Savings from Home Retrofits: Evidence from Monthly Billing Data
Joseph Maher
(Resources for the Future)
[View Abstract]
[Download Preview] To date, the energy savings from energy-efficiency building retrofits are assessed using ex-ante engineering models. This paper provides the first evaluation of engineering models that uses residential billing data, combined with data on observable characteristics of each residence, to assess the accuracy of engineering predictions across nine retrofit technologies used in Gainesville, Florida.
The analysis combines three central datasets including (i) an eight-year panel of household-level monthly electricity and natural-gas consumption data for 30,000 residences in the Gainesville Regional Utility service area from 2004 to 2012, (ii) information about the type and timing of retrofits for over 12,000 rebate program participants from 2008 to 2012, (iii) household-level engineering predictions of energy savings for each program participant.
To evaluate average energy savings of DSM programs using quasi-experimental techniques, I employ a two-way fixed effect model, where a panel of monthly energy bills is used to eliminate time-constant features of each residence. As a further innovation, I exploit differences in the timing of retrofit installation during the five-year rebate program. To identify treatment effects for early retrofits installed at time t, I use a control group made of future program participants that have not yet installed retrofits at time t. By using only treated households, I eliminate bias introduced from participant self-selection.
Results indicate that household engineering models are surprisingly accurate, a finding that contrasts sharply with literature validating aggregate engineering models. In four of nine retrofit programs, engineering models predicted energy savings within 20% of actual energy reduction (pool-pump replacement, refrigerator removal, duct repair). However, engineering bias vary in direction and magnitude across retrofit technologies. For the remaining five programs, engineering biases range from 60% under prediction (central air-conditioner), to 100% over prediction (attic insulation, air-conditioner maintenance) – modest biases that are 5 times smaller than those cited in previous literature.
Do Decentralized Community Treatment Plants Provide Clean Water? Evidence from Andhra Pradesh
Marc Jeuland
(Duke University)
Marcella McClatchey
(Booz Allen Hamilton)
Sumeet Patil
(University of California-Berkeley)
Subhrendu Pattanayak
(Duke University)
Christine Poulos
(RTI International)
[View Abstract]
[Download Preview] Highly advanced, community-level drinking water treatment facilities are increasingly seen as water
supply solutions in locations where piped in-house water systems are nonexistent or unreliable. These
systems utilize combined technologies, such as advanced filtration plus ultraviolet disinfection or
reverse osmosis, which are known to be highly effective for the removal of pathogens and other water
contaminants. Yet there is a paucity of rigorous evidence on whether the community-level treatment
model delivers water quality and health benefits to households that source water from them. This paper
utilizes a quasi-experimental approach that combines construction of counterfactual groups of
households with a difference-in-differences methodology to examine such impacts. We find that only a
little over 10% of households in treatment villages source water from the community water systems
(CWS), and there is no evidence of health and water quality benefits among households in treated
villages, relative to controls. Furthermore, among users of the CWS (but not non-users), we observe
lower water quality and higher diarrheal disease rates relative to control households. These negative
impacts can perhaps be explained by a combination of non-exclusive use of clean CWS water and
reduced self-protection against water quality risks: we find evidence that households accessing the CWS
increase the number of water sources on which they rely even as they reduce self-protection using in-house water treatment methods. In the longer term, as the CWS model spreads throughout the region,
we observe that most of the differences between households in treated and control communities fade
away. These findings suggest that caution and additional scrutiny is warranted before concluding that
such systems provide safer water to households in communities facing drinking water quality problems.
Economics of a Light Bulb: Experimental Evidence on CFLs and End-User Behavior
Robyn Meeks
(University of Michigan)
Eliana Carranza
(World Bank)
[View Abstract]
[Download Preview] Through a two-stage randomized control trial, we estimate the impact of energy efficient lightbulbs (compact fluorescent lightbulbs or CFLs) on household electricity consumption and show that household-level efficiency creates a technological externality, in the form of increased electricity reliability. The CFL treatment leads to a reduction in household electricity consumption of approximately 30 kWh per month, which is within the range of the technologically feasible expected electricity savings. Estimates not controlling for externalities are substantially downward biased. The distribution of CFLs can result in transformer-level technological externalities: more intense distribution of CFLs within a transformer leads to two fewer days without electricity per month due to transformer-level outages, a statistically and technologically significant result. This reduction in outages permits households to consume more electricity services. Finally, we investigate the channels through which externalities impact technology adoption and find interactions between peer effects and technological externalities to be critical in inducing take-up.
Discussants:
Katrina Jessoe
(University of California-Davis)
Meredith Fowlie
(University of California-Berkeley)
Yaniv Stopnitzky
(University of San Francisco)
Judson Boomhower
(University of California-Berkeley)
Jan 03, 2016 10:15 am, Parc 55, Divisadero
Chinese Economic Association in North America/American Economic Association
Innovation, Growth and Development
(O3, O1)
Presiding:
Ping Wang
(Washington University-St. Louis)
How Destructive is Innovation?
Daniel Garcia-Macia
(Stanford University)
Chang-Tai Hsieh
(University of Chicago)
Peter J. Klenow
(Stanford University)
[View Abstract]
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? Using U.S. Census data on manufacturing firms from 1963 through 2002, we arrive at three main conclusions: First, most growth has seemed to come from incumbents’ innovation rather than innovation by entrants. We infer this from the modest market share of entering firms. Second, most growth seems to have come from improvements of existing varieties rather than creation of brand new varieties. We infer this because firm exit rates fall only gradually as firms expand, suggesting they are not accumulating a larger set of products. Third, own-product improvements by incumbents appear to have been more important than creative destruction. We infer this because the distribution of firm growth rates has had thinner tails than implied by a model in which growth is entirely due to creative destruction.
Corruption in Growth Theory
Costas Azariadis
(Washington University-St. Louis)
[View Abstract]
This paper builds an overlapping generations model with three sectors--production, rent-seeking, deterrence-- and heterogeneous labor. It seeks to identify situations in which efficiency-enhancing reforms can or cannot be blocked by rent-seeking households.
Innovation and Imitation in a Product-Cycle Model with FDI and Cash-in-Advance Constraints
Hung-Ju Chen
(National Taiwan University)
[View Abstract]
This paper analyzes the effects of monetary policy on innovation and imitation in a North-South product-cycle model with foreign direct investment (FDI) and separate cash-in-advance (CIA) constraints on innovative R&D, adaptive R&D and imitative R&D. We find that if the CIA constraint is applied to innovative R&D, then an increase in the Northern nominal interest will raise the rate of Northern innovation and the extent of FDI while reducing the rate of Southern imitation and the North-South wage gap. Regarding the effects of the Southern monetary policy, the object that is liquidity-constrained plays a significant role. If adaptive (imitative) R&D is subject to the CIA constraint, then an increase in the Southern nominal interest rate will raise (reduce) the rate of Northern innovation and the extent of FDI while reducing (raising) the rate of Southern imitation. We also examine the responses of social welfare for Northern and Southern consumers to monetary policy.
To Stay or to Migrate? The One-Child Policy, Work-Based Migration and Land Entitlement in China
Pei-Ju Liao
(Academia Sinica)
Ping Wang
(Washington University-St. Louis)
Yin-Chi Wang
(Chinese University of Hong Kong)
Chong Kee Yip
(Chinese University of Hong Kong)
[View Abstract]
This study provides a dynamic macroeconomic model with the features of the institutions of China to study the contribution of rural-urban migration, especially worked-based migration, to the economic development in China. It is a consensus that cheap labor from rural areas has contributed to the industrialization and modernization of China after the reform in 1979. Different from the reduced-form approach adopted by most of the existing literature, we develop a model of heterogeneous agents with endogenous fertility and migration decision. More specifically, the land entitlement of rural households, the differential fertility control policies across urban and rural areas, and rural-urban household registration status are introduced into the model. This study therefore provides a micro-funded macroeconomic model to examine rural households. migration decisions and their relationship with land tenure arrangements, urban job opportunities and the regulations of the household registration system. Calibration analysis of the model is performed, and numerical analysis examining the significances of the pull” and retain” factors of migration and their effects on output levels is performed. Finally, policy experiments on the land entitlement system, migration regulations as well as fertility policies are provided.
Discussants:
Been-Lon Chen
(Academia Sinica)
Zheng Song
(Chinese University of Hong Kong)
Minchung Hsu
(National Graduate Institute for Policy Studies, Japan)
Douglas Almond
(Columbia University)
Jan 03, 2016 10:15 am, Marriott Marquis, Sierra A
Chinese Economists Society
Inequality in Education Within and Across Households in China
(I2)
Presiding:
Albert Park
(Hong Kong University of Science and Technology)
Sorting, School Performance and Quality: Evidence from China
Yang Song
(Colgate University)
[View Abstract]
[Download Preview] School choice reforms, such as lottery and voucher programs, give talented students the choice to sort out of low-performing schools but often leave disadvantaged students behind. This study shows how a Chinese city was successful in helping its low-performing schools to catch up by encouraging talented students to sort into its low-performing schools. The city’s education bureau identified several low-performing middle schools and guaranteed elite high school admission to their top ten-percent graduates. This paper documents that schools affected by this top-ten percent policy improved their performance by 0.3 standard deviation. To understand the underlying mechanisms, the city’s lottery system for middle school assignment is used to test for changes in composition and value-added. Conditional logit regressions show that sixth graders with high math scores and high socioeconomic status were more likely to choose a low-performing policy school after the policy introduction. Instrumental quantile treatment effect estimates show that the value-added gaps between policy schools and over-subscribed schools were closed for students at both higher and lower quantiles. The study suggests that incentives for better students to attend lower-performing schools help narrow not only the school performance gap but also the school quality gap.
Peer Effects in Computer Assisted Learning: Evidence from a Randomized Experiment
Marcel Fafchamps
(Stanford University and NBER)
Di Mo
(Stanford University)
[View Abstract]
[Download Preview] We conduct a large scale RCT to investigate peer effects in computer assisted learning (CAL). Identification of peer effects relies on three levels of randomization. It is already known that CAL improves math test scores in Chinese rural schools. We find that paired treatment improves the beneficial effects of treatment for poor performers when they are paired with high performers. We test whether CAL treatment reduces the dispersion in math scores relative to controls, and we find statistically significant evidence that it does. We also demonstrate that the beneficial effects of CAL could potentially be strengthened, both in terms of average effect and in terms of reduced dispersion, if weak students are systematically paired with strong students during treatment. To our knowledge, this is the first time that a school intervention has been identified in which peer effects unambiguously help weak students catch up with the rest of the class without imposing any learning cost on other students.
Maternal Bargaining Power, Parental Compensation and Non-Cognitive Skills in Rural China
Elaine Liu
(University of Houston and NBER)
Jessica Leight
(Williams College)
[View Abstract]
[Download Preview] The importance of non-cognitive skills in shaping long-term human capital and labor market outcomes is widely acknowledged, but relatively little is known about how non-cognitive skills may shape investments by parents early in life. This paper evaluates the parental response to variation in non-cognitive skills among their children in rural Gansu province, China, using a household fixed effects strategy. The results suggest that on average, parents invest no more in children who have better non-cognitive skills relative to their siblings. However, there is significant heterogeneity with respect to maternal education; less educated mothers appear to reinforce differences in non-cognitive skills between their children, while more educated mothers appear to compensate for these differences. The evidence is consistent with this pattern reflecting greater bargaining power for more educated mothers, and a greater preference for intrahousehold equity in outcomes among children by mothers compared to fathers. In addition, there is evidence that these compensatory investments lead to less persistence over time in non-cognitive skills for children of more educated mothers.
Discussants:
Jessica Leight
(Williams College)
Paul Glewwe
(University of Minnesota)
Chih Ming Tan
(University of North Dakota)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 24
Cliometric Society
New Wine in Old Bottles: Capitalism, Monetary Policy, Panics and War
(N4)
Presiding:
Claude Diebolt
(University of Strasbourg)
The ‘New History of Capitalism’ and Slavery
Paul Rhode
(University of Michigan)
Alan Olmstead
(University of California-Davis)
[View Abstract]
A surge of studies on the "New History of Capitalism" grounds the rise of industrial capitalism on the production of raw cotton by slaves. Recent works include Walter Johnson's River of Dark Dreams, Edward Baptist's The Half Has Never Been Told, Sven Beckert's Empire of Cotton, and Joshua Rothman’s Flush Times and Fever Dreams. We compare and contrast the approaches and findings of this influential literature with those the New Economic History of the past generation. We also point to new data and methods. Taken as a whole, our perspective leads to new understandings on the economic history of cotton and labor institutions. Our findings strike at the heart of the many claims popularized by the New Historians of Capitalism.
The Taylor Rule in the 1920s
Alexander Field
(Santa Clara University)
[View Abstract]
[Download Preview] In an influential article published in 1993, John Taylor described a rule for setting interest rates that he viewed as important both descriptively and prescriptively for the study of central bank behavior and the setting of monetary policy. Rates too high risked recession while rates too low risked inflation. More recently Taylor has suggested that low rates might also precipitate recession by generating asset price bubbles, and has criticized Federal Reserve policy between 2001 and 2004 and after 2008 on these grounds. But the posited link between low rates and bubbles remains controversial, and the proposition that interest rates are the best mechanism for deflating them far from settled. This paper examines US macroeconomic history and policy in the 1920s, asking what a Taylor rule would have prescribed then and comparing that with what actually transpired. The results of the study are not entirely unambiguous, but they do show that for most of the period a Taylor rule would have mandated a policy rate lower than what was actually in effect, indeed often below zero. Yet rates generally above those prescribed did not, in the event, prevent a raging stock market bubble from developing in the second half of the decade. This finding adds to evidence from Britain or New Zealand in the 2000s that asset bubbles can develop when policy rates are above those prescribed by a Taylor rule, as well as when they are below.
How to Prevent a Banking Panic: The Barings Crisis of 1890
Eugene White
(Rutgers University)
[View Abstract]
This paper revisits the "domestic" side of the Barings Crisis of 1890, which has received almost no attention in contrast to the international dimensions of the crisis. The sparse existing literature is reviewed and new archival evidence constructs a more complete history of how the Bank of England managed the crisis. Although the Barings Crisis is often treated as a minor British event compared to the panics of 1825-1826 and 2007 (Turner, 2013) and even Overend-Gurney, it is considered here as a key event, perhaps a turning point, in the conduct of central banking. Whereas, those crises are renowned because of their magnitude, they were crisis where the authorities lost control of events---policy was reactive. In contrast, the prompt intervention by the Bank and the Treasury in 1890 halted what many believed would have been a more severe crisis than occurred in 1866. The model for this discretionary intervention was almost certainly the intervention by the Banque de France the year before to halt a run on the second largest commercial bank in Paris, the Comptoir d'Escompte (Hautcoeur, Riva and White, 2014). Providing a loan against all the assets---both good and bad---of the Comptoir, all depositors and creditors were made whole. Any losses were to be absorbed by a guarantee syndicate of banks whose composition was in large part determined by their participation in the scheme to corner the copper market that ruined the Comptoir. The directors and the officers of the bank paid a heavy price for permitting the bank to be undermined by the copper scheme, thus mitigating moral hazard.
The Irrational Rationality of War and Economics
Roger Ransom
(University of California-Riverside)
[View Abstract]
I outline how an analytical narrative can help to explain the series of calamities from the first through the second world wars and why people were unable to gain control of economic, social and political environments. What troubled people at the time was that they could not explain why these wars, panics, and depressions followed in such quick succession after a century of relative calmness and stability. A veritable army of researchers has not turned up many answers. No one has come up with an "explanatio" for the First World War. My approach is to take the outbreak the war in 1914 as an unexplained event that touched off war at the start of my narrative. Given that as the initial condition, we can then examine how economic and military factors became intertwined with the conduct of the war and the created the problems facing world leaders at the end of the war. While many historians view the two decades following the Treaty of Versailles as a lull between two huge storms, economic historians view the interwar years as a period of intense economic and social turmoil as people struggled to get back into some sort of “normalcy†amid the destruction and confusion surrounding the end of the war. Taken together, the two wars and the intervening years of depression combine to make a "perfect storm" that lasted for forty years.
Discussants:
Robert Margo
(Boston University)
Michael Haupert
(University of Wisconsin-La Crosse)
Jon Moen
(University of Mississippi)
Claude Diebolt
(University of Strasbourg)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 16
Econometric Society
Advances in Asset Pricing
(A1)
Presiding:
Peter Kondor
(London School of Economics)
Efficiently Inefficient Markets for Assets and Asset Management
Lasse Pedersen
(Copenhagen Business School and New York University)
Nicolae Garleanu
(University of California, Berkeley)
[View Abstract]
We consider a model where investors can invest directly or search for an asset manager, information about assets is costly, and managers charge an endogenous fee. In equilibrium, the efficiency of asset prices is linked to the efficiency of the asset management market: (1) if investors can find managers more easily then more money is allocated to active management, fees are lower, and asset prices are more efficient; (2) as search cost diminish, asset prices become efficient in the limit, even if information-collection costs remain large; (3) managers of complex assets earn larger fees and are fewer, and such assets are less efficiently priced; (4) good managers outperform after fees, bad managers underperform after fees, and the net performance of the average manager depends on the number of "noise allocators."
Investor Protection and Asset Prices
Georgy Chabakauri
(London School of Economics)
Suleyman Basak
(London Business School)
M. Deniz Yavuz
(Purdue University)
[View Abstract]
[Download Preview] The vast empirical literature on investor protection provides much convincing evidence on its effects on stock mean-returns, return volatilities and interest rates. In this paper, we develop a dynamic asset pricing model of investor protection which sheds light on the empirical regularities and uncovers the possible underlying economic mechanisms at play. Our model features a firm owned by a minority shareholder and a controlling shareholder who can divert a fraction of the firm’s output. The diverted fraction is constrained by investor protection and also imposes non-pecuniary costs to the controlling shareholder. Our findings provide support for the empirical evidence on asset prices and are as follows. We find that the controlling shareholder's stock holding is larger with poor investor protection than that with full protection. We demonstrate that the stock mean-return decreases with poor investor protection in equilibrium. We also show that the equilibrium stock return volatility is higher with imperfect protection than that with full protection. Moreover, we find that interest rates decrease with lower protection. More generally, the effects of investor protection tend to be stronger when the controlling shareholder has a low share of the aggregate consumption.
Liquidity Risk and the Dynamics of Arbitrage Capital
Peter Kondor
(London School of Economics)
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.
An Equilibrium Model of Institutional Demand and Asset Prices
Motohiro Yogo
(Princeton University)
Ralph Koijen
(London Business School)
[View Abstract]
[Download Preview] We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings. The equilibrium price vector is uniquely determined by market clearing for each asset. We relate our model to traditional frameworks including Euler equations, mean-variance portfolio choice, factor models, and Fama-MacBeth regressions. Because the asset demand system cannot be estimated consistently by least squares in the presence of price impact, we propose two identification strategies, based on a coefficient restriction or instrumental variables. We apply our model to understand the role of institutions in stock market movements, liquidity, volatility, and predictability.
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 19
Econometric Society
Contracting
(A1)
Presiding:
Anjan Thakor
(Washington University in St. Louis)
Credit Enforcement and Firm Boundaries: Evidence from Brazil
Janis Skrastins
(London Business School)
[View Abstract]
[Download Preview] I study how lenders develop alternative enforcement mechanisms to overcome weak creditor rights. Using data from a large agribusiness lender in Brazil, I examine the construction of grain silos that enable the lender to offer a credit contract that is repaid in grain. As a result, the lender improves collateralization of its loans and significantly increases lending. The effects are stronger for municipalities with weaker courts, financially-constrained borrowers, areas exposed to more weather risk, and periods of high commodity price volatility. Thus, I uncover a new mechanism, accessed by expanding firm boundaries, to facilitate debt financing.
The Separation of Firm Ownership and Management: A Reputational Perspective
Thomas A. Rietz
(University of Iowa)
Thomas Noe
(Said Business School)
Michael Rebello
(MIchael Rebello University of Texas-Dallas)
[View Abstract]
[Download Preview] We examine the effect of ownership and governance structures on what is arguably a firm's most valuable asset: its reputation. We model reputations based on alterable organizational and structural firm characteristics rather than the personal characteristics of the management team. We show that, in some cases, delegated "professional" management combined with outside shareholder governance supports reputable firm behavior even when owner management cannot. The option to reform after a reputation is damaged further increases the advantage of delegated management because the reform option reduces the ability of owner managers to commit ex ante to reputable behavior.
Disagreement in Optimal Security Design
Juan Ortner
(Boston University)
Martin C. Schmalz
(University of Michigan)
[View Abstract]
[Download Preview] Which security does a firm optimally issue when it is more optimistic than its financiers about the characteristics of the asset? In our basic model, either debt or debt plus barrier options are optimal. When multiple assets with identical characteristics are available, pooling can be strictly preferred to selling optimal securities backed by the individual assets. When investors disagree amongst themselves, selling multiple tranches can be optimal. In a stylized dynamic extension, convertible securities commonly used in VC financing naturally emerge.
The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis
Rajkamal Iyer
(Massachusetts Institute of Technology)
Nittai Bergman
(Massachusetts Institute of Technology)
Richard Thakor
(Massachusetts of Technology)
[View Abstract]
[Download Preview] What is the effect of cash injections during financial crises? Exploiting variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of cash injections on the real and financial sector. Cash injections are shown to have significant economic impact on a host of outcomes including asset prices, loan delinquency rates, and the probability of bank failure. Further, we measure how cash injections affect local-level labor markets, analyzing the impact on employment and wages both within and outside of the sector receiving injections.
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 3 & 4
Econometric Society
Econometrics of Networks
(A1)
Presiding:
Arthur Lewbel
(Boston College)
A Weak Law for Moments of Pairwise-Stable Networks
Michael Leung
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We develop asymptotic theory for strategic network-formation models under the assumption that the econometrician observes a single large pairwise-stable network. Drawing on new techniques in the random-graphs literature, we derive sufficient conditions for an unconditional weak law of large numbers for a useful class of network moments. Under these conditions, the model generates realistic networks that are sparse and may contain "giant" connected subnetworks, two well-known properties of real-world social networks. The conditions also conveniently suggest a new method to simulate counterfactual networks that avoids a well-known curse of dimensionality. Lastly, we characterize the identified set of structural parameters based on a tractable class of pair-level network moments and construct consistent estimators.
Identifying and Estimating Social Connections from Outcome Data
Aureo de Paula
(University College London)
Imran Rasul
(University College London)
Pedro CL Souza
(Pontifical Catholic University of Rio de Janeiro)
[View Abstract]
Knowledge of the relevant linkages between individuals is usually necessary for the estimation of social interaction models. We obtain results that allow for the estimation of parameters of interest in such models without information on the relevant linkages. Our identification analysis relies on usual assumptions on the nature of interactions found in, e.g., Bramoulle, Djebbari and Fortin (Journal of Econometrics, 2009). To obtain identification we further impose conditions on the density of links and repeated observation of outcomes for a given group of individuals. We provide an estimation strategy which we investigate via simulations and an empirical illustration.
Estimation of Large Network Formation Games
Shuyang Sheng
(University of California-Los Angeles)
Geert Ridder
(University of Southern California)
[View Abstract]
[Download Preview] This paper provides estimation methods for network formation models using observed data of a single large network. We characterize network formation as a simultaneous-move game with incomplete information and allow for the effects of indirect friends such as friends in common, so the utility from direct friends can be nonseparable. Nonseparability poses an challenge in the estimation because each individual then faces an interdependent multinomial discrete choice problem where the choice set increases with the number of individuals n. We propose a novel method to linearize the utility and derive the closed form of the conditional choice probability (CCP). With the closed form CCP, we show that the finite-player game converges to some limiting game as n goes to infinity. We propose a two-step estimation procedure using the equilibrium condition from the limiting game. The estimation procedure makes little assumption on equilibrium selection, is computationally simple, and provides consistent and asymptotic normal estimators for the structural parameters. Monte Carlo simulations show that the limiting game approximates finite-player games well and can provide accurate estimates.
Necessary Luxuries: A New Social Interactions Model, Applied to Keeping Up With the Joneses in India
Arthur Lewbel
(Boston College)
Sam Norris
(Northwestern University)
Krishna Pendakur
(Simon Fraser University)
Xi Qu
(Shanghai Jiao Tong University)
[View Abstract]
[Download Preview] Models where utility depends on the difference between the consumed quantity vector and a vector of perceived minimum "needs" go back to Samuelson (1947). We model peer effects by letting the average consumption of one's peers affect the quantity vector that defines one's perceived needs. We show how dollar costs of these peer effects on welfare can be obtained in these models. In addition to the usual obstacles to identification in peer effects models, here only a small number of members of each peer group are observed, so true mean group consumption levels cannot be consistently estimated. We propose and apply a new identification and estimation strategy for spatial or social interactions data to deal with the resulting identification problems. We implement our model with Indian household-level consumption microdata. We find that peer effects are important for luxuries and not necessities. Our estimates imply that, in terms of utility, the cost of "keeping up with the Joneses" effects equaled about about 15% of total Indian GDP growth from 1994 to 2010. Samuelson (1947) and Gorman (1976) propose models where an individual's perceived "needs" are represented by a quantity vector of goods. People get utility from the difference between the quantity vector they actually consume and this quantity vector of needs. We model peer effects in consumption choices (e.g., "keeping up with the Joneses") by letting the average consumption of one's peers affect the quantity vector that defines one's perceived needs. The resulting model is an example of a social interactions or spatial regression framework, where the quantity one consumes of goods, particularly luxuries, depends not only on one's own budget and other characteristics, but also on the average consumption of luxuries and/or other goods consumed by one's peers.
Wage Dynamics and Peer Referrals
Vincent Boucher
(Université Laval)
Marion Gousse
(Universit ?e Laval)
[View Abstract]
[Download Preview] We present a flexible model of wage dynamics where information about job openings is transmitted through social networks. The model is based on Calvo-Armengol & Jackson (2004, 2007) and extends their results outside the stationary distribution, and under observed and unobserved heterogeneity. We present an empirical application using the British Household Panel Survey by exploiting direct information about individual’s social networks. We find that the distribution of job offers is positively affected by the employment status of an individual’s friends, and that this relationship is stronger for women.
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 5 & 6
Econometric Society
JBES Invited Session
(A1)
Presiding:
Todd Clark
(Federal Reserve Bank of Cleveland)
In-Sample Inference and Forecasting in Misspecified Factor Models
Barbara Rossi
(Universitat Pompeu Fabra)
Marine Carrasco
(University of Montreal)
[View Abstract]
[Download Preview] This paper considers in-sample prediction and out-of-sample forecasting in regressions with many exogenous predictors. We consider four dimension reduction devices: principal components, Ridge, Landweber Fridman, and Partial Least Squares. We derive the rate of convergence of the prediction error for two representative models: a mildly sparse model and an approximate factor model. The theory is developed for a large cross-section and a large time-series. We also propose data-driven selection methods based on cross-validation and establish their optimality. Monte Carlo simulations and an empirical application to forecasting inflation and output growth in the U.S. show that data-reduction methods outperform conventional methods in several relevant settings, and might effectively guard against instabilities in predictors' forecasting ability.
Discussants:
Xu Cheng
(University of Pennsylvania)
Domenico Giannone
(Federal Reserve Bank of New York)
James Stock
(Harvard University)
Norman Swanson
(Rutgers University)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 15
Econometric Society
Political Economy in Developing Economies
(A1)
Presiding:
Sandip Sukhtankar
(Dartmouth College)
Democracy and Demography: Societal Effects of Fertility Limits on Local Leaders
S. Anukriti
(Boston College)
Abhishek Chakravarty
(University of Essex)
[View Abstract]
[Download Preview] We investigate whether legally restricting elected leadership positions to candidates
with “desirable” characteristics leads to wider adoption of those characteristics by
constituents in a low-income democracy with high political participation. Exploiting
quasi-experimental variation in legal fertility limits on village council members in India,
we find that married couples of childbearing age in rural areas reduced their fertility in
response to the limits. However, the fertility decline was concentrated among wealthier,
more educated, and upper-caste households, raising concerns regarding political
representation of the disadvantaged and elite capture of societal resources. The fertility
limits also increased the already male-biased sex ratio at birth in socioeconomic
groups with strong son preference. Restricting access to elected leadership to achieve
social objectives therefore has potentially adverse consequences for inequality,
if institutions driving discrimination are not taken into account.
Colonial Legacy, State Building and the Salience of Ethnicity in Sub-Saharan Africa
Abdulaziz Shifa
(Syracuse University)
Merima Ali
(Chr. Michelsen Institute)
Odd-Helge Fjeldstad
(Chr. Michelsen Institute)
Boqian Jiang
(Syracuse University)
[View Abstract]
[Download Preview] Ethnicity has received increased attention in studies of Africa's economic and institutional development. We present evidence on the long-term effects of Britain's ``divide-and-rule'' colonial strategy that deliberately fostered ethnic rivalries to weaken and control locals. Using micro data from Sub-Saharan Africa, we find that citizens of Anglophone (as compared to Francophone) countries are more likely to: (1) attach greater importance to ethnic identity (vis-à-vis national identity); (2) have weaker norms against tax evasion; and (3) face extortion by non-state actors. We address endogeneity concerns using IV regression and regression-discontinuity. These results suggest that Britain's divide-and-rule strategy may have undermined state-building.
Politics and Real Firm Activity: Evidence from Distortions in Bank Lending in India
Nitish Kumar
(University of Chicago)
[View Abstract]
[Download Preview] This paper provides novel evidence on a particular real cost of political interference on banks — preferential lending to politically important sectors crowds out lending to other sectors in the economy. Analyzing staggered state elections in India, I show that politicians influence banks to increase lending to farmers before elections, which crowds out lending to manufacturing firms. These lending distortions are larger in locations where farmers have more political weight. Comparing firms in states that have an election in a given year against comparable firms in states that do not, I find that the reduced availability of bank credit forces firms to use up their cash reserves, reduce production, lay off workers, and operate at lower utilization rates. Overall, my results suggest that interference from the political environment can lead to costly crowding-out of real firm activity.
Understanding Foreign Currency Borrowing by Firms: Evidence from India
Nirvikar Singh
(University of California-Santa Cruz)
[View Abstract]
[Download Preview] The Indian capital controls permit foreign currency borrowing (FCB)for firms with low credit risk, and by 2013, there was a stock of borrowing of $132 billion. Through a combination of home bias and capital controls, FCB is the preserve of large and internationally active firms
with low financing constraints. We establish a quasi-experimental design through which the causal impact of FCB upon future growth in capital, labour, exports and output is assessed. The two doublings of exchange rate flexibility in India, in 2003 and 2007, appear to have
avoided moral hazard: the firms which have undertaken FCB have successfully achieved modest gains in capital stock and output.
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 20
Econometric Society
The New Firm Dynamics of Business Cycle Fluctuations
(A1)
Presiding:
Steven J. Davis
(University of Chicago)
The Slow Growth of New Plants: Learning About Demand?
Chad Syverson
(University of Chicago)
[View Abstract]
[Download Preview] It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants’ idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants’ past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth. This demand accumulation process has important implications for ongoing research in fields as diverse as industrial organization, macro, finance, and trade.
Declining Dynamism: The Role of Credit Conditions
John Haltiwanger
(University of Maryland)
Steven J. Davis
(University of Chicago)
[View Abstract]
[Download Preview] The United States has experienced a secular decline in entrepreneurial activity, a decline that intensified during the Great Recession. Younger and smaller businesses were hit especially hard in the Great Recession, and have been slow to recover. Credit conditions are a potentially important factor in this development. Recent evidence shows, for example, that states with the largest declines in housing prices also experienced the largest declines in activity by young and small businesses. We build on this work and investigate several mechanisms and channels whereby credit market conditions affect entrepreneurial activity. Home equity and consumer credit may be quite important for some industries and business types, whereas lending collateralized by business assets might matter for others. Household balance sheets may matter acutely for the youngest firms (i.e., at the point of startup). Financing from banks is likely important for other types of firms and perhaps later in the life cycle of young firms. Venture capital is an important source of finance for a small fraction of young firms with high growth potential. We also explore a related but distinct channel whereby uncertainty in financial markets contributed to the adverse outcomes for young and small businesses. We investigate the role of these financial market factors for young and small businesses by exploiting variation across industries and locations. We integrate data from several sources. For tracking entrepreneurial activity, we rely on data from the Business Dynamic Statistics (BDS) and the Quarterly Workforce Indicators (QWI). For credit market conditions, we use data on small business loans, home prices and home equity, and consumer debt. We also construct measures that capture the impact of uncertainty shocks on firm-level credit spreads that vary by broad groups such as industry, firm size and firm age.
Does ‘Performance Pay’ Pay? The Effects of Contract Structure on Firm Dynamics, 2004-2014
Christos Makridis
(Stanford University)
Maury Gittleman
(U.S. Bureau of Labor Statistics)
[View Abstract]
[Download Preview] Why do firms choose different wage-setting practices and how do they affect firm dynamics over the business cycle? We introduce a novel theory for explaining the take-up of performance pay versus fixed wage contracting across industries. Firms with lower adjustment costs face a greater option value associated with investment before observing actual product demand, whereas firms with higher adjustment costs benefit by locking in contracts in advance to hedge against cyclical uncertainty. Using new panel establishment-level data from the National Compensation Survey, together with the Quarterly Census on Employment and Wages, in the United States between 2004-2014, we document new stylized facts about the relationship between contractual choices and firm dynamics over the business cycle. We test our theory by quantifying the effects of business cycle shocks on both performance pay and fixed wage establishments. Our baseline identification strategy exploits within-establishment deviations in the fraction of performance pay workers and metropolitan changes in employment.
Employment Cyclicality and Firm Quality
Lisa Kahn
(Yale University)
[View Abstract]
[Download Preview] Who fares worse in an economic downturn, low- or high-paying firms? Different answers to this question imply very different consequences for the costs of recessions. Using U.S. employer-employee data, we find that employment growth at low-paying firms is less cyclically sensitive. High-paying firms grow more quickly in booms and shrink more quickly in busts. We show that this is accounted for by a greater reduction in separations from low-paying firms in busts, and especially from separations that are likely voluntary. This suggests that a partial collapse of the job ladder (upward progression toward higher paying firms) during downturns is the most likely driver of our results. We estimate that workers at the lowest paying firms are 20% less likely to advance in firm quality in a bust compared to a boom. We also find that workers matching to firms in a downturn achieve only half the advancement in firm quality that a worker matching in a boom experiences within the first year. Thus job composition can potentially account for some of the lasting negative impacts on workers forced to search for a job in a downturn, such as displaced workers and recent college graduates.
Jan 03, 2016 10:15 am, Marriott Marquis, Sierra B
Economic Science Association
Economics Experiments on Networks
(C9, D3)
Presiding:
Gary Charness
(University of California-Santa Barbara)
Trading in Networks
Syngjoo Choi
(University College London)
Andrea Galeotti
(University of Essex)
Sanjeev Goyal
(University of Cambridge)
[View Abstract]
[Download Preview] Intermediation is a prominent feature of economic production and exchange. <br />
Two features of intermediation are salient: coordination among traders <br />
between the `source' and the `destination' and competition between <br />
alternative combinations of intermediaries. We develop a simple model to <br />
study these forces and we test the theoretical predictions in experiments. <br />
<br />
Our theoretical analysis yields a complete characterization of pricing <br />
equilibrium in networks. There exist both efficient and inefficient <br />
equilibria, suggesting a key role of coordination among intermediaries. <br />
Strategic interaction leads to either buyer and seller retaining all surplus <br />
or intermediaries extracting all surplus. We develop conditions on network <br />
structure under which these different extremal outcomes arise, respectively. <br />
<br />
Laboratory experiments show that efficiency prevails in almost all cases: so <br />
traders are successful in coordination. Subjects coordinate on extreme <br />
surplus division. Finally, experiments highlight the role of network <br />
structure in determining division of surplus between traders<br />
Communication and (Non)-Equilibrium Selection
Gary Charness
(University of California-Santa Barbara)
Francesco Feri
(University of London-Royal Holloway)
Miguel Melendez
(University of Malaga)
Matthias Sutter
(University of Innsbruck)
[View Abstract]
We test different forms of communication with different network structures. One case involves no communication, another involves closed (simple and exogenous) communication, and a third involves open (chat) communication. Using a 3x3 matrix, with two pure-strategy equilibria and one Pareto-superior non-equilibrium, we find that both the form of communication and the network structure affect behavior.
Strategic Communication and Learning in Networks
Abhijit Banerjee
(Massachusetts Institute of Technology)
Emily Breza
(Columbia University)
Arun Chandrasekhar
(Stanford University)
Esther Duflo
(Massachusetts Institute of Technology)
Matthew O. Jackson
(Stanford University)
[View Abstract]
We randomly invite households in rural Indian villages to participate in a study in which they can earn roughly a day's wages, and study how information about that opportunity diffuses. In particular, we examine strategic information diffusion. Slots in the study are limited and rationed among those who show up, information about the opportunity is something that individuals may wish to share with their friends, but would prefer not to have spread beyond their friends. We find that people are significantly more likely to tell their less central friends about the opportunity than their more central friends, controlling for other characteristics.
Competition for Status Creates Superstars: An Experiment on Public Good Provision and Network Formation
Theo Offerman
(University of Amsterdam)
Arthur Schram
(University of Amsterdam)
Boris van Leeuwen
(Institute for Advanced Study in Toulouse )
[View Abstract]
[Download Preview] We investigate a mechanism that facilitates the provision of public goods in a network formation game. We show how competition for status encourages a core player to realize efficiency gains for the entire group. In a laboratory experiment we systematically examine the effects of group size and status rents. The experimental results provide very clear support for a competition for status dynamic that predicts when, and if so which, repeated game equilibrium is reached. Two control treatments allow us to reject the possibility that the supergame effects we observe are driven by social motives.
Jan 03, 2016 10:15 am, Hilton Union Square, Continental – Parlor 2
Economists for Peace & Security
The Crisis of Austerity
(Y9) (Panel Discussion)
Panel Moderator:
Marshall Auerback
(Economists for Peace and Security)
Patrick Honohan
(Central Bank of Ireland)
Austerity in Ireland
Jeffrey Sommers
(University of Wisconsin-Milwaukee)
Austerity in the Baltics
Allen Sinai
(Decision Economics)
Austerity and Monetary Policy
James K. Galbraith
(University of Texas-Austin)
Austerity in Greece
Jan 03, 2016 10:15 am, Hilton Union Square, Yosemite A
Health Economics Research Organization
Public and Private Health Insurance in the Medicare Program
(I1, L8)
Presiding:
Mark G. Duggan
(Stanford University)
The Effects of Medigap Supplemental Insurance on Health Care Spending Among Disabled Medicare Beneficiaries
Jay Bhattacharya
(Stanford University)
M. Kate Bundorf
(Stanford University)
Vilsa Curto
(Stanford University)
Kosali Simon
(Indiana University)
none
Can Health Insurance Competition Work? Evidence from Medicare Advantage
Vilsa Curto
(Stanford University)
Liran Einav
(Stanford University)
Jonathan Levin
(Stanford University)
Amy Finkelstein
(Massachusetts Institute of Technology)
Jay Bhattacharya
(Stanford University)
[View Abstract]
[Download Preview] We estimate the economic surplus created by Medicare Advantage under its reformed competitive bidding rules. We use data on the universe of Medicare bene
ciaries, and develop a model of plan bidding that accounts for both market power and risk selection. We estimate that private plans have costs around 12% below fee-for-service costs, and generate around $50 in surplus on average per enrollee-month, after accounting for the disutility due to enrollees having more limited choice of providers. Taxpayers provide a large additional subsidy, and insurers capture most of the private gains. We use the model to evaluate possible program changes.
Pricing Regulations in Medigap
Vilsa Curto
(Stanford University)
none
Discussants:
Marika Cabral
(University of Texas-Austin)
Michael Chernew
(Harvard University)
Haizhen Lin
(Indiana University)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 23
History of Economics Society
Becoming Applied: The Transformation of Economics after 1970
(B2, B4)
Presiding:
Beatrice Cherrier
(University of Caen)
Becoming Applied: The Transformation of Economics after 1970
Beatrice Cherrier
(University of Caen)
Roger Backhouse
(University of Birmingham)
[View Abstract]
[Download Preview] This paper conjectures that economics has changed profoundly since the 1970s and that these changes involve a new understanding of the relationship between theoretical and applied work: as the discipline became more applied, applied work was being accorded a higher status in relation to pure theory than was previously the case. This change is visible in John Bates Clark medal citations as well as in the debates surrounding the elimination of the “theory” category from the JEL classification for economic literature. Yet, these also suggest tensions in the meaning of “applied” research (the application of abstract theory to answer specific problems; empirical research; policy work). The paper presents various types of applied work, and discusses possible explanations for its changing status relative to theory: the rise of “big data” and computerization; the displacement of general equilibrium theory by game theory or experimental and behavioral economics; the rise of non academic institutions such as central banks, the IMF, the World Bank or the NBER; the “challenge of relevance” resulting from the upheavals of civil societies.
The Empirical Economist's Toolkit: From Models to Methods
Matthew Panhans
(Duke University)
John D. Singleton
(Duke University)
[View Abstract]
[Download Preview] While historians of economics have noted the transition toward empirical work in economics since the 1970s, less understood is the shift toward "quasi-experimental" methods in applied microeconomics. Angrist and Pischke (2010) trumpet the wide application of these methods as a "credibility revolution" in econometrics that has finally provided persuasive answers to a diverse set of questions. Particularly influential in the applied areas of labor, education, public, and health economics, the methods shape the knowledge produced by economists and the expertise they possess. First documenting their growth bibliometrically, this paper aims to illuminate the origins, content, and contexts of quasi-experimental research designs, which seek natural experiments to justify causal inference. To highlight lines of continuity and discontinuity in the transition, the quasi-experimental program is situated in the historical context of the Cowles econometric framework and a case study from the economics of education is used to contrast the practical implementation of the approaches. Finally, significant historical contexts of the paradigm shift are explored, including the marketability of quasi-experimental methods and the 1980s crisis in econometrics.
Learning How to Whisper into the Ears of Industry Regulators: The History of Early Applied Experiments
Andrej Svorenčík
(University of Mannheim)
[View Abstract]
This paper analyzes several early applied experimental economics projects Charles Plott, Vernon Smith and their associates conducted at the California Institute of Technology (Caltech) and University of Arizona in the 1970s and 1980s. These projects ranged from the allocation of airport landing slots for the Civil Aeronautics Board in the wake of US airlines deregulation and the regulation of the dry bulk commodity transportation industry on inland waterways for the Department of Transportation, to the anti-trust case against the producers of lead-based antiknock compounds, the regulation of pricing of natural gas transmission, electric power networks and their deregulation, allocation of the right to use railway tracks and the allocation of resources on a space station. This partial list demonstrates the breadth of regulatory problems to which experimental methods were applied as well as suggests the importance of such projects to the early experimentalists. In particular I focus on the case of the allocation of airport landing slots to tackle two related historiographic issues – the operationalization of applied research through experimentation and the reception of applied experimental research by the wider economics profession.
THE ENVIRONMENTAL TURN IN NATURAL RESOURCE ECONOMICS: JOHN KRUTILLA AND "CONSERVATION RECONSIDERED"
Spencer H. Banzhaf
(Georgia State University)
[View Abstract]
[Download Preview] Environmentalism in the United States historically has been divided into its utilitarian and preservationist impulses, represented by Gifford Pinchot and John Muir, respectively. Pinchot advocated conservation of natural resources to be used for human purposes; Muir advocated protection from humans, for nature's own sake. In the first half of the 20th century, natural resource economics was firmly in Pinchot's side of that schism. That position began to change as the post-war environmental movement gained momentum. In particular, John Krutilla, an economist at Resources for the Future, pushed economics to the point that it could embrace Muir's vision as well as Pinchot's. Krutilla argued that if humans preferred a preserved state to a developed one, then such preferences were every bit as "economic." Either way, there were opportunity costs and an economic choice to be made.
Discussants:
Steven G. Medema
(University of Colorado-Denver)
Kevin D. Hoover
(Duke University)
Charles Plott
(California Institute of Technology)
Kerry Smith
(Arizona State University)
Jan 03, 2016 10:15 am, Marriott Marquis, Pacific C
International Economics & Finance Society
International Macroeconomics and Finance
(F3, F4)
Presiding:
Nelson C. Mark
(University of Notre Dame)
Financial Protectionism: Further Evidence
Anya Kleymenova
(University of Chicago)
Andrew K. Rose
(University of California-Berkeley)
Tomasz Wieladek
(Bank of England)
[View Abstract]
[Download Preview] Using data from British and American banks, we provide empirical evidence that government intervention affects banking globalization along three dimensions: depth, breadth and persistence. We examine depth by studying whether a bank’s preference for domestic, as opposed to external, lending (funding) changes when it is subjected to a large public intervention, such as bank nationalization. Our results suggest that, following nationalization, non-British banks allocate their lending away from the UK and increase their external funding. Second, we find that nationalized banks from the same country tend to have portfolios of foreign assets that are spread across countries in a way that is far more similar than either private banks from the same country or nationalized banks from different countries, consistent with an impact on the breadth of globalization. Third, we study the Troubled Asset Relief Program (TARP) to examine the persistence of large government interventions. We find weak evidence that upon entry into the TARP, foreign lending declines but domestic does not. This effect is observable at the aggregate level, and seems to disappear upon TARP exit. Collectively, this evidence suggests that large government interventions affect the depth and breadth of banking globalization, but may not persist after public interventions are unwound.
Policy Cooperation, Incomplete Markets, and Risk Sharing
Charles Engel
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] We investigate optimal strategic monetary policy under incomplete markets. The setting is a two-country model in which each country specializes in producing a traded good. Policymakers have a strategic incentive to manipulate their terms of trade. We characterize optimal policy as a targeting rule. The targeting rule essentially compares the tradeoffs among objectives of the policymaker relative to the complete market efficient outcome. This derivation requires finding optimal non-cooperative policy under complete markets, which involves each policymaker implementing policies that move prices of state-contingent claims to increase its own residents' wealth at the expense of foreigners' wealth.
Currency Value
Lukas Menkhoff
(University of Kiel)
Lucio Sarno
(City University London)
Maik Schmeling
(City University London)
Andreas Schrimpf
(Bank for International Settlements)
[View Abstract]
[Download Preview] We assess the properties of currency value strategies based on real exchange rates in a
cross-sectional setting. We find that real exchange rates have considerable predictive
power for the cross-section of currency excess returns. However, adjusting real exchange
rates for key country-specific fundamentals - productivity, the quality of export goods,
net foreign assets, and output gaps - generates a more refined measure of currency value
that is more closely linked to currency risk premia. Accounting for macroeconomic
fundamentals considerably enhances the predictive power of currency value measures
for currency excess returns.
Global Macro Risks in Currency Excess Returns
Kimberly Berg
(Bank of Canada)
Nelson C. Mark
(University of Notre Dame)
[View Abstract]
[Download Preview] We identify a set of country macroeconomic fundamentals, whose first and higher-order moments have predictive power for currency excess returns. We use this identification to form ‘high minus low’ portfolios of profitable currency excess returns and then study the determinants of their cross- sectional behavior. This analysis makes three points. First, to understand the cross-section of these currency excess returns with macroeconomic risk factors requires a multi-factor model. Second, since the excess returns are not exclusive to investors with a U.S. domicile, the macro risk factors are global in nature. Third, the risk factors priced into the excess returns include the volatility of the global macro variables. When global uncertainty increases, weak currencies fall and strong or safe haven currencies rise so shorting the weak and going long the strong results in large excess returns.
Jan 03, 2016 10:15 am, Marriott Marquis, Nob Hill C & D
International Trade & Finance Association
The European Union's New Institutions: Political Economy and Economic Perspectives
(F5)
Presiding:
Thierry Warin
(HEC-Montreal)
The Crisis, the Public, and the Future of European Integration
Jeffry Frieden
(Harvard University)
[View Abstract]
[Download Preview] The crisis in the Eurozone has been the greatest failure in the history of European integration. Trillions of dollars in accumulated debts have confronted the member states with a difficult set of inter-state and domestic problems, largely to do with the distribution of the burden of economic adjustment in the light of a decade of ill-advised lending and borrowing. To the discredit of both national governments and European institutions, conflict has dragged on for years – and still continues – with no real resolution. Possible Pareto improvements have fallen by the wayside as countries maneuver to shunt as much of the adjustment burden as possible onto their partners, and as groups within countries do the same domestically.
Looking Back: Eurozone Crisis and the Euro Regime
Kurt Huebner
(University of British Columbia)
[View Abstract]
Rather then speaking of the Eurozone crisis, the paper suggests speaking of Eurozone crises. By taking the financial crisis of 2008 as a starting point, the idea is to distinguish between crises outside the Eurozone and inside the Eurozone. Outside crisis like the one in the UK take a different route then crises inside the Eurozone. Also, not all member states of the Eurozone were in the same ways entangled with the fall outs of the financial crisis, and thus differ in their post-financial crisis path, despite sharing the same institutional features like the crisis-prone member states.
Why Countries Choose to Adopt the Euro Fast or Slow-A Political Analysis
Amy Verdun
(University of Victoria)
[View Abstract]
[Download Preview] In 2004 ten new European Union member states were added to the existing EU of fifteen. All ten were required by their accession treaty to join the euro at some point. Various member states joined sooner for example Slovenia, Cyprus and Malta. Others, such as the Baltic States were keen to join sooner but were disallowed because the European Commission found them not meeting the criteria. The largest three member states first were keen to join fast but their interest diminished as time went by. <br /><br />
This paper presents an analysis of euro adoption policies in these ten member states. It builds on research done by Dandashly and Verdun (forthcoming) that studies various different theoretical insights into understanding the results. The analysis looks at: cost benefit analysis; meeting the convergence criteria; political economy insights (exchange rates, trade, openness) and domestic political veto players, the stance of government and opposition and the role of the central bank. This paper compares competing explanations of the speed of euro adoption and suggests that a domestic politics approach is best able to explain why some countries join the euro fast whilst others are much slower.
Towards Unveiling the Mechanisms of the EU Decision Making Process
Erik Pruyt
(University of Delft)
Paul Schure
(University of Victoria)
Amy Verdun
(University of Victoria)
[View Abstract]
The EU legislative process is complex as it involves several mechanisms which interact with each other in a non-trivial fashion. We use simulation models to detect which subset of a long-list of mechanisms describes the EU legislative process the best. The players in our simulations are the Commission, the European Parliament, and the Member States. By assumption, Member States affect the process only through their influence in the Council of the European Union. We compare the simulation results to observed outcomes of the legislative process and use machine-learning algorithms to identify the most important mechanisms at play. The model is currently in the pilot stage. Our pilot-stage results reveal that processes of assimilation, changing the proposal, and of learning the equilibrium, are important mechanisms in the EU decision-making process.
Reducing Systemic Risk in Europe: Is the 'Banking Union’ a Big Enough Step?
Thierry Warin
(HEC-Montreal)
[View Abstract]
[Download Preview] The 2008 crisis started as a financial crisis and evolved into a sovereign debt crisis. Since 2008, central banks, governments and international organizations have been working on the lessons learned as well as designing options for a new financial framework. From the Dodd-Frank Act in the United States to Basel III, the international financial world has seen relevant changes. In Europe, the 'Banking Union' was passed. In itself, it is already an interesting reform. But beyond the primary objective of the Banking Union, which is to ensure financial stability, there is also a second feature: it deepens the European integration providing a response to the critics of the European project. Now equipped with an internal market of goods, services, including financial services, the question is to know whether the EU has fixed its structural issues in terms of governance. If a new crisis were to hit Europe, would the latter be better prepared to respond? Another question is to know whether this new framework would reduce the systemic risk and thus would reduce either the likelihood or the magnitude of a crisis?
Jan 03, 2016 10:15 am, Parc 55, Davidson
Labor & Employment Relations Association
Difference-in-Difference Analyses of the Effects of Family Policies
(J1)
Presiding:
Nancy Folbre
(University of Massachusetts-Amherst)
The Effects of a Short-Hour Option on Childbirth and Mothers’ Labor Supply in Japan
Nobuko Nagase
(Ochanomizu University)
[View Abstract]
In 2009, the Japanese government mandated a short hour option for workers with children
under the age of three who were employed at firms with at least 101 workers. In addition, by
2005, firms with at least 301 workers were required to register plans to improve work-family
balance. This paper provides a causal analysis of the effects of both mandates on childbirth
and parental leave-taking, using data from the 2002-2011 waves of the Panel Survey of
Young Adults of 21st Century collected by the Ministry of Health, Labor and Welfare. I exploit
exogenous variation in the mandate laws. Using difference-in-difference methods, I find
the both policies increased strong birth inten among working females with no children.
We also found robust evidence that the shor ur option increased the first, second and
third birth of working mothers with high birth intention. The effect was strong for the highly
educated. Mandating work flexibility significantly reduced the cost of childbirth, increased
birth intention and birth among working mothers.
Paid Family Leave, Fathers’ Leave-Taking, and Leave-Sharing in Dual-Earner Households
Jenna Stearns
(University of California-Santa Barbara)
Maya Rossin-Slater
(University of California-Santa Barbara)
Ann Bartel
(Columbia University)
Christopher J. Ruhm
(University of Virginia)
Jane Waldfogel
(Columbia University)
[View Abstract]
This paper provides quasi-experimental evidence on the impact of paid leave legislation on fathers’ leave-taking, as well as on the division of leave between mothers and fathers in dual-earner households. Using difference-in-difference and difference-in-difference-in-difference designs, we study California’s Paid Family Leave (CA-PFL) program, which is the first source of government-provided paid parental leave available to fathers in the United States. Our results show that fathers in California are 0.9 percentage points—or 46 percent relative to the pre-treatment mean—more likely to take leave in the first year of their children’s lives when CA-PFL is available. We also examine how parents allocate leave in households where both parents work. We find that CA-PFL increases father-only leave-taking (i.e., father on leave while mother is at work) by 50 percent and joint leave-taking (i.e., both parents on leave at the same time) by 28 percent. These effects are much larger for fathers of sons than for fathers of daughters, and almost entirely driven by fathers of first-born children and fathers in occupations with a high share of female workers.
Reserving Time for Daddy: The Short and Long-Run Consequences of Fathers' Quotas
Ankita Patnaik
(Cornell University)
[View Abstract]
To motivate fathers to take parental leave, several nations have reformed their leave
programs to increase compensation and reserve some leave for fathers. Though take-up has
increased, it is unclear whether fathers are responding to financial incentives or changed
constraints or the 'daddy-only' labels. Moreover, although paternity leave may facilitate
temporary changes in the division of household labor, little is known about whether these
effects persist in later years. This paper examines these issues while studying the Quebec
Parental Insurance Program (QPIP), a landmark reform to parental leave that increased
benefits for all parents and reserved some weeks for fathers. I exploit plausibly exogenous
program variation and data on benefit claims to first explore the short-run effects on leave
behavior. Both regression discontinuity and difference-in-difference analyses suggest that
QPIP increased fathers' participation rates b 0% and leave duration by 150%. Further, I
find novel evidence of an intra-household fly er effect stemming from the 'daddy-only'
label: benefits stick to fathers even when the constraint does not bind and the 'daddyonly'
benefits are essentially fungible with the mothers'. Next, I investigate the long-term
consequences on household dynamics by analyzing time-diary data and exploiting variation
in exposure to QPIP across provinces, time and the age of one's children. This paper
presents the first comprehensive evidence that exposure to paternity leave can have a large
and persistent effect on the division of household labor: households exposed to QPIP are
markedly less sex specialized in their time allocations, earnings and labor supply.
The Effects of Paid Maternity Leave: Evidence from Temporary Disability Insurance
Jenna Stearns
(University of California-Santa Barbara)
[View Abstract]
30. Paper/Topic 4 Abstract
This paper investigates the effects of a large-scale paid maternity leave program on birth
outcomes in the United States. In 1978, states with Temporary Disability Insurance (TDI)
programs were required to start providing wage replacement benefits to pregnant women,
substantially increasing access to paid leave for working mothers. Using natality data, I find
that TDI coverage of paid maternity leave reduces the share of low birth weight births in a
state by 3.2 percent, and the estimated treatment-on-the-treated effect is over 10 percent.
TDI paid maternity leave also decreases the likelihood of early term birth by 7.2 percent.
Paid maternity leave has particularly large impacts on the children of unmarried and black
mothers.
Discussants:
Elaine McCrate
(University of Vermont)
Marcus Dillender
(WE Upjohn Institute for Employment Research)
Jan 03, 2016 10:15 am, Parc 55, Balboa
Labor & Employment Relations Association
The New Generation of Minimum Wage Policies in California
(J3)
Presiding:
Jesse Rothstein
(University of California-Berkeley)
Minimum Wages in the $12 to $15 Range in California Cities: Scope and Scale
Ken Jacobs
(University of California-Berkeley)
Annette Bernhardt
(University of California-Berkeley)
[View Abstract]
The new generation of city minimum wage policies poses unique challenges for
researchers attempting to assess their economic impacts. Traditional datasets often do
not have sufficient samples sizes. City-based wage setting means that regional economic
models are needed to assess net economic impact. Most important, recent city laws adopt
significantly higher percentage increases in the minimum wage than have been implemented
to date in the US. This means that researchers have less empirical research evidence
on which to base their modeling. It also means that new substantive questions arise; for
example, the impact on nonprofit organizations that rely mainly on fixed public funding
streams. We discuss these and other challenges based on our recent prospective impact
studies of four California cities.
Do Consumers Pay for Higher Minimum Wages?
Sylvia Allegretto
(University of California-Berkeley)
[View Abstract]
[Download Preview] Although the minimum wage’s effects on employment have been much-studied,
little is still known about its effects on prices. Yet price effects are central to understanding
how 1) businesses absorb minimum wages and 2) how minimum wages affect consumers of
services that low-wage workers provide. We study the effects of minimum wages on prices,
drawing on restaurant menu data we collected before and after San Jose implemented a
minimum wage in March 2013. The new minimum was then 25 percent above the state's
minimum wage. We present results separately for fast food and full service restaurants, by
the data source, and by distance from the San Jose border.
A Structural Model for Estimating Minimum Wage Effects at $12 and $15
Michael Reich
(University of California-Berkeley)
[View Abstract]
The $15 citywide minimum wages recently enacted by Los Angeles, San Francisco and Seattle are significantly higher than the federal and state minimum wages of the past two decades, whether measured by level, ratio to median wage, or bite (the proportion of workers getting raises. Past minimum wage studies may therefore not be informative of effects at the higher level. In this paper I discuss a structural model that can shed light on effects at $15. The model incorporates substitution effects(automation), scale effects (higher prices reduce consumer demand)and income effects (higher wages increase consumer demand). The Berkeley IRLE minimum wage team has estimated such a model for Los Angeles. I present the results, with special attention to the parameters and the areas of uncertainty.
New Directions in Compliance and Enforcement
Miranda Dietz
(University of California-Berkeley)
[View Abstract]
[Download Preview] This paper reviews the variety of approaches to minimum wage compliance
and enforcement at the federal, state and city levels. It then focuses on best practice
compliance and enforcement issues, drawing especially upon San Francisco’s Office of
Labor Standards and Enforcement. We describe the office’s mandate, resources, approach
and accomplishments, including a comparison to other enforcement agencies. We then
outline the efforts in education and outreach that are crucial to compliance and enforcement,
including the role of community based organizations. A final section concludes by looking at
lessons for other jurisdictions and remaining allenges.
Discussants:
Arindrajit Dube
(University of Massachusetts-Amherst)
Ben Zipperer
(Washington Center for Equitable Growth)
Jan 03, 2016 10:15 am, Hilton Union Square, Powell A & B
National Economic Association/American Economic Association
African Americans and Organized Labor
(J5, J7) (Panel Discussion)
Panel Moderator:
Bernard Anderson
(University of Pennsylvania)
William Spriggs
(Howard University)
Bernard Anderson
(University of Pennsylvania)
Cecilia Conrad
(Pomona College)
James B. Stewart
(Pennsylvania State University)
Darrick Hamilton
(New School)
Jan 03, 2016 10:15 am, Hilton Union Square, Union Square 17 & 18
Society for Economic Dynamics
Empirical Advances in Macro-Labor
(J6, J2)
Presiding:
Loukas Karabarbounis
(University of Chicago and Federal Reserve Bank of Minneapolis)
Measuring Job-Finding Rates and Matching Efficiency with Heterogeneous Jobseekers
Robert E. Hall
(Stanford University)
Sam Schulhofer-Wohl
(Federal Reserve Bank of Minneapolis)
[View Abstract]
[Download Preview] Matching efficiency is the productivity of the process for matching jobseekers to available jobs. Job-finding is the output; vacant jobs and active jobseekers are the inputs. Measurement of matching efficiency follows the same principles as measuring a Hicks-neutral index of productivity of production. We develop a framework for measuring matching productivity when the population of jobseekers is heterogeneous. The efficiency index for each type of jobseeker is the monthly job-finding rate for the type adjusted for the overall tightness of the labor market. We find that overall matching efficiency declined over the period, at just below its earlier downward trend. We develop a new approach to measuring matching rates that avoids counting short-duration jobs as successes. And we show that the outward shift in the Beveridge curve in the post-crisis period is the result of pre-crisis trends, not a downward shift in matching efficiency attributable to the crisis.
The Influence of Benefit Extensions on Unemployment
Gabriel Chodorow-Reich
(Harvard University)
Loukas Karabarbounis
(University of Chicago and Federal Reserve Bank of Minneapolis)
[View Abstract]
The paper presents new evidence on how benefit extensions affect unemployment.
Decomposing Duration Dependence in a Stopping Time Model
Fernando Alvarez
(University of Chicago)
Katarina Borovickova
(New York University)
Robert Shimer
(University of Chicago)
[View Abstract]
[Download Preview] We develop a dynamic model of transitions in and out of employment. A worker finds a job at an optimal stopping time, when a Brownian motion with drift hits a barrier. This implies that the duration of each worker's jobless spells has an inverse Gaussian distribution. We allow for arbitrary heterogeneity across workers in the parameters of this distribution and prove that the distribution of these parameters is identified from the duration of two spells. We use social security data for Austrian workers to estimate the model. We conclude that dynamic selection is a critical source of duration dependence.
Jan 03, 2016 10:15 am, Marriott Marquis, Pacific I
Society for Institutional and Organizational Economics
Institutional Design and Organizational Performance
(D2, D7)
Presiding:
F. Andrew Hanssen
(Clemson University)
Frictions in a Competitive, Regulated Market: Evidence from Taxis
Guillaume Frechette
(New York University)
Alessandro Lizzeri
(New York University)
Tobias Salz
(New York University)
[View Abstract]
This paper presents a dynamic general equilibrium model of a taxi market. The model is estimated
using data from New York City yellow cabs. Two salient features by which most taxi markets deviate
from the efficient market ideal is the need of both market sides to physically search for trading partners
in the product market as well as prevalent regulatory limitations on entry in the capital market. To
assess the relevance of these features we use the model to simulate the effect of changes in entry and
an alternative search technology. The results are contrasted with a policy that improves the intensive
margin of medallion utilization through a transfer of medallions to more efficient ownership. We
use the geographical features of New York City to back out unobserved demand through a matching
simulation.
Crises and Firm Organisation
Philippe Aghion
(Harvard University)
Nicholas Bloom
(Stanford University)
Raffaella Sadun
(Harvard University)
John Van Reenen
(London School of Economics)
[View Abstract]
We argue that decentralization is particularly beneficial to firm<br />
performance in "bad times". We present a<br />
model where bad times increase the importance of rapid action, and improve<br />
the alignment of incentives of managers within firms. We test this idea<br />
exploiting the 2008-2009 Great Recession using firm-level cross country<br />
panel data combined with our survey data on firm organization. We find that:<br />
(i) decentralization is positively correlated with sales growth and with TFP<br />
growth, particularly in times of crisis; (ii) the correlation between<br />
decentralization and performance in crisis times is stronger when the<br />
congruence between principals and agents is weaker; (iii) the positive<br />
effects of decentralization in bad times is significantly larger in firms<br />
with leverage above the median; (iv) the positive effects of<br />
decentralization in bad times is larger in firms facing higher (sectoral)<br />
uncertainty; (v) firms tend to decentralize more when hit by more severe<br />
crises.<br />
The Precarious Link between Legislators and Constituent Opinion: Evidence from Matched Roll Call and Referendum Votes
John G. Matsusaka
(University of Southern California)
[View Abstract]
[Download Preview] This paper tests theories of representation by studying laws that were challenged by
referendum. For these laws, we can observe legislator roll call votes and citizen votes on the
same law. In a sample of 2,736 roll call votes on 21 laws in six states, I find that legislators voted
congruent with majority opinion in their district 71 percent of the time, so representation
generally “worked.” However, when legislator preferences differed from district opinion on an
issue, legislators voted congruent with district opinion only 35 percent of the time. Electoral
pressure measured by vote margin, proximity of next election, and term limits had at most a
weak connection with congruence. The evidence is broadly consistent with the assumption of
the citizen-candidate (or trustee) theory that legislators vote their own preferences.
The Foundations of Wealth-Enhancing Democracy: Aristotle, Lindahl, and Institutional Design in Ancient Greece
Robert K. Fleck
(Clemson University)
F. Andrew Hanssen
(Clemson University)
[View Abstract]
[Download Preview] This paper examines the circumstances under which majority rule decision-making will
support, rather than impede, wealth creation. We develop a model – inspired by Aristotle and
Lindahl – in which voting on whether to provide a public good can work well or badly, depending
on whether voters share the public good’s costs and benefits in a manner close to or far from the
Lindahl prescription. Under some conditions, it is feasible to design political institutions that
complement the exogenous features of the economy (specifically, the opportunities for wealth
creation) to align incentives in a Lindahl-like manner, so that when citizens vote on the basis of what
they stand individually to gain or lose from a policy decision, they will vote as if they are seeking
to maximize net social benefits. Yet under other (i.e., non-ideal) conditions, the design of good
institutions may require facing tradeoffs among three objectives: the maintenance of the majority’s
support for wealth-enhancing policies; gains from specialization and trade; and keeping policy
decisions responsive to the majority’s preferences. We use the model to guide our analysis of how
two pioneers of majority-rule systems – Athens and Sparta – designed (and redesigned) their
institutions in response to changes in their opportunities for wealth creation. We also discuss lessons
for the modern world, notably growing polarization in American politics.
Discussants:
Jean Francois Houde
(University of Pennsylvania)
J. Anthony Cookson
(University of Colorado)
Robert K. Fleck
(Clemson University)
Stephen Haber
(Stanford University)
Jan 03, 2016 10:15 am, Marriott Marquis, Sierra H
Society of Government Economists
Globalization: Economic Impacts and Challenges
(F1, F2)
Presiding:
William Powers
(U.S. International Trade Commission)
Characteristics of Special Purpose Entities in Measures of U.S. Direct Investment Abroad
Dylan Rassier
(U.S. Bureau of Economic Analysis)
[View Abstract]
[Download Preview] [Download PowerPoint] Under international guidelines, official statistics on international trade and investment include transactions within multinational enterprises (MNEs) and positions on foreign direct investment. A complicating factor in the interpretation and understanding of the official statistics is the role of transactions and positions for MNEs structured with one or more special purpose entities (SPEs). In contrast to operating entities (OEs), SPEs generally have few or no employees, little or no physical presence, and little or no production or economic activity. While recent research explores the effects of SPEs on some U.S. macroeconomic statistics, very little is known from a microeconomic perspective about the underlying characteristics of SPEs. This paper provides an empirical look at non-resident SPEs whose transactions are included in official statistics on U.S. direct investment abroad. In particular, the paper treats OE affiliates as a benchmark group in a univariate and a multivariate analysis of characteristics available in survey data. The results reveal a large number of non-resident SPEs sponsored by U.S. MNEs, which are not isolated to a few industries or a single global region. Significant differences exist between SPE affiliates and OE affiliates in their balance sheet components, income statement components, and measured production. Given the fact pattern demonstrated in the microdata, measured production attributed to SPE affiliates appears to be incongruent with reported economic activity.
In With the Big, Out With the Small: Removing Small-Scale Reservations in India
Leslie A. Martin
(University of Melbourne)
Shanthi Nataraj
(Rand Corporation)
Ann Harrison
(University of Pennsylvania)
[View Abstract]
[Download Preview] An ongoing debate in employment policy is whether promoting small and medium enterprises creates more employment. Do small enterprises generate more employment growth than larger enterprises? We use the elimination of small-scale industry (SSI) promotion in India to address this question. For 60 years, SSI promotion in India focused on reserving certain products for manufacture by small and medium enterprises. We identify the consequences for employment growth, investment, output, productivity, and wages of dismantling India’s SSI reservations. We exploit variation in the timing of de-reservation across products and also measure the long-run impact of national SSI policy changes using variation in pre-treatment exposure at the district level. Districts more exposed to de-reservation experienced higher employment and output growth. Growth was driven by entrants into de-reserved products and by incumbents previously constrained by size restrictions. The results suggest that promoting small and medium enterprises through India’s SSI policies did not encourage overall employment growth.
Offshoring and U.S. Innovation Capacity
Wendy Li
(U.S. Bureau of Economic Analysis)
[View Abstract]
The degree of offshoring in high-tech industries has increased rapidly in past decades. Because of this trend, economists have been debating whether offshoring is hollowing out U.S. high-tech firms’ core competencies in intangibles. To shed light on this question, I first applied the forward-looking model developed by Li (2012) to the Compustat dataset to measure the capital stock and depreciation rate of R&D and organizational capital for major U.S. R&D-intensive industries during the period of 1995 to 2011. Then, I used the world input-output database to calculate the annual value added per export ratio, a measure of an industry’s degree of international production fragmentation, for each major high-tech industry. Lastly, I used those estimates to analyze whether industries with a higher degree of offshoring exhibited a different investment pattern in intangibles. The results show that industries with a lower degree of offshore outsourcing are more competitive in the global market and have R&D assets and organizational capital that are complementary. In contrast, industries with a higher degree of offshore outsourcing invest less in both R&D and organizational capital, but have higher R&D depreciation rates. An interesting and significant finding of this research is that the R&D depreciation rate can serve as a new technology indicator, showing the industry’s international ranking that is consistent with Forbes’ global 2000 ranking.
Trade Shocks and Factor Adjustment Frictions: Implications for Investment and Labor
Erhan Artuc
(World Bank)
German Bet
(Northwestern University)
Irene Brambilla
(Universidad Nacional de La Plata)
Guido Porto
(Universidad Nacional de La Plata)
[View Abstract]
[Download Preview] A number of authors have argued that a worker's occupation of employment is at least as important as the worker's industry of employment in determining whether the worker will be hurt or helped by international trade. We investigate the role of occupational mobility on the effects of trade shocks on wage inequality in a dynamic, structural econometric model of worker adjustment. Each worker in our specification can switch either industry, occupation, or both, paying a time-varying cost to do so in a rational-expectations optimizing environment. We also specify a novel model of offshoring based on task-by-task comparative advantage that collapses to a very simple form for simulation. We find that the costs of switching industry and occupation are both high, and of similar magnitude. In simulations we find that a worker's industry of employment is much more important than either the worker's occupation or skill class in determining whether or not she is harmed by a trade shock, but occupation is crucial in determining who is harmed by an offshoring shock.
Discussants:
Kim Ruhl
(New York University)
Richard B. Freeman
(Harvard University)
Marcel Timmer
(University of Groningen)
Susan Houseman
(W.E. Upjohn Institute)
Jan 03, 2016 10:15 am, Parc 55, Mason
Transportation & Public Utilities Group
Economic Cost and Efficiency in Transportation
(L9)
Presiding:
Kevin Roth
(University of California Irvine)
A Comparative Analysis of Cost Change for LCC and Legacy Carriers in the U.S. Airline Industry
John Bitzan
(North Dakota State University)
James Peoples
(University of Wisconsin-Milwaukee)
[View Abstract]
[Download Preview] This study compares cost and productivity changes of full-service carriers (FSCs), low-cost carriers (LCCs) and ‘other’ carriers classified as regional or charter firms. Findings show cost reductions of 10 percent for FSCs and 20 percent for regionals/charters, and cost increases of 8.5 percent for LCCs from 1993 to 2014. Nontrivial productivity gains due to increases in load factor and stage length explain the findings for FSCs. Unexplained technical change accounts for the cost increases for LCCs, while productivity gains due to increases in load factor and stage length and unexplained technical change contribute to cost declines for ‘other’ carriers. These findings are interpreted as indicating (1) the LCC cost advantage over FSCs has eroded somewhat over this period, and (2) sources of cost changes over this period differ by air carrier classification.
Port Microeconomics: Port Services, Service Quality and Cost Functions
Wayne K. Talley
(Old Dominion University)
Manwo Ng
(Old Dominion University)
[View Abstract]
This paper presents several important contributions to the port literature. First, this paper deduces measures of quality of port services provided by port service providers. Second, with ports providing services and the quality of these services varying, this paper reaches the conclusion that the port long-run cargo throughput economic cost function that has appeared in the literature is miss-specified. Third, this paper extends and generalizes the existing literature by deriving the first port multi-service long-run joint economic joint cost function, i.e., a cost function for which port resources are shared in the provision of port multi-services. Until now, port multi-service and multi-throughput long-run economic cost functions that have appeared in the literature are non-joint cost functions, assuming that multi-services and multi-throughputs do not share port resources, which can oftentimes be a restrictive assumption.
Pricing Freight Transport to Account for External Costs
David Austin
(Congressional Budget Office)
[View Abstract]
Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those external costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than by rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport.
This study examines policy options to address those unpriced external costs. The options would impose taxes based on the weight or distance of each shipment, increase the existing tax on diesel fuel, implement a tax on the transport of shipping containers, or increase the existing tax on truck tires. The analysis estimates what would have occurred in 2007 had the simulated policies already been in place and had any initial, short-term transitions in response to the policies already occurred.
Adding unpriced external costs to the rates charged by each mode of transport—via a weight-distance tax plus an increase in the tax on diesel fuel—would have caused a 3.6 percent shift of ton-miles from truck to rail and a 0.8 percent reduction in the total amount of tonnage transported. Such a policy would have eliminated 3.2 million highway truck trips per year and saved about 670 million gallons of fuel annually (including the increase in fuel used for rail freight). On net, accounting for the effect of fuel savings on revenue from the fuel tax, such a policy would also have generated about $68 billion per year in new tax revenue and reduced external costs by
The World is Not Yet Flat - Transport Costs Matter
Kristien Behrens
(University of Quebec)
Theophile Bougna
(University of Quebec)
W. Mark Brown
(Statistics Canada)
[View Abstract]
[Download Preview] [Download PowerPoint] We provide evidence for the effects of changes in transport costs, international trade exposure, and input-output linkages on the geographical concentration of Canadian manufacturing industries. Increasing transport costs, stronger import competition, and the spreading out of upstream suppliers and downstream customers are all strongly associated with declining geographical concentration of industries. The effects are large: changes in trucking rates, in import exposure, and in access to intermediate inputs explain between 20% and 60% of the observed decline in spatial concentration over the 1992-2008 period.
Discussants:
Ken Button
(George Mason University)
Steven Craig
(University of Houston)
William Huneke
(Surface Transportation Board)
Ken Boyer
(Michigan State University)
Jan 03, 2016 10:15 am, Marriott Marquis, Sierra J
Union for Radical Political Economics/International Association for Feminist Economics
Gender, Credit, and Microfinance
(G2)
Presiding:
Bilge Erten
(Northeastern University)
The Development of Women’s Creditworthiness: Another Step for Women’s Economic Citizenship
Dorene Isenberg
(University of Redlands)
[View Abstract]
In the 1970’s women made a huge leap forward in emerging from their perceived position as an economic dependent. Impediments to women’s access to credit were challenged and reduced as different groups struggled to reconstruct the market society and economy. This paper investigates the discriminatory lending practices that women faced in the United States, the institutional changes promoted and achieved, and the alterations in women’s identity in the movement to make women legitimate borrowers. Using insights from a social provisioning approach this analysis shows that these changes helped some, but not all, all, women in moving towards economic citizenship.
Gender Biases in Bank Lending: Lessons from Microcredit in France
Anastasia Cozarenco
(Montpellier Business School and CERMi)
Ariane Szafarz
(Université Libre de Bruxelles, CEB, and CERMi)
[View Abstract]
[Download Preview] The evidence on gender discrimination in lending remains controversial. To capture gender biases in banks’ loan allocations, we observe the impact on the applicants of a microfinance institution (MFI) and exploit the natural experiment of a regulatory change imposing a strict EUR 10,000 loan ceiling on microcredit. Descriptive statistics indicate that the presence of the ceiling is associated both with bank-MFI co-financing and with harsher treatment of female borrowers. To investigate causal links, we develop an econometric approach that addresses the concerns of selection biases, multicollinearity, and endogeneity. Our empirical findings suggest that the change in the MFI’s gender-related attitude was triggered by banks through co-financing. Hence, we speculate that co-financing pushes ceiling-constrained MFIs to import whatever biases in loan granting that the banks are prone to. Overall, this paper stresses that apparently benign regulations such as loan ceilings can significantly harm the women’s empowerment efforts made by MFIs.
The Impact of Microfinance on Factors Empowering Women: Differences in Regional and Delivery Mechanisms in India’s SHG Programme
Ranjula Bali Swain
(Södertörn University and Uppsala University)
[View Abstract]
[Download Preview] The Self Help Group Bank Linkage programme has been a core strategy for women empowerment for the Government of India. We examine how the impact on women empowerment varies by location and type of group linkage of the program participant using household survey data from five states in India. Results reveal in southern states of India, women’s empowerment takes place through economic factors. For the other states, we find a significant correlation between women empowerment and autonomy in women’s decision making and network, communication and political participation respectively. We do not find any differential causal impact of different delivery methods.
Gold Backed Microcredit and Women’s Autonomy in Pakistan
Ghazel Zulfiqar
(Lahore University of Management Sciences)
[View Abstract]
[Download Preview] Based on a sample of 67 interviews with borrowers and their family members as well as interviews with 25 microfinance practitioners this study analyzes gold collateralized microcredit. Since 2011 Pakistan’s microfinance banks (MFBs) have extended loans against gold jewelry. The jewelry belongs to women of poor and lower-middle income households, is the only asset they can consider theirs and is passed down from one generation of women to the next. We find that collateralizing gold jewelry in microcredit arrangements coopts patriarchal norms that determine a complex form of gold ownership at the household level. This puts women at the risk of intergenerational asset depletions, which in turn compromises their autonomy.
Discussants:
Bilge Erten
(Northeastern University)
Sucharita Sinha Mukerjee
(College of Saint Benedict and Saint John’s University)
Jan 03, 2016 10:15 am, Marriott Marquis, Sierra I
Union for Radical Political Economics
The Political Economy of Capital Flows, Capital Controls and Central Bank Policy in a Global and Historical Perspective
(F3)
Presiding:
James Crotty
(University of Massachusetts-Amherst)
European Imbalances: Financial or Structural? Lessons from Neapolitan and English Economists in the Early XVII Century
Lilia Costabile
(Naples Federico II)
[View Abstract]
[Download Preview] Two main interpretations have been put forward of European countries’ current external imbalances. The first focuses on financial integration, pointing to rising capital flows as a result of both monetary unification in Euro-area countries, and legislation liberalising cross-border activities of financial firms in the European Union as a whole. The second interpretation, emphasising competitiveness differentials between core and periphery countries, calls into question different wage and price dynamics, with responsibilities shifted back and forth between peripheral countries, accused of lax wage and price policies, and core countries accused of “mercantilist” practices intended to damage other European partners via excessive wage moderation and real exchange rate depreciation. I show these same issues motivated economic debates by Neopolitan economists of the seventeenth century.we become aware that the interaction of real and financial markets responsible for our current macroeconomic imbalances are not a recent phenomenon: they existed and determined similar problems in the remote times of our economists too. And, through the empirical regularities that they described, we learn about fascinating continuities and differences in the structure of financial markets and real economies between their times and ours.
Who Wins and Who Loses from Quantitative Easing and What Does This Tell Us About the Political Economy of Central Bank Policy?
Gerald Epstein
(University of Massachusetts-Amherst)
Juan Montecino
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] The Federal Reserve (Fed), the central bank of the United States, is at the center of a big political fight, once again. The Federal Reserve has been criticized for its Quantitative Easing (QE) and zero interest rate policies by politicians and economists who have argued that it has only served to create asset price gains for the wealthy, while doing little for the bulk of the population.This has created a paradox in our attempts to understand the relationship between monetary policy, worker’s well-being and inequality. Paul Volcker was roundly criticized in the 1980’s not for reducing interest rates, but, on the contracry, because his massive increases in interest rates threw workers out of work, raised profits for banks, and dramatically increased inequality. For decades the Fed has been criticized by progressives and heterodox economists for keeping interest rates too high, and for padding the profits of bankers while making it more difficult for businesses to invest, expand and create jobs. But now, the Fed is being accused of raising inequality by doing the opposite: by lowering interest rates. Can both of these be true? Has the world been turned upside down? What can economic analysis tell us about who gains and who loses from the Fed’s recent Quantitative Easing (QE)? The answer is yes because of important changes in the structure of financial markets and the macroeconomy.
Capital Controls and Policy Space in a Time of Crisis
Ilene Grabel
(University of Denver)
[View Abstract]
[Download Preview] The re-branding of capital controls during the global crisis reflects the increased policy space that many developing countries enjoy. Controls also widen the space for other policy innovations, and may protect developing economies from the capital outflows and instability associated with the end of quantitative easing by the US. The use of capital controls is consistent with Albert Hirschman’s embrace of the right of developing nations to engage in policy and institutional experimentation; his appreciation of the power asymmetries between smaller and larger states, and the consequent need to enhance the autonomy of the former vis-à-vis the latter; and his emphasis on the unintended effects on democratic governance of the exercise of voice and exit through diverse channels.
Dimensions of Financial Power
Jonathan Goldstein
(Bowdoin College)
[View Abstract]
This paper adds specificity to the financialization literature by decomposing the rise to power of financial capitalists. Two sources of financial power are identified: traditional financial power (TFP) and the threat of shareholder activism (TSA). Three different stages of development are identified for each source. The TFP stages consider 1) intra financial capitalist competition associated with early attempts to circumvent segregated functions and markets; 2) intra finance capitalist competition that results from the inflation-high interest rate - deregulation nexus of the later 70s and 80s; and 3) renewed intra finance capitalist competition from a second wave of circumventing segregated markets and functions. The TSA phases correspond to the hostile takeover period, the rise of institutional investors and hedge fund activism. The ebbs and flow of power between commercial banks, investment banks and other financial actors associated with these phases are addressed through various empirical measures of TFP and TSA. The impact of this power trajectory on industrial capitalist is considered throughout. Finally, the decomposed measures of financial power are incorporated into TFP and TSA indices through the use of principal components analysis. These indices potentially serve as a basis for aggregate analysis of profit rates and investment rates as they relate to financial power.
Discussants:
James Crotty
(University of Massachusetts-Amherst)
Esther Jeffers
(University of Paris 8)
Dominique Plihon
(University of Paris 13)
Jan 03, 2016 12:30 pm, Marriott Marquis, Sierra C
Agricultural & Applied Economics Association
Analysis of Trade and Localization in Agricultural Products and Processed Foods
(A1)
Presiding:
Stephen Devadoss
(University of Idaho)
Implications of Transatlantic Trade and Investment Partnership for Food Processing Sector
Jeff Luckstead
(University of Arkansas)
Stephen Devadoss
(University of Idaho)
[View Abstract]
[Download Preview] While U.S. exports of primary and bulk agricultural commodities are growing slowly (and in some cases declining), processed food exports have experienced substantial growth from $37 billion in 1998 to $104 billion in 2012, an increase of 178%. Food processing firms vary in sizes, which is an important determinant of whether they sell only in the domestic market or also export, and engage in monopolistic competition in highly differentiated food products. A major market for U.S. processed food exports is the European Union-27 (EU), and the EU is the largest exporter of processed food to the United States. However, trade in processed food still faces substantial tariff and non-tariff barriers. To reduce these trade barriers, the United States is actively negotiating the Transatlantic Trade and Investment Partnership (TTIP) with the EU, which will call for phasing out of trade restrictions and harmonization of NTBs and enhance market access to value added food products. The purpose of this study is to develop a theoretical model characterizing the monopolistic competition and firm-level heterogeneity to empirically quantify the effects of TTIP on productivity, prices, supply, demand, and trade in the food processing industry and estimate the welfare implications of this agreement. This study will estimate the effects of exports on the growth potential of firms because more productive firms will thrive in the export market and inefficient firms may exit the industry, which will cause inter-firm reallocation of resources within the industry. In addition, trade will also increase the total number of firms as more firms from other countries enter into the market, which will introduce new brands, varieties, and food items. This study will assess the competitive positions of U.S. firms versus foreign firms, which will be useful to the food processing industry and policy makers and promote economic growth.
Sanitary and Phytosanitary Barriers in Chinese Agricultural Exports: The Role of Trade Intermediaries
Mark J. Gibson
(Washington State University)
Qianqian Wang
(Henan University)
[View Abstract]
We study the role of trade intermediaries in facilitating Chinese agricultural exports by reducing sanitary and phytosanitary (SPS) barriers. Chinese agricultural exporters had anticipated fast growth after China joined the WTO in 2001, but growth was relatively slow due to SPS barriers to trade. While most of China has had trouble meeting international SPS standards, certain coastal and export-oriented regions largely have been able to do so. We analyze transaction-level customs data for regional differences in agricultural export growth. The data also allow us to identify the use of export intermediaries. Moreover, we develop a trade model with heterogeneous producers in which intermediaries can facilitate agricultural exports for producers that lack the economies of scale to overcome SPS barriers to trade.
The Localization of Processed Food Products over Time
Andrew J. Cassey
(Washington State University)
Ben O. Smith
(University of Nebraska–Omaha)
[View Abstract]
We study if there are changes in the industrial localization of processed food product industries over time. We assembled an industry-by-state repeated cross-section on industry employment covering 1963–1992 at the SIC-4 level and applied the Cassey and Smith (2014) statistical test on the Ellison and Glaeser (1997) measure. We document that localization of the processed food industries has not changed over time in the United States despite changes in demographics, transportation costs, the importance of manufacturing to the economy, and unionization rates.
Discussants:
Gopinath Munisamy
(United States Department of Agriculture)
Jan 03, 2016 12:30 pm, Hilton Union Square, Continental Ballroom 5 & 6
American Economic Association
AEA/AFA Joint Luncheon - Fee Event
Presiding:
Patrick Bolton
(Columbia University)
Bengt Holmstrom
(Massachusetts Institute of Technology)
Why Are Money Markets Different?
Jan 03, 2016 12:30 pm, Hilton Union Square, Union Square 24
Cliometric Society
Historical Growth Dynamics of the Modern World
(N1)
Presiding:
Michael Haupert
(University of Wisconsin-La Crosse)
How Ethics and Rhetoric, Not Solely Material Interests, Caused the Modern World: An Essay in Humanomics
Deirdre McCloskey
(University of Illinois-Chicago)
[View Abstract]
[Download Preview] The modern world, I claim, was made not by the usual material causes, such as coal or thrift or capital or exports or imperialism or property rights or even science, but by technical and institutional ideas among a revalued bourgeoisie. In Early Modern times in northwestern Europe a novel way of looking at the virtues and at bettering ideas came from liberty and dignity for commoners, among them the bourgeoisie. The bourgeoisie did not get better. And its increasing numbers would have been useless without what did in fact occur: a startling revaluation of the trading and betterment in which the bourgeoisie specialized. The revaluation was called "liberalism." Liberalism in turn did not come from some ancient superiority of the Europeans but from egalitarian accidents in their politics 1517-1789. The upshot since 1800 has been a gigantic improvement of the poor, and a promise now being fulfilled of the same result worldwide—a Great Enrichment for the whole.
Reconstruction Dynamics: The Impact of World War II on Post-War Economic Growth
Petros Milionis
(University of Groningen)
Tamas Vonyo
(Bocconi University)
[View Abstract]
[Download Preview] The decades that followed the end of World War II are commonly referred to as the golden age of economic growth as they were marked by the highest growth rates that the world economy has witnessed to this date. This temporal sequence raises the natural question of whether and to what extent these growth rates were the outcome of a prolonged reconstruction process that began after the end of the war. We revisit this important question by investigating the impact of the post-war output gap on the subsequent growth experiences of different countries in different regions of the world and by using a novel instrumental variables approach to establish causality. Our results show that this reconstruction process was an important driver of growth during the post-war decades, not only in Europe but globally, and its impact on growth rates lasted until the mid 1970s. Moreover, a counterfactual analysis suggests that in the absence of the reconstruction effect global growth rates from 1950 to 1975 would have been on average 40% lower and only slightly higher than those observed during the years from 1975 to 2000.
Keeping our Bearings in Public R&D: Lessons from Britain’s Board of Longitude (1714-1828)
Paul David
(Stanford University)
[View Abstract]
In recent years it has become increasingly frequent to come upon some passing mentions or brief discussion of the pioneering invention of the marine chronometer by John Harrison (1693-1776), an autodidact Yorkshire clockmaker who sought the enormous £20,000 prize that had been offered in 1714 by Britain's Parliament. The announced reward was intended to encourage the invention of such a device, among other potentially useful methods of finding the longitude of a vessel while it was at sea on an extended oceanic voyage. Under the terms of the Act of 12 Anne, 1713 (n.s.1714), the appointed Commissioners of the newly created Board of Longitude were authorized to award that sum to whosoever would discover or invent an accurate, practical and useful means of finding the longitude of a ship at sea. This problem had long been recognized by astronomers and mariners to hold the key to accurate ocean navigation, and had caught the attention of successive rulers of Europe's leading maritime states from the late 16th century onwards. By the early 18th century, however, the challenge of providing a solution that could be relied upon during long oceanic voyages had emerged as a pressing matter of public importance in Britain.
Discussants:
David Mitch
(University of Maryland-Baltimore County)
Ahmed Rahman
(U.S. Naval Academy)
Raphael Franck
(Brown University)
Jan 03, 2016 12:30 pm, Hilton Union Square, Union Square 23
History of Economics Society
Ruling the Market: Neoliberal Reasoning in Germany and Beyond
(B2)
Presiding:
David M. Levy
(George Mason University)
German Central Banking: From Financing Fascism to Fueling Liberalism?
Sander Tordoir
(Max Planck Institute for Human Development)
[View Abstract]
[Download Preview] This project hopes to unravel the intellectual history of German Ordoliberalism through the lens of the Bundesbank and the emergence of a new postwar German central banking tradition. A simplistic explanation - one that the Bundesbank itself does not dispel - holds that the Bundesbank has been shaped by the twin episodes of hyperinflation in Weimar in 1923-1924 and the collapse of Nazi War economy in 1945. Yet, this essentialist account of German monetary history provides no idea of how German central bankers made sense of this history in reconstructing their central bank after the Second World War. The hypothesis driving this research is that the missing link is Ordoliberalism. While a theoretical literature on Ordoliberalism exists, as well as a body of scholarship on German monetary history, the connection between them remains unexplored. Understanding the relationship between Ordoliberalism and German central banking helps to shed light on the evolution of European liberalism, its institutional life and its role in the postwar economic reconstruction. The research also sketches out a motor of history built on the mutual construction of economic myth and the emergence of economic doctrine.
Rule-Based Reasoning Across the Atlantic: "Old Chicago", Freiburg and Hayek
Ekkehard A. Köhler
(Walter Eucken Institut)
Stefan Kolev
(University of Applied Sciences-Zwickau)
[View Abstract]
[Download Preview] James Buchanan’s final contributions to the post-crisis debate in political economy underpinned the necessity to reexamine the legacy of the “Old Chicago” School of thought, both by contrasting its ideas to later developments in Chicago and by linking it with parallel liberalisms on the other side of the Atlantic. This paper follows Buchanan’s plea by exploring the central topoi of the 1930’s debate of the Chicago School as seen from the work of Henry Simons and discuss its impact on the academic arena on both sides of the Atlantic thereafter. With respect to this impact, we highlight Hayek as the focal scholar who possibly transmits these topoi that later influenced the rise of Freiburgean ordoliberalism in Germany from the mid-1930’s onwards as youngest archival findings suggest. By revisiting the Mont Pèlerin Society’s 1947 first meeting’s minutes and papers, we stress the proximity in the mindsets of “Old Chicago”, Hayek and the Freiburg School ordo-liberals and suggest an explanation for the surprisingly homogenous direction of these yet unconnected schools of thought. Utilizing these insights from the history of ideas, we re-discuss the intellectual origins of Constitutional Political Economy’s research program. Following Viktor Vanberg, we argue that CPE can be interpreted as a modernized perspective on economics that carries forward three strands of transatlantic liberal programs, being precisely “Old Chicago”, Freiburg and Hayek. If the genesis of the current crisis and the policy responses so far, in the Eurozone and beyond, are interpreted as a failure of both fiscal and monetary policy to understand the vital importance of rule-based thinking, then the conjoint heritage of political economists dedicated to a “laissez-faire with rules” reasoning can provoke a crucial impulse: for the political arena, for the economics profession and, last but not least, for the individual citizen.
Gordon Tullock as a Disciple of Ludwig von Mises
David M. Levy
(George Mason University)
Sandra J. Peart
(University of Richmond)
[View Abstract]
[Download Preview] In Gordon Tullock’s 1971 contribution to “Toward Liberty”, the multi-language tribute to Ludwig von Mises on his 90th birthday, we read how Tullock prefaces his essay: “It may seem odd to place an article originally designed for publication in a biological journal in a collection of articles to Ludwig von Mises. Among his other distinctions, Professor von Mises was among the first to point out that economics can be expanded to deal with many areas outside of its traditional scope. In my own case, my work in expanding economics into new areas was, in a real sense, begun by my reading of Human Action. The article below, then, represents my most extreme application of economics outside its pre-von Mises boundaries.” (Tullock 1971, 2:375). We demonstrate how Tullock’s work on rational predation can be viewed organized as describing purposive behavior outside the exchange paradigm. This puts Tullock’s world view closer to Walter Eucken’s emphasis on politics as power than it does to James Buchanan’s emphasis on politics as exchange.
The Muthesius Controversy: A Tale of Two Liberalisms
Ekkehard A. Köhler
(Walter Eucken Institut)
Daniel Nientiedt
(Walter Eucken Institut)
[View Abstract]
[Download Preview] The paper depicts a controversy among German-speaking members of the Mont Pelerin Society (MPS) in the year 1955. It is based on a previously unknown exchange of letters between Wilhelm Röpke, Alexander Rüstow, Friedrich Hayek and Ludwig Mises, among others. Sparked by an article in a publication edited by MPS associate Volkmar Muthesius, the discussion revolves around different approaches to competition policy as well as the German ordoliberals’ relationship with national socialism. We argue that the controversy exposes fundamental differences between the schools of thought present within the MPS during the 1950s.
Discussants:
Ekkehard A. Köhler
(Walter Eucken Institut)
David M. Levy
(George Mason University)
Harro Maas
(University of Lausanne )
Stefan Kolev
(University of Applied Sciences-Zwickau)
Jan 03, 2016 12:30 pm, Parc 55, Balboa
Labor & Employment Relations Association
Cities, Equity, and Labor Market Policies
(J3)
Presiding:
Rick McGahey
(New School)
Workforce Intermediaries, Regional Economic Resilience, and Just Growth
Chris Benner
(University of California-Davis)
Manuel Pastor
(University of Southern California)
[View Abstract]
Research on metropolitan and regional economies shows a great deal of variation in how
they link equity and growth strategies--"just growth." This paper examines the role of
region-specific workforce intermediaries and education and training policies in addressing
inequality and fostering shared economic growth.
Cities on Their Own: Using Labor Market Policies to Increase Equity
Rick McGahey
(New School)
[View Abstract]
labor market policies in favor of increased equity unlikely in coming years. But some cities
are acting on their own and adopting equity policies even though mainstream economic
theory says such efforts will put their economies at a competitive disadvantage. This paper
uses a unique data set of over 200 American cities to examine whether such city-specific
policies harm economic growth relative to competitor cities, and explores the implications
for further local equitable labor policies
Improving Labor Standards in the Restaurant Industry: A Comparative Study
T. William Lester
(University of North Carolina)
[View Abstract]
[Download Preview] Labor standards have an important effect on job quality and growth that varies by specific industries and locations. This paper presents results from qualitative/mixed methods research about the impact of labor standards on the restaurant industry, comparing San Francisco and the Research Triangle region in North Carolina. It seeks to go beyond the disemployment debate and analyze how labor standards lead to the restructuring of work in this low wage sector.
The Impact of City Minimum Wage Laws
Annette Bernhardt
(University of California-Berkeley)
Ken Jacobs
(University of California-Berkeley)
[View Abstract]
Cities are moving to increase their minimum wage laws, and these efforts raise several
substantive and methodological issues when estimating and assessing the impact of those
laws. Drawing on impact studies from California cities, this paper examines border effects
in regional economies and the impact of higher minimum wages on non-profits, especially
human service providers. It also raises methodological issues, especially concerning
the lack of adequate data to assess the impact of these policies, some of which cover a
substantial percentage of a city's labor force.
Discussants:
William M. Rodgers III
(Rutgers University)
Sylvia Allegretto
(University of California-Berkeley)
Jan 03, 2016 12:30 pm, Parc 55, Davidson
Labor & Employment Relations Association
Inequality in Japan
(J3)
Presiding:
Arthur Sakamoto
(Texas A&M University)
Trends in Social Mobility in Postwar Japan
Hiroshi Ishida
(University of Tokyo)
[View Abstract]
Social mobility has been a central concern among sociologists. Social mobility, as defined
in this study, represents the change of social position between the father's and son's
generations, and it is often used as an indica of societal openness. This study examines
the trends of social mobility in post-war Japa nd asks whether there was an increasing
fluidity or openness during the economic growth period and a declining fluidity after the
1990s. This study also provides evidence of cross-national comparison of social mobility
patterns of Japan and other industrial nations.
Good Jobs and Bad Jobs in Japan: 1982-2007
Takao Kato
(Colgate University)
Ryo Kambayashi
(Hitotsubashi University)
[View Abstract]
[Download Preview] In the past, studies of Japanese inequality emphasized labor market segmentation between
career-type ("good") jobs and less secure ("bad") jobs that offered lower wages, benefits,
and training. This paper provides novel evidence from the newly available Employment
Status Survey on changes or lack thereof in the nature of labor market segmentation in
Japan from 1982 to 2007. Using two alternative definitions of “good” jobs and “bad” jobs,
and considering self-employment explicitly, we find that the most noteworthy change in
Japan’s labor market segmentation over the last 25 years is a sizeable flow to "bad" jobs
from "bad" types of self-employment, which is considerably larger than the flow from good
to bad jobs and is especially marked for women. These findings cast doubt on the popular
narrative of a large and steady flow of workers from good to bad jobs. However we find
compelling evidence supporting the narrative when it comes to youth, especially young
women, whose share of good jobs rose during the 1980s but has been completely undone
during the Lost Decade.
Top Income Shares in Japan, 1886-2012
Chiaki Moriguchi
(Hitotsubashi University)
[View Abstract]
[Download Preview] Since the publication of Capital in the Twenty-First Century by Thomas Piketty (2014), growing trends in the concentration of income and wealth around the world have attracted much attention. Do we observe the same trends in Japan? In this study, I extend the estimates of top income shares by Moriguchi and Saez (2008) to 2012 and provide new evidence on mobility of the top income groups in Japan between 1950 and 2006. I find that the top income shares in Japan increased modestly but steadily since the early 1990s, but began to decline after the 2008 financial crisis. Compared to the U.S. where comparable estimates are available for 1991-2006, the mobility of the top 1% income group was substantially lower in Japan. During an episode of major asset price appreciation, however, the mobility of the top 0.1% (and above) increased sharply in Japan. This suggests that individuals who receive top capital gains are relatively disassociated with individuals who earn top labor incomes in postwar Japan.
Social Inequality in the Rapidly Aging Society of Japan
Sawako Shirahase
(University of Tokyo)
[View Abstract]
Japanese society has experienced its population aging over a short period of time. It took
less than a quarter of a century for the proportion of those aged 65 and over to rise from
7 to 14 percent. With such a rapid demograp hange, we no longer can count on our
current social institutions, which used to be amental to various social systems, as
much as before; in fact, an increase in the number of elderly one-person households has
been witnessed in contemporary Japan. The family/household has been a major arena
for providing basic livelihood security to people, and Japan’s welfare state has strongly
depended on it. I show how this change in household structure, associated with the aging
population, affects income inequality among the elderly.
Discussants:
David Autor
(Massachusetts Institute of Technology)
Arthur Sakamoto
(Texas A&M University)
Jan 03, 2016 12:30 pm, Hilton Union Square, Continental – Parlor 2
National Association of Economic Educators
Teaching with Technology in Classes from 30 to 700
(A2) (Panel Discussion)
Panel Moderator:
William Goffe
(Pennsylvania State University)
Eric P. Chiang
(Florida Atlantic University)
The Many Formats of Pre-Lectures: How to Prepare Students for Active Learning in Class
Martha L. Olney
(University of California-Berkeley)
Using Clickers in Large (700) and Small (30) Enrollment Classes
Jose J. Vazquez Cognet
(University of Illinois-Urbana-Champaign)
It is a Clicker Question, Not an Exam Question
J. Brian O'Roark
(Robert Morris University)
An Economic Song and Dance... Engaging Students in a World of Multi-Media
Roger Butters
(Hillsdale College)
Benefits and Costs of Teaching with Technology
Jan 03, 2016 12:30 pm, Hilton Union Square, Powell A & B
National Economic Association/American Society of Hispanic Economists
Racial/Ethnic Differences in Self-Identification and Income Inequality
(J7, Z1)
Presiding:
Alberto Dávila
(University of Texas-Rio Grande Valley)
Not Black-Alone: Obama and Racial Self-Identification among African Americans
Patrick Mason
(Florida State University)
[View Abstract]
This paper estimates a reduced form racial identity equation for a sample of African American survey respondents. Racial identity norms persist because of a combination of forces representing own-group altruism and other-group antagonism. A change in a state’s fraction of White votes for Obama in 2008 relative to Kerry in 2004 provides an empirical proxy for a change in White antagonism toward African Americans. Using Current Population Survey data from 2003 – 2013, this paper finds that there is a positive and statistically significant Obama-effect on African American self-identification as mixed-race rather than as Black-alone.
How Race and Ethnicity Moderate the Impact of Income Inequality and Demographics
David J. Molina
(University of North Texas)
[View Abstract]
Income distribution is attracting the attention of the public and policy makers and is expected to be an issue highly discussed in the presidential election of 2016. Using the Gini decomposition by Yao (1999) I analyze the degree by which race and ethnicity contribute to income inequality as well as the degree that cannot be attributed to any group. After examining the impact of race and ethnicity on total income and various components of income (wage, transfer payments, financial income, etc), I turn to see if the impact is amplified or reduced if one takes various demographics aspects into account. For instance, if the percentage of income inequality attributed to the Hispanic population for total wages is reduced at higher education levels implies policies that increase education level for Hispanics would reduce income inequality. The data used in the analysis is the consumer expenditure survey for 2004 to 2013.
Religious Workers and the Racial Earnings Gap
Fernando Lozano
(Pamona College)
[View Abstract]
[Download Preview] What is the role of religious institutions and the people working in them on the racial earnings gap in the United States? In this paper I explore the relationship between the religious density in the state where a worker was born and the labor market outcomes of the worker thirty years later. I use data from the 1960, 1970, 1980, 1990, 2000 and 2010 Decennial Census to construct a pseudo panel of workers in the United States in 1990, 2000 and 2010, and then I analyze how the number of religious workers in the states they were born in in 1960, 1970 and 1980 predict the differential outcomes between Black and White Non-Hispanic workers. My results suggests that living in a state with a one percentage point larger density of religious workers increase the earnings of black worker by 0.8 percentage points, this estimate increases to 1.7 percentage points once control for the state where the worker is currently residing. Importantly, this estimate of the change in earnings is largest among black workers who live in a state different to the one they were born in, and the estimate among movers suggests a 3.2 percentage point increase in the earnings of black workers for each percentage point increase in the proportion of religious workers.
English-Language Proficiency, Earnings, and the Likelihood of Reporting a Disability
Alberto Dávila
(University of Texas-Rio Grande Valley)
Marie T. Mora
(University of Texas-Rio Grande Valley)
[View Abstract]
[Download Preview] Previous studies have found that workers with disabilities earn less on average than their non-disabled counterparts. Other studies have shown that workers lacking English-language proficiency tend to face a higher risk than English fluent workers of being injured on the job. To our knowledge, however, a void exists in the literature linking English proficiency and the likelihood of reporting a disability. Indeed, an often overlooked component of Social Security regulations is that limited-English-proficient (LEP) workers may qualify for federal disability benefits because they are less employable than English proficient workers. In this study, we will use public use microdata from the American Community Survey to analyze the relationship between English proficiency, labor market earnings, and the likelihood of reporting a cognitive versus a physical disability.
Discussants:
Luisa R. Blanco
(Pepperdine University)
Francisca Antman
(University of Colorado-Boulder)
Monica Garcia-Perez
(St. Cloud State University)
Richard Santos
(University of New Mexico)
Jan 03, 2016 12:30 pm, Marriott Marquis, Sierra I
Society of Government Economists
Economic Cycles and Strategies: The Role of Transfers, Borrowing, and Self-Employment
(D1, H3)
Presiding:
David Johnson
(U.S. Bureau of Economic Analysis)
Local Labor Demand and Program Participation Dynamics: Evidence from New York SNAP Administrative Records
Erik Scherpf
(USDA Economic Research Service)
Benjamin Cerf Harris
(U.S. Census Bureau)
[View Abstract]
This study uses 2007–2012 administrative records from New York State’s Supplemental Nutrition Assistance Program (SNAP), linked to the 2010 Census at the person-level and to industry-specific labor market indicators at the county-level to estimate the effect of local labor conditions on individuals’ likelihood of transitioning out of the program. We find that local labor markets matter for the length of time individuals spend on SNAP, but there is substantial heterogeneity in estimated effects across local industries. While employment growth in construction and manufacturing has no impact on SNAP exits, growth in local food service and retail employment significantly increases the likelihood of a recipient leaving the program in a given month. Notably, estimated industry effects vary across race groups, with Black Alone non-Hispanic and Hispanic SNAP participants benefiting the least from improvements in local labor market conditions. Wage growth in the same industries has similar, but more modest, estimated effects. Our models include county fixed effects and time-trends, and our results are identified by detrended within-county variation in local labor market conditions. We confirm that our results are not driven by endogenous inter-county mobility or New York City labor markets.
Inequality in America: The Role of National Income, Household Income, and Transfers
David Johnson
(U.S. Bureau of Economic Analysis)
Dennis Fixler
(U.S. Bureau of Economic Analysis)
Bradley Hardy
(American University)
[View Abstract]
Consensus on the evolution of inequality in America is complicated both by choice of dataset and the sources used to define income. Over the past 30 years, per-capita GDP increased 65 percent, while household-based median income rose only 11 percent. More recently, between 1999 and 2010, real mean Census Bureau household income fell 5.7 percent, while real per capita personal income from the National Income and Product Accounts (NIPA) increased 11.1 percent. To reconcile the relationship between NIPA-based measures of macroeconomic growth and household income-based measures of inequality, we construct a time series combining NIPA and Current Population Survey (CPS) data from 1979-2012. First, we calculate adjustments that bring NIPA and Census-based definitions of income inequality into closer agreement. To address concerns surrounding underreported income in the CPS, we match CPS survey respondents to 1040 income records. Finally, we examine whether and how inequality levels and trends are altered after accounting for additional sources of income, such as the cash value of Medicare and Medicaid. This paper will be informative for policymakers, by providing better information on the relationship between national economic output and household well-being. Related to this, the proper accounting of in-kind medical benefits will help in assessing the relationship between changing transfer program policies and inequality trends.
Timing is Money: Does Lump-Sum Payment of Tax Credits Induce High-Cost Borrowing?
Katherine Michelmore
(University of Michigan)
Lauren Jones
(Ohio State University)
[View Abstract]
[Download Preview] Since welfare reform in 1996, spending on tax credits targeted towards low-income families has far surpassed spending on traditional welfare. As of 2011, spending on welfare was around 30 billion dollars nationally, while the two largest tax credits for low-income families, the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), were each worth nearly 60 billion dollars. The shift away from delivery of transfer income through the welfare system to delivery through the tax code means that, instead of receiving a consistent, monthly welfare check, many families receive a lump-sum payment when they file their taxes each year. While lump-sum delivery of benefits can be a helpful savings mechanism to allow families to purchase large items that would be otherwise unaffordable (Tach and Halpern-Meekin 2014), it may also induce families to take on costly debt throughout the year in anticipation of tax refunds come tax time. In this paper, we investigate the extent to which the once-a-year timing of benefit payments induces families to take on additional unsecured debt. Using the Survey of Income and Program Participation (SIPP) wealth topical modules from 1990 to 2008, we use a simulated instruments approach to estimate the impact of tax credit program expansions on household credit card debt. Preliminary evidence suggests increases in tax credit generosity are associated with increases in credit card and other unsecured debt. Using the Consumer Finance Monthly survey (CFM), we then show a seasonal pattern of debt accumulation for low-income households that reflects the once-a-year timing of benefits structure: low-income households are much more likely to pay down their debt in the months surrounding tax filing compared to their higher-income counterparts, while there is little or no difference in their debt accumulation and payoff compared to higher-income families throughout the rest of the year.
Becoming Self-Employed During the Great Recession
Adela Luque
(U.S. Census Bureau)
Maggie R. Jones
(U.S. Census Bureau)
[View Abstract]
Recent literature on entrepreneurship (e.g., Fairlie, 2013) has examined the individual characteristics and local economic conditions associated with becoming self-employed. This paper extends the existing literature by examining self-employment duration for those becoming self-employed during the Great Recession versus the pre-recessionary period. Using two separate panels of CPS ASEC data (2005-06 and 2007-08) linked to tax data for the 2005-2013 period, we explore whether self-employment duration is lower for the cohort that becomes self-employed during the Great Recession relative to the cohort entering self-employment prior to the recession. In addition, we examine whether the characteristics associated with longer self-employment duration differ between the two cohorts. Initial results indicate that those transitioning into self-employment during the Great Recession have shorter self-employment spells than those becoming self-employed prior to the recession. Meanwhile, we also find some preliminary evidence that certain demographic characteristics are associated with shorter self-employment spells, regardless of when entering into self-employment occurs. However, the association between some demographic characteristic and self-employment duration seems to be stronger in one cohort versus the other. The results of the paper may help improve our understanding of the relationship between economic downturns and self-employment.
Discussants:
Maggie R. Jones
(U.S. Census Bureau)
Quentin Brummet
(U.S. Census Bureau)
Benjamin Cerf Harris
(U.S. Census Bureau)
Katherine Michelmore
(University of Michigan)
Jan 03, 2016 12:30 pm, Marriott Marquis, Yerba Buena Salons 5 & 6
Union for Radical Political Economics
David Gordon Memorial Lecture
(D3)
Presiding:
Fred Moseley
(Mount Holyoke College)
Rising Inequality: Are Rents the Problem?
Dean Baker
(Center for Economic and Policy Research)
[View Abstract]
Thus paper argues that most of the increase in inequality since 1980 can be attributed to the growth of rents in four areas: excessive CEO pay, a bloated financial sector, the expansion of patent and copyright protection, and protectionist policies to benefit highly paid professionals. The paper produces a range of estimates of amount of additional income going to high-income households from each source. It also outlines alternative policies and institutional structures that can reduce the rents in these areas back to their pre-1980 levels measured as a share of GDP.
Discussants:
Heather Boushey
(Washington Center for Equitable Growth)
Jan 03, 2016 2:30 pm, Marriott Marquis, Sierra C
Agricultural & Applied Economics Association
Supply Chains as Mechanisms to Facilitate Technological Change in Agriculture
(Q1)
Presiding:
David Zilberman
(University of California-Berkeley)
The Economics of Agricultural Supply Chain Design: A Portfolio Selection Approach
Xiaoxue Du
(University of California-Berkeley)
Liang Lu
(University of California-Berkeley)
Thomas Reardon
(Michigan State University)
David Zilberman
(University of California-Berkeley)
[View Abstract]
[Download Preview] Agrifood firms in the modernizing/globalizing world, both in developing and developed countries, regularly need to undertake innovations. They develop supply chains to accommodate the nature of the innovations. In this paper we analyze an innovator's supply chain design problem. The design of the supply chain may include allocating resources between production of feedstock (agricultural products) and processing and marketing, and determining the amount of feedstock to be obtained through contracts. We show that the innovator determines its overall level of production taking advantage of its monopoly power in the output market, and behaves as a monopsony in buying feedstock from contractors. These decisions are constrained by the marginal cost of capital and the properties of production and marketing technologies. When the innovator is risk averse, risk considerations in production processing and marketing and the correlation between risks will affect both overall production and share of input purchased through contracts.
Supply Chain Design and Adoption of Indivisible Technology
Liang Lu
(University of California-Berkeley)
Thomas Reardon
(Michigan State University)
David Zilberman
(University of California-Berkeley)
[View Abstract]
[Download Preview] In this paper, we develop a framework to analyze adoption of indivisible technologies by relatively small farms using a threshold diffusion model. It shows that different supply chains may emerge to enable the adoption of indivisible technologies. Independent technology dealers may buy the indivisible equipment and rent it to farmers, when the gain from adoption is not affected by scale or ownership of the technology. Also, larger farmers may buy the technology equipment and rent it (renting the machine per se or providing a set of services that includes use of the machinery for the farmer buying the service) to smaller farmers, especially when there are gains from scale or ownership. The paper derives equilibrium prices and quantities in the output, equipment, and technology rental market. These equilibrium prices and quantities depend on the heterogeneity of farmers and the features of the technology. Introduction of the new indivisible technology will benefit larger adopting farmers and consumers but may hurt non-adopters. We illustrate our conceptual findings with empirical examples.
Value Chains and Technology Transfer to Agriculture in Developing and Emerging Economies
Johan Swinnen
(Katholieke Universiteit Leuven)
[View Abstract]
[Download Preview] Value chains in the agrifood sector are undergoing a rapid process of modernization, characterized by the emergence of private standards and different systems of vertical value chain governance. In this article we investigate the technological implications of these developments at the farm-level. We explicitly modelled the conditions under which technology transfer and adoption will occur in a value chain setting and reviewed the corresponding evidence on these issues. We find that technology transfer within a value chain can occur in an environment with imperfect credit and technology markets, but depends on the surplus generated by the technology, the holdup opportunities of the supplier and the type of technology. Finally, using these findings we discuss the implications of public investment and the role of private standards as a potential catalyst for technology adoption and transfer.
New Product Introductions and Innovation in the Food Marketing Chain
Haimanti Bhattacharya
(University of Utah)
Robert Innes
(University of California-Merced)
[View Abstract]
[Download Preview] This study analyzes the relationship between market concentration and new product introductions using an extensive annual panel data set covering the period 1983 to 2004 from the US processed food industry. The paper tests a new theory, which argues that new product introductions are influenced by the anticipation of future mergers. The evidence suggests that market concentration increases new product introductions and product introductions spur subsequent mergers in the US processed food industry. Hence it provides evidence in support of the anticipatory mergers theory.
Jan 03, 2016 2:30 pm, Hilton Union Square, Imperial B
American Economic Association
Behavioral Finance and Consumer Choice
(D1, G2)
Presiding:
David Laibson
(Harvard University)
Inflation Experiences and Contract Choice -- Evidence from Residential Mortgages
Matthew Botsch
(Bowdoin College)
Ulrike Malmendier
(University of California-Berkeley)
[View Abstract]
[Download Preview] We show that personal lifetime experiences of inflation significantly affect the valuation of fixed- versus variable-rate financial instruments. The experience-effect hypothesis predicts that individuals who have experienced higher inflation expect nominal interest rates to increase more. Hence, if borrowing, they demand greater protection against increases in nominal interest rates. In the context of mortgage financing, we analyze how borrowers
choose between fixed-rate and adjustable-rate options. We estimate that every additional
percentage point of experienced inflation increases a borrower's willingness to pay for a fixed-rate mortgage by 6 to 21 basis points of the FRM contract rate, as compared to an adjustable-rate mortgage. This experience effect has a major impact on the product mix of
FRMs versus ARMs: nearly one in six households would switch to an ARM if not for the impact of inflation experiences. Simulations of counterfactual mortgage payments suggest that households who would otherwise have switched pay approximately $8,000 in year-2000, after-tax dollars for the embedded inflation protection of the FRM over their expected tenure in the house, implying significant welfare consequences.
The Consequences of Online Payday Lending
Kathryn Fritzdixon
(Federal Deposit Insurance Corporation)
Paige Marta Skiba
(Vanderbilt University)
[View Abstract]
Payday lenders are increasingly moving online as risk of federal regulation becomes imminent Risk of default and fraud, however, are higher for online lenders, so these lenders often charge interest and fees higher than the traditional payday loan rates of 300-500% APR. We study the consequences of borrowing on online payday loans using a fuzzy regression-kink design. This quasi-experimental approach exploits the fact that how much a customer borrows consist of two components: the endogenous choice on the customer’s part and the exogenous constraints of company rules and state loan caps. Our technique allows us to estimate the causal effect of borrowing on a relatively larger online payday loan. Our first stage estimates reveal that online customers are extremely credit constrained, borrowing a high proportion of the amount offered to them. We then estimate the effect of a $100 larger online payday loans on 1) total subsequent indebtedness on any type of subprime credit, 2) late payment and and 3) default. We are able to separate default resulting from adverse selection versus moral hazard
Optimal Illiquidity
John Beshears
(Harvard Business School)
James Choi
(Yale University)
Christopher Harris
(University of Cambridge)
David Laibson
(Harvard University)
Brigitte Madrian
(Harvard University)
[View Abstract]
We calculate the socially optimal level of illiquidity in a stylized retirement savings system. We solve the planner’s problem in an economy in which time-inconsistent households face a tradeoff between commitment and flexibility (Amador, Werning and Angeletos, 2006). We assume that the planner can set up multipleaccounts for households: a perfectly liquid account and N partially illiquid retirement savings accounts with early withdrawal penalties, 0% < ≤ 100%. Revenue from penalties is collected by the government and redistributed through the tax system. We solve for the socially optimal values of these penalties, {}, and the socially optimal allocations to these accounts. When agents have heterogeneous present-biased preferences, the socially optimal system has three accounts: (i) a liquid account, (ii) an account with an early withdrawal penalty of ≈ 100%, and (iii) an account with an early withdrawal penalty of ≈ 10%. With heterogeneous preferences, the socially optimal retirement savings system in our stylized model looks surprisingly like the existing U.S. system: (i) a liquid account, (ii) an illiquid Social Security account (and defined benefit pensions), and (iii) a 401(k)/IRA account with a 10% penalty. The socially optimal allocations to these accounts and the predicted equilibrium flows of early withdrawals -- “leakage” -- also match the U.S. system
Economic Distress and Consumers' Credit Choice
Marieke Bos
(Stockholm School of Economics and Stockholm University)
Chloe Le Coq
(Stockholm School of Economics)
Peter van Santen
(Sveriges Riksbank)
[View Abstract]
Mullainathan, Shah and Shafir argue that scarcity, defined as “having less than you feel you need” impedes cognitive functioning, which in turn may lead to decision-making errors and myopic behavior. We study if the level of economic recourses influences the borrowers' decision making by exploiting within borrower variation in the number of days between consecutive paydays. In Sweden, everyones salaries are typically paid on the 25th of each month. However no transfers are made on weekend- and national holidays which causes the number of days between pay-days in Sweden to vary significantly between months and years. We use this exogenous variation in the level of economic recourses before payday to empirically investigate if credit choice is influenced by economic circumstances. For this purpose we utilize a ten year panel of 100.000 low income households' that includes their repeated credit contract choice and repayment behavior in both the mainstream- and alternative credit market.
Discussants:
Devin Pope
(University of Chicago )
Brigitte Madrian
(Harvard University)
Justin Sydnor
(University of Wisconsin )
Stephan Meier
(Columbia University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Plaza A
American Economic Association
Book Publishing in Economics
(O4) (Panel Discussion)
Panel Moderator:
Seth Ditchik
(Princeton University Press)
Jeffrey D. Sachs
(Columbia University)
Anat R. Admati
(Stanford University)
Edward L. Glaeser
(Harvard University)
Joseph Eugene Stiglitz
(Columbia University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Continental Ballroom 4
American Economic Association
Critiquing Robert J. Gordon’s Rise and Fall of American Growth
(O4) (Panel Discussion)
Panel Moderator:
Robert Shiller
(Yale University)
Gregory Clark
(University of California-Davis)
Nicholas Crafts
(University of Warwick)
Benjamin Friedman
(Harvard University)
James T. Robinson
(University of Chicago)
Jan 03, 2016 2:30 pm, Hilton Union Square, Imperial A
American Economic Association
Economic Responses to Corporate Taxation: Organizational Forms and Tax Base Elasticities
(H3, H2)
Presiding:
Joshua Rauh
(Stanford University)
How Do Corporate Tax Bases Change When Corporate Tax Rates Change? With Implications for the Tax Elasticity of Corporate Revenues
Joel Slemrod
(University of Michigan)
Laura Kawano
(U.S. Department of the Treasury)
[View Abstract]
[Download Preview] We construct a new database of changes to multiple aspects of corporate tax bases for OECD countries between 1980 and 2004. We use our data to systematically document the tendency of countries to implement policies that both lower the corporate tax rate and broaden the corporate tax base. This correlation informs our interpretation of previous estimates of the relationship between corporate tax rates and corporate tax revenues, which typically do not include comprehensive measures of the corporate tax base definition. We then re-examine the relationship between corporate tax rates and corporate tax revenues when controlling for our new tax base measures. We find that accounting for unobserved heterogeneity and changes to the corporate tax base attenuates the relationship between corporate tax rates and corporate tax revenues.
Incorporation for Investment
Michael Peter Devereux
(University of Oxford)
Li Liu
(University of Oxford)
[View Abstract]
We estimate the causal effect of corporation tax on small business incorporation and investment by exploring cross-sectional variation in the impact of a 2006/07 tax reform in a difference-in-differences design. Analyzing the population of UK corporation tax records from 2001/02 to 2008/09, we present three findings. First, a one percentage point increase in the tax gains to incorporate increases the number of newly incorporated companies by around 2-4.5%. Second, there is a strong cash flow effect of taxes on corporate investment. On average, a one percentage point increase in the average tax rate reduces investment rate by about 2.2 percentage points. Third, the cash flow effect of corporation taxes on investment is most pronounced for newly incorporated firms, and diminishes over time as companies begin to establish a track record of providing credible information for bank loans. The empirical evidence suggests that incorporation lowers the cost of external finance for small businesses by reducing the information cost of borrowing. Small business incorporation leads to more investment and implies potential welfare gains for the larger society.
State Taxation and the Reallocation of Business Activity: Evidence from Establishment-Level Data
Xavier Giroud
(Massachusetts Institute of Technology)
Joshua Rauh
(Stanford University)
[View Abstract]
[Download Preview] In a sample of over 27 million establishments of U.S. firms with activities in more than one state, we estimate the impact of state business taxation on business activity. Only firms organized as subchapter C corporations are subject to the corporate tax code, whereas the income of partnerships, sole-proprietorships, and S corporations is passed through annually to the firm’s owners and taxed at individual rates. For C corporations, both employment at existing establishments (intensive margin) and the number of establishments in the state (extensive margin) have corporate tax elasticities of –0.4, and do not vary with changes in personal tax rates. Pass-through entity employment and establishment counts respond to personal tax rates, with tax elasticities of –0.2 to –0.3, and do not vary with changes in corporate rates. Around half of the effects are driven by reallocation of productive resources to other states. Capital shows similar patterns but is 36% less elastic than labor. The responses are stronger for larger firms, firms in tradable industries, and firms in more labor intensive industries. A narrative approach confirms that the results are robust and strongest in the sample of tax changes that were implemented due to inherited budget deficits, long-run goals, or cross-state variation caused by Federal tax reforms.
Discussants:
James Poterba
(Massachusetts Institute of Technology)
James R. Hines
(University of Michigan)
Steven J. Davis
(University of Chicago)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 25
American Economic Association
Effects of Public Policies on Health
(I1)
Presiding:
Anoshua Chaudhuri
(San Francisco State University)
Externalities and Complementarities of HIV/AIDS Prevention Programs: Evidence from Secondary Schools in Malawi
Booyuel Kim
(KDI School of Public Policy and Management)
Hyuncheol Bryant Kim
(Cornell University)
Cristian Pop-Eleches
(Columbia University)
[View Abstract]
[Download Preview] We study externalities and complementarities of three HIV/AIDS prevention interventions: HIV/AIDS education, easy access to male circumcision, and education support for girls. The study is based on a sample of 7,971 students in 33 secondary schools near Lilongwe, Malawi and we focus on the behavior within the existing 124 classes in these schools. In order to understand the potential externalities of the decision to get circumcised we randomize the fraction of students within classrooms who get offered this treatment (0%, 50% and 100%). We find evidence of peer effects given that untreated students in 50% Treatment classrooms were 3.8 percentage points (79%) more likely to get circumcised than students in No Treatment classrooms. We also provide evidence of important reinforcement effects in take-up when male circumcision is offered among close friends. Our research design to study the complementarities of these interventions is based on the randomized allocation of the different mix of interventions across classrooms. We find limited evidence of complementarities among the three interventions.
Psychic versus Economic Barriers to Vaccine Take-Up: Evidence from a Field Experiment in Nigeria
Ryoko Sato
(University of Michigan)
Yoshito Takasaki
(University of Tokyo)
[View Abstract]
Although vaccinations save millions of lives in an extremely cost-effective way, take-up is much lower than the optimal level in developing countries. This paper causally evaluates the relative importance of psychic costs as channels for low vaccination take-up compared to other barriers: monetary costs and priming about disease severity. I measure each channel by evaluating a field experiment among women which randomizes several factors that affect tetanus vaccine take-up in rural Nigeria. This is the first study to report the experimental evidence on psychic costs of vaccination. Although conventional wisdom drawn from observational studies highlights the relevance of psychic costs, I found no evidence that psychic costs limit vaccination take-up. 95.7 percent of women who were incentivized just to show up at a clinic, unconditional on vaccine take-up, chose to receive the vaccine anyway. Priming about disease severity using salient images of tetanus patients increased perceived costs of disease but did not affect vaccination take-up. Rather than these psychic costs being important barriers, direct cash incentives had the largest effects on vaccination take-up. Small cash incentives increased vaccination take-up by almost 20 percentage points from 55 percent. The results in this paper confirm economic barriers to take-up and find no evidence that psychic costs play a significant role, at least among more than 85 percent of respondents who responded to cash incentives.
Aging Out of Extended Dependent Coverage under the Affordable Care Act
Weiwei Chen
(Florida International University)
[View Abstract]
[Download Preview] Beginning in September 2010, the Affordable Care Act (ACA) extended dependent health insurance coverage to young adults up to age 26. Since young adults undergo frequent transitions in jobs and schools, many face additional challenges as they age out of dependent coverage. This study focuses on how young adults went through the aging-out process, especially: (1) Did they exhibit “use it before you lose it” behavior by using more health care in the last year under dependent coverage? (2) How did their insurance status change after aging out? To answer question (1), I derived evidence from a large insurance claims database and examined healthcare utilization measured by inpatient hospital admissions, outpatient visits, emergency room visits, and prescription drug claims. For (2), I followed individuals from a longitudinal survey on their insurance status changes and analyzed factors associated with uninsured spells after aging out. Results reject the hypothesis that aging-out individuals exhibited “use it before you lose it” behavior. In addition, the uninsured rate among aged-out individuals declined, in a few months, to a level lower than that of young adults prior to ACA. Factors related to longer uninsured spells were also discussed.
Direct and Indirect Effects of Policies to Increase Kidney Donations
Drew M. Anderson
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] A kidney transplant is a life-saving treatment for end-stage renal disease. Transplantable kidneys can come from living or deceased donors, but neither source of supply is keeping up with the growing demand. This study focuses on a model state law drafted in 2006, which has been enacted in 46 states and the District of Columbia as the Revised Uniform Anatomical Gift Act. The Act includes several measures that could increase supply of deceased donor kidneys. I use an event study approach to estimate the full effect of the Act on the supply of kidneys for transplant. The estimate is identified by arguably exogenous differences in timing of enactment across states over a seven year period. I find that the number of deceased donors of kidneys increases by five to seven percent as a result of the Act. The main channel for this effect is organ recovery from registered donors where unavailability or conflict among surviving family members would have prevented organ recovery under prior law. I find suggestive evidence of a corresponding reduction in living donors of kidneys, an indirect consequence of this law governing deceased organ donations.
The Causal Effect of Serving in the Army on Health: Evidence from Regression Kink Design and Russian Data
Evgeny Yakovlev
(New Economic School)
David Card
(University of California-Berkeley)
[View Abstract]
[Download Preview] The paper estimates the causal effect of serving in the Russian Army on
health. We explore a kink in the date-of-birth profile of the probability of
compulsory service that happened as a result of the demilitarization pro-
cess initiated by Mikhail Gorbachev. We find that serving in the Russian
Army significantly increases rates of alcohol consumption and smoking;
it also results in a higher chance of getting hepatitis and tuberculosis,
related to alcohol consumption and smoking chronic diseases and general
health issues.
Jan 03, 2016 2:30 pm, Hilton Union Square, Continental – Parlor 1
American Economic Association
Empirical Applications of Behavioral Welfare Analysis
(D6, H2)
Presiding:
Hunt Allcott
(New York University)
Financial Education, Financial Competence, and Consumer Welfare
Sandro Ambuehl
(Stanford University)
Douglas Bernheim
(Stanford University)
Annamaria Lusardi
(George Washington University)
[View Abstract]
[Download Preview] We introduce the concept of financial competence, a measure of the extent to which individuals' financial choices align with those they would make if they properly understood their opportunity sets. Unlike existing measures of the quality of financial decision making, the concept is firmly rooted in the principles of choice-based behavioral welfare analysis; it also avoids the types of paternalistic judgments that are common in policy discussions. We document the importance of assessing financial competence by demonstrating, through an example, that an educational intervention can appear highly successful according to conventional outcome measures while failing to improve the quality of financial decision making. Specifically, we study a simple intervention concerning compound interest that significantly improves performance on a test of conceptual knowledge (which subjects report operationalizing in their decisions), and appears to counteract exponential growth bias. However, financial competence (welfare) does not improve. We trace the mechanisms that account for these seemingly divergent findings.
The Welfare Effects of Nudges: Theory and Evidence from Energy Conservation
Hunt Allcott
(New York University)
Judd Kessler
(University of Pennsylvania)
[View Abstract]
[Download Preview] The success of interventions aiming to encourage pro-social behavior is often measured by how the interventions affect behavior rather than how they affect welfare. We implement a natural field experiment to measure the welfare effects of one especially policy-relevant intervention, home energy conservation reports. We measure consumer surplus by sending consumers introductory reports and using an incentive compatible multiple price list survey to elicit willingness-to-pay to continue the program. The experimental design also allows us to estimate negative willingness-to-pay and address non-response bias. The results underscore that the welfare effects of non-price “nudge” interventions can be measured, and policy makers should strongly consider the welfare effects of such interventions, not just their effects on behavior.
Attention Variation and Welfare: Theory and Evidence from a Tax Salience Experiment
Dmitry Taubinsky
(Harvard University)
Alexander Robert Rees-Jones
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper presents new evidence on heterogeneity in the propensity to misreact to complex or not-fully-salient incentives, and shows that accounting for this heterogeneity is crucial in economic and policy analysis. Focusing on the concrete setting of consumer underreaction to not-fully-salient sales taxes, we show theoretically that 1) individual differences in underreaction generate inefficiency in the resulting allocation of the taxed good, 2) the variation of underreaction across the income distribution affects the regressivity of the tax burden, and 3) the variation of underreaction across different tax rates affects the distortions to demand resulting from tax changes. To empirically assess the importance of these issues, we implement an online shopping experiment in which 3000 consumers—matching the U.S. adult population on key demographics—purchase common household products, facing tax rates that vary in size and salience. We find that: 1) there are significant individual differences in underreaction to taxes. Accounting for this heterogeneity increases the efficiency cost of taxation estimates by at least 200%, as compared to estimates generated from a representative behavioral agent model. 2) High income earners are less likely to underreact to taxes than low income earners. The fourth quartile of the income distribution is roughly twice as attentive as the first quartile, and thus the financial burden of misoptimization falls disproportionately on the poor. 3) Tripling currently existing sales tax rates roughly doubles consumers' attention to taxes, which implies that raising taxes increases deadweight loss through an additional “debiasing channel.” Our results provide new insights into the mechanisms and determinants of boundedly rational processing of not-fully-salient incentives, and our general approach provides a framework for robust behavioral welfare analysis in other markets and domains.
Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets
Benjamin Handel
(University of California-Berkeley)
Jonathan Kolstad
(University of Pennsylvania)
Johannes Spinnewijn
(London School of Economics)
[View Abstract]
[Download Preview] When consumers have limited information, their willingness-to-pay for one product versus another may not reflect the true difference in product value consumers would experience upon consumption. Consequently, consumer demand estimates may not be sufficient to determine optimal policies in markets such as health insurance, where past empirical work has documented substantial information and choice frictions. In this paper we develop a simple model of insurance market equilibrium with information frictions and use this model to study how these frictions impact positive market outcomes (e.g. adverse selection) as well as social welfare. Our model highlights how policies that reduce consumer frictions (e.g. via information provision) can have both level effects that impact average willingness-to-pay for a given product and sorting effects that re-order consumers along the demand and cost curves, changing the nature of risk-based selection. We use this framework to study (i) demand-side policies that reduce consumer frictions and (ii) a supply-side policy, insurer risk-adjustment transfers, that is designed to mitigate adverse selection. We study the key predictions of the model using proprietary data on insurance choices, utilization, and consumer information from a large firm. We leverage estimates from prior work with these data, where large information frictions exist, to show that such frictions have important implications for equilibrium outcomes, adverse selection, and welfare in a counterfactual competitive insurance exchange. In that market, eliminating frictions substantially increases adverse selection, reducing the share enrolling in more generous coverage from 85% to 9%. Risk-adjustment transfers have a small impact when frictions are present, but when frictions are reduced this supply-side policy substantially improves welfare and increases the share enrolled in more generous coverage from 9% to 64%. Our results document (i) the importance of both level and sorting effects and (ii) the importance of understanding supply-side vs. demand-side policy interactions.
Discussants:
Eric Glen Weyl
(University of Chicago and Microsoft Research)
Stefano DellaVigna
(University of California-Berkeley)
Erzo F.P. Luttmer
(Dartmouth College)
Neale Mahoney
(University of Chicago )
Jan 03, 2016 2:30 pm, Hilton Union Square, Yosemite B
American Economic Association
Evidence from Lab and Field Experiments on Discrimination
(J7, J2)
Presiding:
Patrick Button
(Tulane University and NBER)
Is it Harder for Older Workers to Find Jobs? New and Improved Evidence from a Field Experiment
David Neumark
(University of California-Irvine, NBER, and IZA)
Ian Burn
(University of California-Irvine)
Patrick Button
(Tulane University and NBER)
[View Abstract]
[Download Preview] We design and implement a large-scale field experiment – a resume correspondence study – to address a number of potential limitations of existing field experiments testing for age discrimination, which may bias their results. One limitation that may bias these studies towards finding discrimination is the practice of giving older and younger applicants similar experience in the job to which they are applying, to make them “otherwise comparable.” The second limitation arises because greater unobserved differences in human capital investment of older applicants may bias existing field experiments against finding age discrimination. We also study ages closer to retirement than in past studies, and use a richer set of job profiles for older workers to test for differences associated with transitions to less demanding jobs (“bridge jobs”) at older ages. Based on evidence from over 40,000 job applications, we find robust evidence of age discrimination in hiring against older women. But we find that there is considerably less evidence of age discrimination against men after correcting for the potential biases this study addresses.
Discrimination at the Intersection of Age, Race, and Gender: Evidence from a Lab-in-the-Field Experiment
Joanna Lahey
(Texas A&M University and NBER)
Douglas Oxley
(University of Wyoming)
[View Abstract]
[Download Preview] Although hiring discrimination has been found in many audit studies and laboratory experiments, little is known about how, why, and for whom this discrimination occurs. This paper combines the new technologies of resume randomization and eye-tracking within a laboratory setting to get a clearer picture of the mechanics of discrimination. MBA, MPA, HR, and business students participated in this laboratory study. Each was shown 40 resumes with randomized inputs for hypothetical high school graduate applicants to a clerical position which they rated on a Likert (1-7) scale. They then choose two resumes for interview purposes. During this process of rating, their eye movements were tracked, showing where and for how long they looked at relevant portions of each resume. We found strong evidence of (quadratic) age discrimination based on date of high school graduation as well as evidence for race discrimination based on names. We did not find direct evidence of gender discrimination, but gender interacts with race and age. Results on race-by-age are particularly striking, with black resumes starting at a lower level but eventually becoming preferred over white resumes for this entry-level job, while white resumes show the opposite pattern. Participants also spent longer times looking at younger resumes compared to older resumes, and longer looking at white resumes compared to black resumes, but spent longer looking at resume items that could indicate potential statistical discrimination for older resumes. These results highlight the importance of the intersection of group characteristics for fully understanding the labor market demand for different types of workers.
Do Employers Consider Unemployment Duration, Low-Quality Interim Employment, and Age in Hiring? Evidence from an Audit Study
Henry Farber
(Princeton University)
Daniel Silverman
(Arizona State University)
Till von Wachter
(University of California-Los Angeles)
[View Abstract]
Does regaining employment, even at a menial job, help unemployed workers' job prospects, or is taking a low-paying job as a stop-gap while searching for better matches hurtful? This is an important open question, especially for hard-to-reemploy groups, such as older workers or long-term unemployed workers. We examine the role of taking an "interim job," of age, and of unemployment duration on the incidence of call back rates based on a large number of fictitious resumes send to actual online job postings for low-skill white collar clerical jobs. We obtain three main findings. First, in contrast to the influential work of Kroft, Lange, and Notowidigdo (2013), we find no relationship between callback rates and the duration of unemployment. This difference can be attributed to the age of our applicants, all of whom are older than 35. Second, we find that taking an interim job significantly reduces the likelihood of receiving a callback. Third, older workers are significantly less likely to receive a callback.
Exploring Both the Supply and Demand Sides of Discrimination
John List
(University of Chicago)
Anthony Heyes
(University of Ottawa)
[View Abstract]
Research points to people discriminating on the basis of the characteristics of others. Field studies show that CVs bearing non-white names are less likely to attract job interviews, disabled people are quoted higher prices for car repairs, and women are more likely to attract help from a bystander. In a laboratory setting Eckel (2011) shows that some subjects will pay for photographs of co-players in order to inform such discrimination. We provide the first evidence of a new sort of discrimination, namely players’ selective revelation of information about their own characteristics in an attempt to obtain more favorable treatment from others – consistent with the popular notions of “playing the race card,” “damsels in distress,” etc.
Discussants:
Mathew J. Notowidigdo
(Northwestern University and NBER)
Christian Manger
(University of Tuebingen)
Catherine Eckel
(Texas A&M University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Golden Gate 1 & 2
American Economic Association
Exchange Rates and the Macroeconomy
(F3, F4)
Presiding:
Joshua Aizenman
(University of Southern California)
Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?
Olivier J. Blanchard
(Peterson Institute for International Economics)
Gustavo Adler
(International Monetary Fund)
Irineu de Carvalho Filho
(International Monetary Fund)
[View Abstract]
[Download Preview] Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
Currency Wars, International Spillovers, and Guidelines for Policy Cooperation
Anton Korinek
(Johns Hopkins University)
[View Abstract]
[Download Preview] Exchange rate intervention and other policy interventions that affect current accounts create international spillover effects and have recently raised concerns about a global currency war. However, this paper shows that such spillovers are Pareto efficient if the policy intervention was motivated purely by domestic policy considerations. There is thus generally no scope for welfare gains from policy cooperation. We provide a number of examples of efficient spillovers, including from reserve accumulation, exchange rate stabilization, and current account intervention to combat a liquidity trap. Furthermore, the paper shows that there are only three categories of spillovers that are inefficient and therefore create a scope for policy cooperation: if policymakers abuse market power, have imperfect policy instruments, or face imperfections in international markets.
Corporate Investment and the Real Exchange Rate
Andrew Berg
(International Monetary Fund)
Mai Dao
(International Monetary Fund)
Camelia Minoiu
(International Monetary Fund)
Jonathan D. Ostry
(International Monetary Fund)
[View Abstract]
[Download Preview] We study a previously underexplored mechanism that establishes a positive relationship between real exchange rate depreciation and firm growth. Specifically, a real depreciation boosts internal cash flows and spurs corporate investment through increased internal financing. Using a simple model, we show that the positive impact of a real depreciation on profits, investment, and growth is larger for firms that have higher labor shares and face greater financial constraints. We call this the “internal financing channel” and test it in a dataset of more than 30,000 firms from 66 advanced economies and emerging market countries over the 2000-2011 period. The positive effect of this channel is also reflected in sustained gains in firm performance and market valuation.
Discussants:
Kathryn Dominguez
(University of Michigan)
Joshua Aizenman
(University of Southern California)
Senay Agca
(George Washington University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 14
American Economic Association
Financial Economics
(G1)
Presiding:
Caleb Stroup
(Davidson College)
Who Gets Swindled in Ponzi Schemes?
Shivaram Rajgopal
(Emory University)
Stephen Deason
(Emory University)
Gregory Waymire
(Emory University)
[View Abstract]
Extant knowledge of Ponzi schemes in the accounting and finance literatures is mainly anecdotal. The consequence of this is that it is difficult to know what, if anything, can be done to deter these frauds. We seek to fill part of our knowledge gap about Ponzi schemes by providing large-scale evidence based on a sample of 376 Ponzi schemes prosecuted by the SEC between 1988 and 2012. Our evidence indicates that the majority of SEC-prosecuted schemes involve sums that are much lower than those in the highly visible frauds perpetrated by Bernard Madoff and Allen Stanford. The mean duration of Ponzi schemes in our sample is about four years and these schemes have a mean (median) average per-investor investment of around $431,700 ($87,800). Ponzi schemes are more likely to occur in U.S. states where the citizenry is inherently more trusting. The ex post success of a Ponzi scheme (as measured by duration, total amount invested, or the percentage cut to perpetrators) tends to be greater when an affinity link is present, the elderly are targeted, and whether the perpetrator provides financial incentives to third-parties to recruit victims into the scheme.
Fundamental Analysis Works
Sohnke M. Bartram
(University of Warwick)
Mark Grinblatt
(University of California-Los Angeles)
[View Abstract]
[Download Preview] Stock prices cannot be the outcome of a rational efficient market if fundamental analysis based on public information is profitable. Our approach to fundamental analysis estimates the intrinsic fair values of stocks from the most common quarterly balance sheet and income statement items that were last reported in Compustat. Taking the view of a statistician with little knowledge of finance theory, we show that the most basic form of fundamental analysis yields trades with risk-adjusted returns of up to 9% per year. The trading strategy relies on the convergence of market prices to their fair values. The greatest rate of convergence occurs in the month after the mispricing signal and subsequently decays to zero over the subsequent 28 months. Profits from trading are present for both large and small firms in economically significant magnitudes.
The Politics of Foreclosure
Sumit Agarwal
(National University of Singapore)
Gene Amromin
(Federal Reserve Bank of Chicago)
Itzhak Ben-David
(Ohio State University)
Serdar Dinc
(Rutgers University)
[View Abstract]
We study the political economy of foreclosures by focusing on the timing of foreclosures on delinquent mortgages in 2009-2010. We show that foreclosure starts were delayed for loans located in the congressional districts of the members of the Financial Services Committee of the U.S. House of Representatives relative to those in the rest of the country. Although the average delay is modest for an individual loan, the total cost to the largest mortgage servicing banks across all their loans is estimated to be several times larger than their campaign contributions by their Political Action Committees to the committee members in that period.
Mergers and Advertising in the U.S. Brewing Industry
Ambarish Chandra
(University of Toronto)
Matthew Weinberg
(Drexel University)
[View Abstract]
[Download Preview] The relationship between market structure and advertising has been extensively studied, but has generated opposing theoretical predictions,
as well as inconclusive empirical findings due to severe endogeneity concerns. We exploit the 2008 merger of Miller and Coors in the U.S.
brewing industry to examine how changes in local concentration affect firms' advertising behavior. Well-established regional preferences
over beer brands, and the sharp increase in concentration from the merger make this an excellent setting to analyze this question. We find a
significant and positive relationship between local market concentration and advertising expenditures, supporting the theory that advertising
has positive spillovers.
Information Acquisition and Corporate Debt Illiquidity
Ilona Babenko
(Arizona State University)
Lei Mao
(University of Warwick)
[View Abstract]
[Download Preview] Models based on asymmetric information predict that debt is least sensitive to private information and cannot explain the illiquidity of corporate debt in secondary markets. We analyze security design with moral hazard and offer a new explanation. First, the optimal compensation contract creates incentives for the manager to engage in risk-shifting, making her interests congruent with those of shareholders. Second, because debtholders are negatively affected by risky investments, they have an incentive to acquire information and discipline the manager. Debtholders' information acquisition solves the moral hazard problem, but makes debt less liquid than equity. Debt illiquidity covaries with credit risk.
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 22
American Economic Association
Financial Intermediation
(G2, E5)
Presiding:
Ana Babus
(Federal Reserve Bank of Chicago)
Liquid Bank Liabilities
Saki Bigio
(University of California-Los Angeles)
Pierre-Olivier Weill
(University of California-Los Angeles)
[View Abstract]
In this paper, we study the manner in which banks design and issue liabilities that facilitate trade among their customers. A bank mitigates a lemon problem by offering ex-ante lines of credit to their customers. Ex-post, some of these customers find it optimal to use their line of credit by pledging and revealing private information about their collateral. In exchange, these customers receive a deposit-like bank liability, which they subsequently use as a means of payment. In the optimal banking contract, the bank remains opaque about the private information; the liability is less risky than the underlying collateral; and the bank uses its capital to absorb losses in bad states of the world. We show that, with multiple banks, liabilities circulate and are guaranteed by the assets of the banking systems. We find that negative shocks to collateral value may propagate in the entire banking system.
Agency Cost Determinants of Bank Risk-Taking
Kinda Hachem
(University of Chicago)
[View Abstract]
Is risk-taking ever a privately optimal response to agency problems within banks? In a model where borrower types only matter for safe projects, I show that the answer to this question depends on the nature of the agency problem – that is, whether loan officers are hired to screen or whether they are hired to both screen and monitor. Incentivizing screening favors no risk-taking but involves a non-monotone relationship between performance and compensation. This non-monotonicity undermines incentives to monitor so, when both screening and monitoring are important, the bank instead prefers a strategy which pushes low types into risky projects. That selected risk-taking emerges under impediments to non-monotone compensation is also illustrated in an environment with rank-order tournaments and no monitoring.
Collateral Shortages and Intermediation Networks
Marco Di Maggio
(Columbia University)
Alireza Tahbaz-Salehi
(Columbia University)
[View Abstract]
[Download Preview] This paper argues that in the presence of trading frictions and agency problems, the interbank market may be overly fragile, in the sense that small changes in the liquidity of assets used as collateral may lead to large swings in haircuts and a potential credit freeze. Our results highlight that the financial system’s intermediation capacity crucially depends on the distribution of collateralizable assets among financial institution as opposed to their aggregate amount. We also show that the interplay of agency problems and trade frictions may result in the endogenous emergence of intermediation bottlenecks that impair credit relationships.
Strategic Opaqueness: A Cautionary Tale on Securitization
Ana Babus
(Federal Reserve Bank of Chicago)
Maryam Farboodi
(Princeton University)
[View Abstract]
We explore a model in which banks strategically securitize assets and create opaque portfolios that interferes with investors' decisions and leads to more banking crises. In our set-up, banks borrow funds from investors in order to finance risky projects. When debt is issued, the banks, as well as the investors are uninformed about the outcome of the projects. Before maturity, however, investors observe a signal about their bank's project, and can decide whether they liquidate their debt early against a redemption value. Ex-ante, each bank can affect how investors use their information by securitizing a fraction of their project in exchange for another bank's project. This way, banks can create an optimal degree of information asymmetry such that investors continue their debt contract only in those states that are most favorable to banks. Thus, while traditionally securitization arises as a strategic response of the borrower who has better information than the lender, in our model securitization itself is the source of information asymmetry. We characterize banks' optimal portfolio allocation. We show that when securitization takes places in equilibrium, banking crises are more likely to occur and welfare is lower. Our model is suggestive that government interventions and bailout policies can only increase the probability of banking crises by further distorting banks' incentives, and thus are inefficient.
Discussants:
Zhiguo He
(University of Chicago)
Pablo Kurlat
(Stanford University)
Johan Walden
(University of California-Berkeley)
Martin Oehmke
(Columbia University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Franciscan C
American Economic Association
Homeownership and the American Dream
(R2, E2)
Presiding:
John V. Duca
(Federal Reserve Bank of Dallas and Southern Methodist University)
How Mortgage Finance Reform Could Affect Housing
Anthony Murphy
(Federal Reserve Bank of Dallas and Southern Methodist University)
John V. Duca
(Federal Reserve Bank of Dallas and Southern Methodist University)
John Muellbauer Muellbauer
(Nuffield College, INET and University of Oxford)
[View Abstract]
[Download Preview] Recent and prospective reforms of mortgage finance have and could further affect house prices and construction by affecting not only mortgage interest rates, but also mortgage credit standards facing first-time home-buyers. Our econometric models of house prices are rich enough to simulate the impact of potential reforms via both mortgage interest rates and loan-to-value (LTV) constraints. As Duca, Muellbauer, and Murphy (2010, 2011) show, the recent swings in U.S. house prices largely arose from shifts in mortgage lending standards facing first-time home buyers, measured using a cyclically-adjusted LTV ratio. Our estimates indicate that ending the small interest rate subsidy from Fannie and Freddie would have minor effects on housing. However, changes in mortgage regulations that alter downpayment and debt service requirements on mortgages could have a much larger effect. Recent and prospective changes in regulations need to be evaluate d using house prices models such as ours (Duca, Muellbauer, and Murphy, 2011, 2012, 2013b), which account for changing mortgage lending standards. Extending our earlier house price research, we incorporate the supply of new housing and simulate the likely dynamics of house prices and construction along the transition paths to potential post-GSE reform equilibria.
Borrowing Constraints and Homeownership over the Recent Cycle
Susan Wachter
(University of Pennsylvania)
Arthur Acolin
(University of Southern California)
Jesse Bricker
(Federal Reserve Board)
Paul Calem
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] This paper identifies the impact of borrowing constraints on homeownership in the U.S. in the aftermath of the 2008 financial crisis. The existence of credit rationing in the U.S. mortgage market means that some households for whom it would be optimal to choose to be homeowners may not be able to do so. Borrowers with certain wealth, income and credit characteristics are unable to obtain a loan even if they are willing to pay a higher cost of credit (Linneman and Wachter 1989). The Stiglitz and Weiss (1981) canonical model sets up the rationale for this credit rationing. Using data from the 2001, 2004-2007 and 2010-2013 Surveys of Consumer Finance (SCF), this paper measures the impact of changes in the income, wealth and credit constraints on the probability of homeownership. Credit supply eased and then became considerably more restricted in the wake of the Great Recession. The loosening of borrowing constraints was accompanied by an increase in homeownership to 69 percent. In this paper we estimate the role the tightening of credit has had on the probability of individual households to become homeowners and the decline in the aggregate homeownership rate to 64 percent. The homeownership rate in 2010-2013 is predicted to be 5.2 percentage points lower than it would be if the constraints were at the 2004-2007 level and 2.3 percentage points lower than if the constraints were set at the 2001 level.
Waking Up from the American Dream: On the Experience of Young Americans During the Housing Boom of the 2000s
Alexander Popov
(European Central Bank)
Luc Laeven
(European Central Bank)
[View Abstract]
[Download Preview] We exploit regional variations in house price fluctuations in the United States during the early to mid-2000s to study the impact of the housing boom on young Americans' choices related to home ownership, household formation, and fertility. We also introduce a novel instrument for changes in house prices based on the predetermined industrial structure of the local economy. We find that in MSAs which experienced large increase in house prices between 2001 and 2006, the youngest households were substantially less likely to purchase residential property, to start a family, and to have a child, both in 2006 and in 2011.
To Buy or Not to Buy: Consumer Constraints in the Housing Market
Andreas Fuster
(Federal Reserve Bank of New York)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
The sensitivity of housing demand to mortgage rates and available leverage is key to understanding the effect of monetary and macroprudential policies on the housing market. However, since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically. We circumvent these issues by designing a strategic survey in which respondents are asked for their willingness to pay (WTP) for a home comparable to their current one, under different financing scenarios. We vary mortgage rates, down payment constraints, and non-housing wealth. We find that a relaxation of down payment constraints, or an exogenous increase in non-housing wealth, has large effects on WTP, especially for relatively poorer and more credit-constrained borrowers. On the other hand, changing the mortgage rate by 2 percentage points only changes WTP by about 5 percent on average. These findings have implications for theoretical models of house price determination, as well as for policy.
Discussants:
James D. Shilling
(DePaul University)
Shane Sherlund
(Federal Reserve Board)
Raphael W. Bostic
(University of Southern California)
Andra Ghent
(University of Wisconsin-Madison)
Jan 03, 2016 2:30 pm, Hilton Union Square, Yosemite A
American Economic Association
Labor Market Dynamics
(J6)
Presiding:
Melanie Khamis
(Wesleyan University)
Asymmetric Labor Supply Responses to Tax and Wage Rate Changes
Philipp Doerrenberg
(ZEW)
Denvil Duncan
(Indiana University)
Max Loeffler
(ZEW)
[View Abstract]
[Download Preview] The literature on behavioral responses to changes in wages and tax rates typically assumes that responses to wage/tax increases and wage/tax decreases are symmetric. However, a long literature following \shortciteN{Kahnemann-1979} has established that individuals are loss averse and perceive changes in the loss domain differently than changes in the gain domain. This behavioral may imply that elasticity estimates that are identified from wage/tax decreases are not comparable to estimates that are identified based on wage/tax increases. We are not aware of any evidence that directly tests if wage/tax increases have the same effect as wage/tax decreases. This paper aims to fill this gap. Our precise research questions are: does labor supply respond symmetrically to increases and decreases in wages? does labor supply respond symmetrically to increases and decreases in tax rates? We aim to overcome any empirical challenges using two strategies. First, we implement a randomized experiment in the online labor market Mechanical Turk to study if wage increases have symmetric labor supply effects as wage decreases. Second, we run laboratory experiments to study the same question in the context of taxation. That is, we test in the lab if lab-labor supply responds symmetrically to tax-rate decreases and increases.
Job Search Behavior among the Employed and Non-Employed
Jason Faberman
(Federal Reserve Bank of Chicago)
Andreas Mueller
(Columbia University)
Aysegul Sahin
(Federal Reserve Bank of New York)
Giorgio Topa
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] [Download PowerPoint] Using a unique new survey, we study the relationship between search effort and employment outcomes for employed and non-employed job seekers. We find that the unemployed fare much worse than the employed in their job search prospects along several dimensions, despite higher job search effort. The unemployed receive fewer offers per job application, and conditional on an offer, they are offered lower pay, fewer benefits, and less hours. Despite this, they are more likely to accept these lower-quality job offers but are also much more likely to again engage in job search on their new job. In contrast, employed job seekers receive a higher fraction of both solicited and unsolicited job offers, and tend to generate many offers from referral networks with ties to their professional acquaintances. In fact, many employed workers are not seeking new work at all, and yet tend to generate more plentiful and higher-quality job offers than unemployed job seekers.
Wage Dispersion and Search Behavior
Robert E. Hall
(Stanford University)
Andreas Mueller
(Columbia University)
[View Abstract]
[Download Preview] We use a rich new body of data on the experiences of unemployed job-seekers to determine the sources of wage dispersion and to create a search model consistent with the acceptance decisions the job-seekers made. From the data and the model, we identify the distributions of four key variables: offered wages, offered non-wage job values, the value of the job-seeker's non-work alternative, and the job-seeker's personal productivity. We find that, conditional on personal productivity, the dispersion of offered wages is moderate, accounting for 21 percent of the total variation in observed offered wages, whereas the dispersion of the non-wage component of offered job values is substantially larger. We relate our findings to an influential recent paper by Hornstein, Krusell, and Violante who called attention to the tension between the fairly high dispersion of the values job-seekers assign to their job offers---which suggests a high value to sampling from multiple offers---and the fact that the job-seekers often accept the first offer they receive.
Labor Market Institutions, Employment, and Wage Dynamics
Elena Pastorino
(University of Minnesota)
Zhen Huo
(Yale University)
Melissa Tartari
(University of Chicago)
[View Abstract]
In many European countries labor market regulations are pervasive. They take the form of wage floors (dependent, for instance, on a worker's job history), hiring and firing restrictions, automatic promotions, and constraints to pay growth. What are the implications of these regulations for individual employment and wage dynamics and for the aggregate wage distribution? We answer this question by developing and estimating an equilibrium model of the Italian labor market using matched employer-employee data from the Work Histories Italian Panel (WHIP) merged with unique information on the constraints implied by national collective labor agreements (Contratto Collettivo Nazionale del Lavoro or CCNL). In the model ex-ante skill-heterogeneous workers and homogeneous firms match frictionlessly and are subject to the most salient regulations implied by CCNLs. The model can replicate, qualitatively and quantitatively, the main features of the dynamics of employment and wages: unemployment to employment and job-to-job transitions, wage growth with tenure and experience, and downward wage rigidities. It can also largely explain the cross-sectional distribution of wages. Absent the labor market regulations we consider, the model would generate counterfactual predictions about the dynamics of wages and unemployment. Based on these results, we conclude that policy frictions offer an explanation for the dynamics of wages and employment observed in European labor markets that is naturally complementary to that provided by search frictions. We also show that the labor market regulations we consider have important complementary effects on employment and wages. Thus, assessing the impact of changes in one of these regulations while ignoring the existence of the others can lead to incorrect inferences about the effect of common labor market reform proposals.
Are Workers Better Matched in Large Labor Markets?
Nikolaj Arpe Harmon
(University of Copenhagen)
[View Abstract]
[Download Preview] This paper examines the relationship between labor market size and job search outcomes. Much research and many policy initiatives assume that larger labor markets lead to better job search outcomes because they give workers and firms more choice in potential jobs or employees. The empirical finding that labor market size and job finding rates are uncorrelated, however, has led researchers to question this assumption. I show, theoretically and empirically, that large labor markets may cause workers to find jobs that are better matches given their individual skills and characteristics, even if they do not cause workers to find jobs faster. I construct a unique new data set from Denmark that combines administrative data, an online vacancy database and detailed geographical information. I show that workers in large labor markets find jobs for which they are a better match as measured by both previous industry experience and geographical location. They also find jobs which pay higher wages and result in longer employment spells even after controlling for spatial productivity differences among firms. The estimated effects imply that labor market size explains 6.6% of the spatial variation in wage premia, and also suggest a high rate of return on transport infrastructure projects that increase the effective size of labor markets by increasing workers' ability to commute to distant jobs.
Jan 03, 2016 2:30 pm, Hilton Union Square, Yosemite C
American Economic Association
Macroeconomics
(E1) (Poster Session)
Presiding:
Jane Lopus
(California State University-East Bay)
Specific and General Types of Human Capital
Vahagn Jerbashian
(University of Barcelona and CERGE-EI)
Evangelia Vourvachaki
(Bank of Greece)
Sergey Slobodyan
(CERGE-EI)
[Download Preview] By Force of Flow: Investor Behavior and Money Market Fund Risk Allocations During the Eurozone Crisis
Emily Gallagher
(Paris School of Economics-Sorbonne)
Russ Wermers
(University of Maryland)
[Download Preview] Financial Factors: Implications for Output Gaps
Pau Rabanal
(International Monetary Fund)
Marzie Taheri Sanjani
(International Monetary Fund)
[Download Preview] Asymmetric Shocks in a Currency Union: The Role of Central Bank Collateral Policy
Francois Koulischer
(Banque de France)
[Download Preview] On the Two Prerequisites of Balanced Growth
Clemens C. Struck
(Trinity College)
[Download Preview] Dollar Hegemony and China’s Economy
Kai Liu
(Renmin University of China)
[Download Preview] Great Opportunities or Poor Alternatives: Self-Employment, Unemployment and Paid Employment over the Business Cycle
Matthias Kredler
(Universidad Carlos III de Madrid)
Ana Millan
(Universitat Autonoma de Barcelona)
Ludo Visschers
(University of Edinburgh and Carlos III Madrid)
Optimal Disability Insurance and Unemployment Insurance with Cyclical Fluctuations
Hsuan-chih Lin
(Institute of Economics and Academia Sinica)
[Download Preview] Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks
Yicheng Wang
(University of Rochester)
[Download Preview] Financial Shocks and Optimal Monetary Policy Rules
Fabio Verona
(Bank of Finland)
Manuel Martins
(University of Porto)
Ines Drumond
(Bank of Portugal)
[Download Preview] When does the Cost Channel Pose a Challenge to Inflation Targeting Central Banks?
Andrew Smith
(Federal Reserve Bank of Kansas City)
[Download Preview] How Did Exchange Rates Affect Employment in U.S. Cities?
Yao Tang
(Bowdoin College)
Haifang Huang
(University of Alberta)
[Download Preview] Bank Runs, Fire Sales, and Equity Injections
Roberto Robatto
(University of Wisconsin-Madison)
[Download Preview] Measuring Intangible Capital with Uncertainty
Sungbae An
(Singapore Management University)
Nan Li
(Shanghai Jiao Tong University)
[Download Preview] Slowdown, Stimulus and Real Estate Cycles of China
Xuetao Song
(North Carolina State University)
[Download Preview] Liquid Asset Prices and Creation in a Global Economy
Shengxing Zhang
(London School of Economics)
Keyu Jin
(London School of Economics)
Implementing Monetary Policy in a Fragmented Monetary Union
Miklos Vari
(Paris School of Economics and Banque de France)
[Download Preview] Uncertainty Shocks and Labor Market Dynamics
Soojin Jo
(Bank of Canada)
Myungkyu Shim
(Shanghai University of Finance and Economics)
Hee-seung Yang
(Monash University)
Housing Market Dynamics and Macroprudential Policy
Gabriel Bruneau
(Bank of Canada)
Ian Christensen
(Bank of Canada)
Césaire Meh
(Bank of Canada)
[Download Preview] Deep Habits and Exchange Rate Pass-through
Punnoose Jacob
(Reserve Bank of New Zealand)
Lenno Uuskula
(Bank of Estonia)
[Download Preview] The Effects of U.S. Unconventional Monetary Policy on Employment in Disaggregated Data
Seung Jung Lee
(Federal Reserve Board)
Lucy Q. Liu
(International Monetary Fund)
Viktors Stebunovs
(Federal Reserve Board)
[Download Preview] Risk Taking, Risk Compensation, and Interest Rates: Evidence from Decades in the Global Syndicated Loan Markets
Lucy Q. Liu
(International Monetary Fund)
Viktors Stebunovs
(Federal Reserve Board)
Seung Jung Lee
(Federal Reserve Board)
[Download Preview] International R&D Spillovers and Asset Prices
Ana Maria Santacreu
(Federal Reserve Bank of Saint Louis)
Federico Gavazzoni
(INSEAD)
[Download Preview] Jan 03, 2016 2:30 pm, Hilton Union Square, Plaza B
American Economic Association
Measuring Top Wealth Shares
(D3, D6)
Presiding:
Jeffrey Thompson
(Federal Reserve Board)
Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data
Emmanuel Saez
(University of California-Berkeley)
Gabriel Zucman
(London School of Economics)
[View Abstract]
[Download Preview] This paper combines income tax returns with Flow of Funds data to estimate the distribution of household wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations' tax records. Wealth concentration has followed a U-shaped evolution over the last 100 years: It was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The rise of wealth inequality is almost entirely due to the rise of the top 0.1% wealth share, from 7% in 1979 to 22% in 2012—a level almost as high as in 1929. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.
Measuring Income and Wealth at the Top Using Administrative and Survey Data
Jesse Bricker
(Federal Reserve Board)
Alice Henriques
(Federal Reserve Board)
Jacob Krimmel
(Federal Reserve Board)
John Sabelhaus
(Federal Reserve Board)
[View Abstract]
[Download Preview] [Download PowerPoint] Administrative tax data indicates that U.S. top income and wealth shares are substantial and increasing rapidly in recent decades (Piketty and Saez 2003, Saez and Zucman 2014). A key reason for using administrative data to measure top shares is overcoming the under-representation of families at the very top that plagues most household surveys. However, tax records restrict the unit of analysis for measuring economic resources and limit the concepts of income and wealth being measured. The Survey of Consumer Finances (SCF) solves the under-representation problem by combining administrative and survey data (Bricker, et al, 2014). The administrative records are used to select the SCF sample and verify that high-end families are appropriately represented, and the survey is designed to measure comprehensive concepts of income and wealth. As in the administrative tax data, the SCF shows high and rising top income and wealth shares, though the levels and trends are more muted. Reconciling the SCF measures with estimates derived directly from income tax records indicates how broadening the concepts of income and wealth and smoothing over transitory income fluctuations directly impacts top shares.
How Fat is the Top Tail of the Wealth Distribution
Philip Vermeulen
(European Central Bank)
[View Abstract]
[Download Preview] Wealth is heavily concentrated at the upper tail of the wealth distribution. I investigate the reliability of upper tail wealth estimates from household wealth surveys in the presence of survey differential non-response, i.e. the fact that richer households have lower response rates than poorer households. Differential non-response biases tail wealth estimates downwards. Monte Carlo evidence shows that such a bias can be quite substantial. I provide a method that greatly reduces the bias. The method combines survey data with data from rich lists and uses them jointly to estimate a Pareto (power-law) distribution for tail wealth. Using this method, the paper combines the US Survey of Consumer Finances, the UK Wealth and assets survey and the Eurosystem’s Household Finance and Consumption Survey data with Forbes World’s billionaires data to provide new estimates of tail wealth in the US, UK and nine euro area countries. For surveys with low or no oversampling of the wealthy, these estimates indicate a much higher concentration of wealth at the top than those calculated from the wealth surveys alone.
Wealth Returns Persistence and Heterogeneity
Luigi Pistaferri
(Stanford University)
Andreas Fagerang
(Statistics Norway)
Luigi Guiso
(Einaudi Institute for Economics and Finance)
[View Abstract]
[Download Preview] It is a well-known fact that the distribution of wealth is extremely skewed, a phenomenon known as "Pareto Law". What produces the Pareto Law has been the subject of a lively debate, together with the related issues of what produces persistence in the distribution of wealth across generations. One large strand of literature has focused on households facing idiosyncratic and uninsurable labor income (i.e., human capital) risk. However, while idiosyncratic shocks to labor income can explain some of the inequality we observe in the data, they are not enough to produce the extent of wealth inequality found in the data and even less so the right tail of the distribution, since at high levels of wealth the incentives to accumulate precautionary assets (and thus induce a thick tail) fade away. A recent literature attempts to address the discrepancy between theory and data by allowing for idiosyncratic returns to wealth. Provided the returns to wealth have an important individual-specific component and provided that these returns tend to persist over time (and across generations), these models can generate a stationary distribution of wealth with a thick right tail populated by those who have been lucky (or expert) enough to get a repeated sequence of high returns to wealth. But how much heterogeneity in returns to wealth do we see in the data? How much intergenerational persistence is there? More generally, what are the empirical properties of the returns to wealth? In this project we aim at answering these questions and assessing whether idiosyncratic returns to wealth can help explaining the empirical distribution of wealth and, in particular, whether it is able to generate the thick right tail. The empirical analysis will rely on administrative wealth data from Norway.
Discussants:
Jirka Slacalek
(European Central Bank)
Jeff Larrimore
(Federal Reserve Board)
Christopher D. Carroll
(Johns Hopkins University)
Fatih Guvenen
(University of Minnesota)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 13
American Economic Association
Minimum Wages and Low-Wage Labor Markets: New Techniques and Outcomes
(J2, J3)
Presiding:
Ben Zipperer
(Washington Center for Equitable Growth)
Industry Dynamics and the Minimum Wage: A Putty-Clay Approach
Daniel Aaronson
(Federal Reserve Bank of Chicago)
Eric French
(University College London)
Isaac Sorkin
(University of Michigan)
[View Abstract]
[Download Preview] We document three new facts about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike. Second, the rise in entry is concentrated in chains, which we show to be more capital-intensive. Third, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology and show that it is consistent with these facts. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs through exit of labor-intensive restaurants and entry of capital-intensive ones. We show these three facts are inconsistent with other models of industry dynamics.
Who Pays for the Minimum Wage?
Péter Harasztosi
(Magyar Nemzeti Bank)
Attila Lindner
(University of California-Berkeley)
[View Abstract]
[Download Preview] This paper analyzes the effects of a large (~60%) and persistent increase in the minimum wage instituted in Hungary in 2001. We propose a new approach to estimating the employment effects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change. We infer the number of jobs destroyed by comparing the number of pre-reform jobs below the new minimum wage to the excess number of jobs paying at (and above) the new minimum wage. Our estimates imply that the higher minimum wage had a small negative effect on employment, and so the primary effect was pushing up wages. We then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase. We show that firms highly exposed to the minimum wage experienced a substantial increase in their total labor cost. We also find that firms’ profits are not affected, while their sales increased in response to the minimum wage. Exploiting a unique dataset on producer prices we also show that firms in the manufacturing sector responded to the minimum wage by raising output prices. This evidence indicates that firms passed through the effect of the minimum wage to consumers.
The Effect of Minimum Wages on Employment: A Factor Model Approach
Evan Totty
(Purdue University)
[View Abstract]
[Download Preview] This paper resolves issues in the minimum wage-employment debate by using factor model econometric methods to address concerns related to unobserved heterogeneity. Recent work has shown that the negative effects of minimum wages on employment found using traditional methods are sensitive to the inclusion of controls for regional heterogeneity and selection of states that experience minimum wage hikes, leaving the two sides of the debate in disagreement about the appropriate approach. Factor model methods are an ideal solution for this disagreement, as they allow for the presence of multiple unobserved common factors, which can be correlated with the regressors. These methods provide a more flexible way of addressing concerns related to unobserved heterogeneity and are robust to critiques from either side of the debate. The factor model estimators produce minimum wage-employment elasticities that are much smaller than the traditional OLS results and are not statistically different from zero. These results hold for many specifications and two datasets that have been used in the minimum wage-employment literature. A simulation shows that unobserved common factors can explain the different estimates seen across methodologies in the literature.
Pooled Synthetic Control Estimates for Recurring Continuous Treatments: An Application to Minimum Wage Case Studies
Ben Zipperer
(Washington Center for Equitable Growth)
Arindrajit Dube
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] We assess the employment and wage effects minimum wage increases between 1979 and 2013 by pooling 29 synthetic control case studies. Using the mean percentile rank, a simple, distribution-free method, we find a sizable, positive and statistically significant effect on the average teen wage. We also test for heterogeneous treatment effects using the distribution of estimated ranks, which has a known form, and detect heterogeneity in the wage elasticities, consistent with differential bites in the policy. In contrast, the employment estimates suggest a small constant effect not distinguishable from zero.
Discussants:
Arindrajit Dube
(University of Massachusetts-Amherst)
Eric French
(University College London)
Attila Lindner
(University of California-Berkeley)
Evan Totty
(Purdue University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Golden Gate 5
American Economic Association
Mitigation of Greenhouse Gases
(Q4)
Presiding:
Maximilian Auffhammer
(University of California-Berkeley)
Impact of China's Biofuel Policies on Land Use, Water Use, and GHGs Emissions
Dileep K. Birur
(RTI International)
Ashok Kumar Chapagain
(Water Footprint Network)
Stephen Devadoss
(University of Idaho)
Krishna P. Paudel
(Louisiana State University)
[View Abstract]
China being one of the fastest growing economies, is expected be the source of nearly half of the world oil demand growth till 2035. With its policy initiatives on renewable energy for transportation, China is currently the third largest producer of biofuels in the world next only to Brazil and the United States. Biofuels produced from agricultural sources have significant potential impact on land, water, and environment. The purpose of this study is to assess the impact of China’s biofuels production policies on: (i) food supply and food prices, (ii) land and water use impacts, (iii) greenhouse gases (GHGs) emissions. For this purpose we use a dynamic computable general equilibrium (CGE) model called GDyn-E-BIO model developed based on the Global Trade Analysis Project (GTAP) data base which includes explicit agricultural sectors, first and second generation biofuels, and land use and land cover classified at 18-agro-ecological zones (AEZs). The model includes an aggregated data base that comprise 25 global regions and 45 sectors, focusing on food and fuel sectors most likely to be directly impacted by China’s expanded biofuels production. The GDyn-E-BIO model is a multi-region, multi-sector, recursive dynamic CGE model where the agents base their decisions on adaptive expectations, with international capital mobility and endogenous capital accumulation. The dynamics in this model comes from capital accumulation, labor productivity, and other exogenous macro variables such as GDP and population growth. In addition, our baseline (2004-2050), includes technological change in agricultural production. Based on crop-wise land use change from the CGE model, we estimate the green (rainwater), blue (surface and groundwater), and grey (freshwater pollution) water footprint (WF) resulted over the biofuels production chain in China. Our empirical results indicate that it is possible to meet the stated mandate without substantial impact on food supply or water needs.
Technological Choice in Response to Environmental Regulation: Electricity Markets and the Clean Power Plan
Jose Miguel Abito
(University of Pennsylvania)
Christopher R. Knittel
(Massachusetts Institute of Technology)
Konstantinos Metaxoglou
(Carleton University)
Andre Trindade
(Getulio Vargas Foundation and EPGE)
[View Abstract]
In August 2015, the EPA announced the final version of its Clean Power Plan (CPP), which aims to cut carbon pollution from the power sector by 32% below its 2005 levels. In this paper, we assess the long-run implications of that rule on electricity markets, taking into account that profit maximizing firms make optimal investment and generation decisions.
We set up a dynamic model of the power sector. Crucially, the model allows for rich heterogeneity in the generation portfolio, both within and across firms. We then estimate the model using the methodology in Bajari, Benkard, and Levin (2007) and using data from the Pennsylvania-New Jersey-Maryland (PJM) Interconnection.
Our policy simulations focus on mass-based emission restrictions and compare the market and environmental outcomes under different scenarios: (i) PJM or state-by-state carbon trading; (ii) increase in the renewables portfolio and (iii) with demand management policies.
The Climate Co-Benefits of Obesity Reduction
Anthony J. Underwood
(Dickinson College)
Sammy Zahran
(Colorado State University)
[View Abstract]
[Download Preview] [Download PowerPoint] Rising obesity rates may contribute to greenhouse gas emissions both directly through increased food production and indirectly through higher passenger weights and increasingly sedentary lifestyles. Using panel data for the fifty US states over the period 1997 to 2011 we examine the relationship between the obesity rate and carbon dioxide emissions from energy use. Results indicate a positive and significant relationship, holding population, affluence, sectoral composition, and other factors constant. Specifically, we find that reversion to 1997 obesity rates (from 2013 levels) nationwide could reduce annual carbon dioxide emissions from energy use by 143 million metric tons, or approximately 2.8 percent of annual US emissions. This reduction yields annual climate benefits of between $5.7 and $8.9 billion using EPA estimates of the social cost of carbon. We suggest that policies directed toward obesity reduction have the potential to generate significant climate co-benefits alongside the well-known health benefits.
Identifying the Drivers of Demand-Based and Production-Based GHG Emissions
Joel Bruneau
(University of Saskatchewan)
Madanmohan Ghosh
(Environment Canada)
Deming Luo
(Environment Canada)
Yunfa Zhu
(Environment Canada)
[View Abstract]
[Download Preview] This paper explores the drivers of emissions intensity improvements for a cross-section of countries over the period 1995-2009. It first documents the pattern of GHG intensity changes across 40 developed and developing countries using the World Input-Output Database (WIOD). This database accounts for internal and external linkages between countries. It identifies overall GHG emission intensities (tonnes of emissions per $GDP) as well as decomposing this into structural intensities and technological intensities. Since the countries in the dataset are large importers and exporters, the paper looks at both Production-based intensities as well as Demand-based intensities. The Demand-based intensities takes into account the net emissions from final consumption of domestic and imported goods, as such it excludes emissions from production of exports from domestic emissions and includes those resulted from production of imports.
The paper then regress these intensities against plausible drivers using the cross-section of countries. It includes energy prices; capital and labour inputs; reliance on renewable energy; investment and R&D rates; overall level of development, population density, urbanization, and trade openness; and policy-relevant variables. The paper finds that drivers for Production-based intensities differ somewhat from Demand-based intensities but do so in plausible ways. Similarly, the drivers of structural intensities differ somewhat from the drivers of technological intensities. In general, the paper finds that higher energy prices are correlated with decreasing intensities as does higher capital-labour ratios and investment-R&D rates. Some richer countries have higher intensities as do more densely populated ones. Reliance on non-renewables is not correlated with any measure of intensity.
The Disparate Influence of State Renewable Portfolio Standards (RPS) on U.S. Renewable Electricity Generation Capacity
Karen Maguire
(Oklahoma State University)
Abdul Munasib
(University of Georgia-Griffin)
[View Abstract]
[Download Preview] [Download PowerPoint] As of January 2012, 29 U.S. states and the District of Columbia had enacted a Renewable Portfolio Standards (RPS) or other mandated renewable energy policy. RPS require that electricity producers supply a portion of their electricity from designated renewable resources by a specified future date. The adoption of RPS is motivated by a complex set of political and economic factors, including increasing concerns over climate change and energy security. We examine whether RPS is having the intended effect of increasing renewable electricity generation capacity. Several papers have used panel data analyses to examine the effectiveness of U.S. state-level Renewable Portfolio Standards (RPS) in promoting the development of renewable generation capacity, but the empirical literature has generally failed to find conclusive evidence of an average treatment effect of RPS on renewables adoption across RPS states. This highlights the need for analyses that accommodate the possibility of treatment heterogeneity, particularly because RPS are unique state-level policies. RPS vary in the amount of electricity generation that must be supplied from renewables, the types of allowable renewables, the year of required implementation of the final mandate, and the magnitude and the timing of intermediate mandates. RPS states also differ in the nature of the Renewable Energy Credit (REC) trading markets, and the degree and scope of restructuring requirements. Estimation of average treatment effects can mask the fact that RPS policies across states are disparate and the treatment states are heterogeneous. We use the Synthetic Control Method (SCM) in order to conduct individual case studies of the early adopter states, states that enacted RPS between 1997 and 2000. Our findings indicate that the impact of RPS varied across states. We find Texas to be unique among these early adopters in that RPS in Texas has led to increased renewable capacity.
Jan 03, 2016 2:30 pm, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Mortality in Historical Perspective
(N3, I1)
Presiding:
Katherine Eriksson
(University of California-Davis)
Watersheds in Infant Mortality: The Role of Effective Water and Sewerage Infrastructure, 1880 to 1915
Marcella Alsan
(Stanford University)
Claudia Goldin
(Harvard University)
[View Abstract]
[Download Preview] We explore the first period of decline in infant mortality in the U.S. and provide estimates of the independent and combined effects of clean water and effective sewerage systems on infant mortality. Our case is Massachusetts, 1880-1915, when state authorities developed a sewerage and water district for municipalities in the Boston Greater Metropolitan area. We find that the two interventions were complementary and together accounted for approximately 35 percent of the total decline in log infant mortality among treated municipalities during the 35 years considered. Considerable research has documented the importance of clean water interventions for improvement in population health, but there is less evidence on the importance of sewerage systems. Our findings are directly relevant to urbanization in the developing world and suggest that a dual-pronged approach of safe water and sewerage is important to improving
infant and early child survival.
Pollution and Mortality in the 19th century
W. Walker Hanlon
(University of California-Los Angeles)
[View Abstract]
[Download Preview] The industrial cities of 19th century England were incredibly unhealthy
places to live. Most existing work has linked this pattern to the spread of
infectious diseases in crowded urban environments or to nutritional factors.
This study highlights a third important factor: pollution. Combining detailed
mortality data for over 500 districts covering nearly all of England outside of
London with pollution measures based on districts’ industrial composition, I
provide evidence that industrial pollution had an important effect on mortality
in the second half of the 19th century. The estimated effects of pollution on
mortality are substantial; in 1851-1860, pollution increased mortality by 5-7%.
This effect was one-half to two-thirds as large as the impact of all other factors
related to population density, including infectious disease. From 1851-1900,
increasing pollution due to growing industry raised mortality by 1.35-1.46 per
thousand, eliminating 23-25% of the mortality reduction achieved over this
period. I provide evidence that pollution worked through the cause-of-death
channels we would expect, particularly respiratory diseases, but I also show
that pollution interacted with infectious diseases of the respiratory system, such
as tuberculosis and measles, to increase overall mortality. I find that pollution
affected both the young and old, and that the effects spilled over from industrial
areas onto downwind districts
The Impact of Migration on Infant Health: Evidence from the Great Migration
Katherine Eriksson
(University of California-Davis)
Gregory Niemesh
(Miami University)
[View Abstract]
The Great Migration of African Americans from the rural South to the urban North entailed a significant change in the health environment, particularly of infants, during a time when access to medical care and public health infrastructure became increasingly important. We create a new dataset that links individual infant death certificates to parental characteristics to assess the impact of parents' migration to Northern cities on infant mortality. The new dataset allows the paper’s key innovation, which is to control for selection into migration and detailed parental characteristics. Conditional on parents' pre-migration observable characteristics and county-of-origin fixed effects, we find that black infants were more likely to die in the North relative to their southern-born counterparts. We find no evidence of the "healthy migrant" effect. Given that infant health has a long-lasting impact on adult outcomes, the results shed light on whether and how the Great Migration contributed to African Americans’ secular gains in health and income during the 20th century.
Tuskegee and the Health of Black Men
Marcella Alsan
(Stanford University)
Marianne Wanamaker
(University of Tennessee)
[View Abstract]
[Download Preview] JEL Codes: I25, O15 For forty years, the Tuskegee Study of Untreated Syphilis in the Negro Male passively monitored hundreds of adult black males with syphilis despite the availability of effective treatment. The study's methods have become synonymous with exploitation and mistreatment by the medical community. We find that the historical disclosure of the study in 1972 is correlated with increases in medical mistrust and mortality and decreases in outpatient physician interactions for black men. Blacks possessing prior experience with the medical community, including veterans and women, appear to have been less affected by the disclosure. Our findings relate to a broader literature on how beliefs are formed and the importance of trust for economic exchanges involving asymmetric information.
Discussants:
Karen Clay
(Carnegie Mellon University)
Brian Beach
(College of William and Mary)
John Parman
(College of William and Mary)
Dora Costa
(University of California-Los Angeles)
Jan 03, 2016 2:30 pm, Hilton Union Square, Golden Gate 8
American Economic Association
Public Economics: Public Finance
(H3)
Presiding:
Ragan Petrie
(George Mason University)
The Role of Medical Expenditure Risk in Portfolio Allocation Decisions
Padmaja Ayyagari
(University of Iowa)
Daifeng He
(College of William and Mary)
[View Abstract]
[Download Preview] This study evaluates the effect of medical expenditure risk on the portfolio allocation decisions of elderly households. Given the increasing prevalence of chronic illnesses with advanced age and rising health care costs, older adults face considerable uncertainty regarding their future medical expenditures. Although health insurance coverage can mitigate medical spending risk, this risk is typically not fully insurable due to deductibles, co-payments and other cost-sharing mechanisms. Thus, medical expenditures can be viewed as a type of un-diversifiable background risk. Economic theory suggests that background risk influences the amount of financial risk that a household is willing to bear, i.e. it influences portfolio choice. A key challenge in estimating the causal impact of medical spending risk on portfolio choice, however, is that unobserved factors simultaneously affect both medical spending and investment decisions. In this study, we exploit the exogenous reduction in prescription drug spending risk due to the 2006 introduction of the Medicare Part D program to identify causal effects. Using data from the 1996-2010 waves of the Health and Retirement Study (HRS), we estimate the impact of Medicare Part D on the probability of owning risky assets (e.g., stocks, mutual funds and investment trusts), and on the share of financial wealth invested in risky assets. We find a significant increase in both ownership of risky assets and share of financial wealth in risky assets in response to the reduction in medical expenditure risk due to Medicare Part D. We also find evidence of heterogeneity – households in the middle of the wealth distribution are more responsive to the drop in spending risk, as are persons with better cognitive ability, longer planning horizons, and stronger bequest motives. We discuss the implications of our results for health insurance policy and for the financial security and welfare of elderly households.
Saving Lives or Saving Money? Understanding the Dual Nature of Physician Preferences
Alice Chen
(University of Southern California)
Darius Lakdawalla
(University of Southern California)
[View Abstract]
[Download Preview] A longstanding literature has highlighted the tension between the altruism of physicians and their desire for profit. This paper develops new implications for how these forces drive pricing and utilization outcomes in healthcare markets. Altruism dictates that providers reduce utilization in response to higher prices, but profit-maximization does the opposite. Rational physicians will behave more altruistically towards poorer, vulnerable patients, and when the financial costs of altruism are lower. These insights help explain the observed heterogeneity in pricing dynamics across different healthcare markets. We empirically test the implications of our model by utilizing two exogenous shocks in Medicare price setting policies. Our results demonstrate that uniform policy changes in reimbursement or patient cost-sharing may not generate the intended responses on quantity.
The Effect of Public Pensions on Household Saving
Marta Lachowska
(W.E. Upjohn Institute for Employment Research)
Michal Myck
(Centre for Economic Analysis)
[View Abstract]
To answer whether public pensions displace private household saving, we study a pension reform in Poland that created a setting similar to a quasi-experiment. Poland's 1999 pension reform had a different impact on individuals depending on their year of birth. Individuals who were older than 50 years at the time of the reform were not directly affected by the reform. However, individuals who were 50 years or younger at the time of the reform will receive pension benefits computed according to a much less generous post-reform pension formula. We use this arbitrarily-set cutoff at age 50 to identify whether the resulting decrease in expected pension wealth led to an increase in household saving, or, equivalently, to answer whether public pensions crowd out household saving. By comparing the saving rate before and after the reform and across similarly aged people—some of whom were affected by the reform and some of whom were not—we can identify the effect of the reform on this outcome. To do so, we use data from the Polish Household Budget Surveys for the years 1997–2003 to first estimate difference-in-differences regressions comparing household saving rate before and after the 1999 reform for the cohorts directly affected and unaffected by the reform. Second, we estimate the degree of crowd-out, i.e., the change in the household saving rate in response to the change in expected public pension wealth exogenously induced by the reform. We estimate that, for cohorts closest in age to the unaffected control group, public pensions displace private saving by approximately one for one. This key result means that, for older households, public pensions and private saving are close to perfect substitutes.
The Spillover Effects of Two-Rate Property Taxation in Pennsylvania: A Zero-Sum Game or a Win-Win Game?
Zhou Yang
(Robert Morris University)
[View Abstract]
This paper is the first to empirically investigate the spillover effects of two-rate property taxation in Pennsylvania. Using rich panel data for county subdivisions in Pennsylvania over the period 1980-2010, this paper extends the existing research by offering the first evidence on the external impacts of two-rate property taxation as well as the spatial dynamics of these spillover effects. The empirical model separately identifies the externalities associated with two-rate property taxation as well as the external impacts of traditional property taxation. The study shows that two-rate property taxation slows down employment growth in close neighbors but speeds up employment growth in neighbors within a longer distance. The findings suggest that two-rate property taxation generates differential spillover effects across space.
Discussants:
Nicole Maestas
(Harvard University and RAND Corporation)
Joshua Gottlieb
(University of British Columbia)
John Friedman
(Brown University)
Daniel Millimet
(Southern Methodist University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Continental – Parlor 3
American Economic Association
Taxes and Incentives
(H2, H8)
Presiding:
Jeremy G. Moulton
(University of North Carolina)
The Earned Income Tax Credit and the Distribution of Income
Hilary W. Hoynes
(University of California-Berkeley and NBER)
Ankur Patel
(U.S. Department of the Treasury)
[View Abstract]
This paper comprehensively examines the effect of the EITC on the employment and income of single mothers with children. We provide the first comprehensive estimates of this central safety net policy on the full distribution of after-tax and transfer income. We use a quasi-experimental approach, using variation in generosity due to policy expansions across tax years and family sizes. Our results show that a policy-induced $1000 increase in the EITC leads to a 7.2 to 8.2 percentage point increase in employment and a 5.4 to 9.4 percentage point reduction in the share of families with after-tax and transfer income below 100% poverty. These results are robust to a rich set of controls and to whether we limit our analysis to the sharp increase in EITC due to the 1993 expansion or use the full period of policy expansion, back to the 1986 Tax Reform Act. We find that the income increasing effects of the EITC are concentrated between 75% and 150% of poverty with little effect at the lowest income levels (50% poverty and below) and at levels of 250% of poverty and higher.
A Short-Run View of What Computers Do: Evidence from a U.K. Tax Incentive
Paul Gaggl
(University of North Carolina-Charlotte)
Greg C. Wright
(University of California-Merced)
[View Abstract]
[Download Preview] We study the short-run, causal effect of Information and Communication Technology (ICT) adoption on the employment and wage distribution, providing insight into how ICT alters the demand for work within the firm. We exploit a unique natural experiment generated by a tax allowance on ICT investments for small U.K. firms and find that the primary short-run effect of ICT is to complement non-routine cognitive-intensive work. We also find that the ICT investments led to organizational changes that were associated with increased inequality within the firm and we discuss our findings in the context of recent theories of ICT adoption and wage inequality. We bring additional evidence to bear that suggests that recent task-based models of Skill Biased Technical Change best fit the patterns that we observe.
Dividend Taxation, Ownership, and Capital Structure
Annette Alstadsæter
(Statistics Norway and University of Oslo)
Martin Jacob
(WHU-Otto Beisheim School of Management)
Roni Michaely
(Cornell University and Interdisciplinary Center Herzliya)
[View Abstract]
This paper aims to shed light on the relation between ownership structure and capital structure choices of private firms, and how this relation is affected by dividend taxation. We use comprehensive administrative tax panel data from Norway on all corporations to answer a puzzle raised by Brav (2009) regarding the differences in capital structure between private and public firms. We also have information on the debt composition to distinguish insider debt, bank loans, and bonds. With this administrative data, we can additionally link ownership information and individual income tax information of each (domestic) owner to the firm data to obtain the each firm’s ownership structure. We proceed by examining three unanswered questions in the literature. First, how does ownership concentration relate to financial policies of private firms? Second, how does ownership affect debt composition? Third, how does ownership concentration relate to the cost of debt? In the second part of our empirical analysis, we examine the effect of dividend taxation on capital structure around a 2006 Norwegian tax reform that introduced a 28% dividend tax rate. Since such a tax increase raises the cost of (external) equity and, consequently, changes the relative cost of debt vis-à-vis equity, we would expect that dividend taxation is a potential determinant of capital structure. To this end, we test empirically how capital structure of private firms changes around the Norwegian tax reform and how this response is driven by the ownership structure.
Who Benefits from Targeted Property Tax Relief? Evidence from Virginia Elections
Jeremy G. Moulton
(University of North Carolina)
Scott A. Wentland
(Longwood University)
Bennie D. Waller
(Longwood University)
[View Abstract]
[Download Preview] This study examines the market impact of targeted property tax relief, which is critical for understanding who exactly benefits from this policy. Specifically, we investigate this in the context of two state-wide ballot measures in Virginia that provided property tax relief intended to aid seniors and disabled veterans respectively. Using residential MLS microdata from Virginia, results from a regression discontinuity analysis show that once the 2010 tax relief measures passed on Election Day, property values rose sharply in response to the sudden increase in demand of homeownership among the targeted groups. As part of our identification strategy, we find that “senior preferred” housing as well as areas with higher proportions of seniors and veterans experienced the highest price appreciation, while areas with fewer veterans or seniors saw little impact. Further, we explore numerous alternative hypotheses and specifications that might explain this discontinuity. The findings suggest that this policy provides an immediate benefit to current homeowners, thereby offsetting benefits for subsequent homeowners within the targeted groups. This represents a critical unintended consequence of targeted property tax relief as a (very popular) policy tool more generally, as an immediate capitalization into home prices subsequently increases the cost of housing for many individuals the relief was intended to help.
Discussants:
Lisa Schulkind
(University of North Carolina-Charlotte)
Yoon-Kyung Chung
(Korea Energy Institute)
Francisco Pérez-González
(Instituto Tecnológico Autónomo de México)
Raymond T. Brastow
(Federal Reserve Bank of Richmond)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 21
American Economic Association
The Impact of Culture on Corporate Decisions
(G3, Z1)
Presiding:
Xiaoding Liu
(University of Oregon)
Corruption Culture and Corporate Misconduct
Xiaoding Liu
(University of Oregon)
[View Abstract]
[Download Preview] Despite significant interest in corporate culture, there is little empirical research on its role in influencing opportunistic behavior. Using cultural background information on key company insiders and the idea that immigrants can bring cultural attitudes from their native countries to the U.S., I construct a measure of a firm's corruption culture, capturing the firm’s general attitude toward opportunistic behavior. For a sample of around 8,000 public firms in the U.S., I find that firms with high corruption culture are more likely to engage in earnings management, accounting fraud, option backdating, and opportunistic insider trading. I further explore how corruption culture impacts corporate misconduct and find evidence that it operates by acting as a selection mechanism and by having a direct influence on individual behavior beyond individual personal attitudes.
The Cultural Origin of Preferences: CEO Cultural Heritage and Corporate Investment
Yihui Pan
(University of Utah)
Stephan Siegel
(University of Washington)
Tracy Yue Wang
(University of Minnesota)
[View Abstract]
[Download Preview] Does culture shape economic preferences? While economic models of the origins of preferences point to an important role of culture, supporting empirical evidence is largely missing for risk and time preferences. In this study, we exploit variation in cultural heritage across CEOs of public U.S. companies and demonstrate that CEOs’ culturally inherited attitudes towards uncertainty and risk negatively affect corporate acquisitiveness. Conditional on engaging in acquisitions, CEOs from more risk and uncertainty avoiding cultures try to reduce risk by choosing targets with higher diversification potential and by using equity financing. Our findings are robust to genetic, institutional, and economic differences across countries of origin. Most of the social transmission of risk attitudes occurs through national culture rather than religion. Cultural differences with respect to risk preference persist over multiple generations, while there is also evidence consistent with gradual assimilation.
Dividends and Trust
Peter Kelly
(Yale University)
[View Abstract]
I present new evidence on the importance of trust in financial decision-making. Specifically, I predict that less trusting individuals will have a preference for dividend-paying as opposed to non-dividend paying stocks, and that, in less trusting geographic regions, dividend-paying stocks will trade at a higher premium than non-payers. I find support for these predictions in the data: in a cross-section of households, those who are less trusting of others tilt their portfolios toward dividend-paying stocks; and in countries and in regions of the U.S. where people are less trusting, locally-headquartered firms that pay dividends are valued more highly than locally-headquartered firms that do not.
Discussants:
Jonathan Karpoff
(University of Washington)
Edward D. Van Wesep
(University of Colorado-Boulder)
Karl Lins
(University of Utah)
Jan 03, 2016 2:30 pm, Hilton Union Square, Franciscan D
American Economic Association
The Role of Teacher Training in Graduate Economic Education in the United States
(A1) (Panel Discussion)
Panel Moderator:
Sam Allgood
(University of Nebraska-Lincoln)
KimMarie McGoldrick
(University of Richmond)
Gail Hoyt
(University of Kentucky)
Martha L. Olney
(University of California, Berkley)
Jadrian Wooten
(Pennsylvania State University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Trade and Firm Dynamics
(F1)
Presiding:
Joel B. Rodrigue
(Vanderbilt University)
Shipment Frequency of Exporters and Demand Uncertainty: An Inventory Management Approach
Gabor Bekes
(CERS-HAS, CEU and CEPR)
Lionel Fontagné
(University of Paris 1, Banque de France and CEPII)
Balazs Murakozy
(CERS-HAS)
Vincent Vicard
(Banque de France)
[View Abstract]
[Download Preview] Firms adjust to differences in market size and demand uncertainty by changing the frequency and size of their export shipments. In our inventory model, transportation costs and optimal shipment frequency are determined on the basis of demand as well as inventory and per shipments costs. Using a cross section of monthly firm-product-destination level French export data we confirm that firms adjust on both margins for market size. In a stochastic setting, firms adjust to increased uncertainty by reducing their sales and, for a given export volume, by reducing their number of shipments and increasing their shipment size.
Characterizing Global and Regional Value Chains
Zhi Wang
(U.S. International Trade Commission)
Shangjin Wei
(Asian Development Bank and Columbia University)
Xinding Yu
(University of International Business and Economics)
Kunfu Zhu
(Chinese Academy of Sciences)
[View Abstract]
[Download Preview] Since the extent of offshoring and production sharing varies by sector and country, we develop measures of GVCs in terms of length, intensity, and location of participation at the levels of country, country-sector, and bilateral sector, and distinguish among pure domestic, directly traded, and indirectly traded production activities. Using these measures, we characterize cross-country production sharing patterns and GVC related trade activities for 35 sectors and 40 countries over 17 years. We find that the production chain for the world as a whole has become longer. While the relative ranking of the length at the sector level is stable across countries, the average length for a given country-sector, of both the domestic and international components, and their participation and position in GVCs in general, do evolve significantly over time. The results contribute to a better understanding of features of global value chains and patterns of participation by individual country-sectors.
International Trade and Job Polarization: Evidence at the Worker Level
Wolfgang Keller
(University of Colorado)
Hale Utar
(Bielefeld University)
[View Abstract]
Job polarization is the shift of employment and earnings from mid-level wage jobs to both high- and low-wage jobs. Employing longitudinal employee-employer matched data on all workers and firms in Denmark we investigate the role of international trade for job polarization as Danish workers faced intense import competition from China over the period 1999 to 2009. Using an instrumental variables approach we show that import competition from China is an important cause of job polarization in Denmark, about four times the size of the effect of offshoring. We confirm a strong role for technical change and computerization for polarization, although these factors cannot explain the rise in low-wage employment by the early 2000s. The removal of restrictions on textile exports with China’s entry in the World Trade Organization provides a quasi-experimental setting that shows our instrumental variables approach captures the substance of trade’s causal effect on job polarization. Import competition leads to job polarization by shifting workers from initially abundant manufacturing jobs to both high- and low-paying services jobs. Low-educated workers lose mid-level jobs, and move into low-wage jobs to a greater extent that more educated workers. Finally, when exposed to import competition women transition less well than men into high-wage jobs.
Workers beneath the Floodgates: Impact of Low-Wage Import Competition and Workers' Adjustment
Hale Utar
(Bielefeld University)
[View Abstract]
[Download Preview] I analyze the impact of a low-wage trade shock on manufacturing workers in a high-wage country, Denmark, and how they adjust to the shock over a decade across all potential adjustment margins, in the labor market and outside. My research illustrates the importance of industry-specific human capital in trade adjustment and provides initial evidence of skill upgrading at the individual level as workers re-build lost human capital through education.
Employing administrative person-level panel data matched with employer data for the period 1999 to 2010, I exploit the dismantling of import quotas on Chinese textile and clothing products in conjunction with China's accession to the WTO as a quasi-natural experiment and utilize within-industry heterogeneity in workers' exposure to this trade shock. Results show a negative and significant impact of the low-wage import shock on workers' future earnings and employment trajectories, which stems mainly from shortened employment at the firm that was exposed to the competition shock and subsequent difficulty in maintaining stable employment. While the service sector is the main absorber of all types of workers displaced by the import shock, recovery from the shock in service sector jobs varies greatly across workers depending on occupation, education and age. Less-educated, older and workers who had occupations with a high industry-specific skill content at the exposed firms had the worst adjustment experience. The results show that trade-induced adjustment costs are substantial and heterogeneous across workers. For some, challenges remain even after transitioning to full-time jobs outside of manufacturing, as the loss of human capital specific to their former industry remains as an important hurdle to recovery.
International Relative Prices and Trade Dynamics with Customer Markets
Luigi Paciello
(EIEF)
[View Abstract]
This paper develops a novel theory of firm dynamics show that this theory can explain the international elasticity puzzle as well as large and persistent deviations from the law of one price. Firms differ in idiosyncratic labor productivity and endogenous mass of customers. A higher mass of customers is associated to persistently higher demand as search frictions prevent customers from freely moving across suppliers. Firms compete for customers through prices: a lower price increases the chances of retaining customers.
As the same firm faces different degree of competition in different markets, firms charge different prices in different markets. Exporters face sunk costs and iceberg costs to serve the foreign market. International trade dynamics in this framework depend on the dynamics of two district components: an extensive margin associated to the mass of firms exporting, and an intensive margin associated to the quantity exported by each exporter. The mass of customers of the different exporters, and its dynamics, is key to determine the contribution of each margin to international trade dynamics.
While the existing literature has focused on these channels in isolation, this paper proposes a unified framework and uses it to quantify the contribution of each of them to explain international trade dynamics. Moreover, the tight link between the variability in product level real exchange rate and the relevance of customer dynamics for firms pricing, together with micro evidence on international relative price dynamics, provides a disciplining device to assess the relevance of the extensive and intensive margins of trade to explain trade dynamics.
Jan 03, 2016 2:30 pm, Marriott Marquis, Nob Hill A & B
American Finance Association
Compensation and Agency
(G3)
Presiding:
Claudia Custodio
(Nova School of Business and Economics)
Wages and Firm Performance: Evidence from the 2008 Financial Crisis
Paige Ouimet
(University of North Carolina)
Elena Simintzi
(University of British Columbia)
[View Abstract]
[Download Preview] We examine the effect of higher wages on firm performance during the 2008 financial crisis. Our sample includes UK firms which signed long-term wage agreements with their employees before September 2008, thereby giving pay raises. Firms covered by binding agreements which extend deep in the crisis paid higher wages but also realized greater ex-post performance measured by sales, sales per employee, profits and market shares, as compared to control firms with agreements overlapping modestly with the crisis. Several robustness tests, including an IV estimation, suggest our results are not driven by factors associated with the timing of the long-term agreement.
Labor Unemployment Risk and CEO Incentive Compensation
Andrew Ellul
(Indiana University)
Cong Wang
(Chinese University of Hong Kong)
Kuo Zhang
(Chinese University of Hong Kong)
[View Abstract]
[Download Preview] We investigate the impact of workers’ unemployment risk, a salient attribute of labor market frictions, on the design of CEO incentive compensation. Through its impact on risk-taking activities, option-based compensation is likely to also influence unemployment risk. Exploiting state-level changes in unemployment insurance benefits as a source of variation in the unemployment costs faced by workers, we find that, after unemployment insurance benefits increase, boards provide managers with more stock option grants that result in more convexity payoffs. This behavior is consistent with the view that CEO’s risk-taking incentives are amplified by the board to take advantage of lower costs associated with unemployment risk. The increase in convexity payoff structures is more pronounced in labor-intensive industries and those with higher layoff propensity, but is attenuated by the strength of unionization. The results are also stronger when CEO wealth is more closely tied to firm performance. Finally, the increase in the convexity payoff from option-based compensation induces managers to increase the riskiness of investments and leverage, leading to improved operating performance. Overall, these results suggest that firms respond to unemployment risk by changing their risk taking behavior, and one channel through which they do so is executive compensation.
Executive Compensation and the Market Valuation of Managerial Attributes
Si Li
(Wilfrid Laurier University)
M. Fabricio Perez
(Wilfrid Laurier University)
[View Abstract]
[Download Preview] The empirical literature on executive compensation often models unobserved managerial attributes as time-invariant fixed effects. The labor market for executives, however, may value these attributes differently over time. We propose and estimate an interactive fixed effects (IFE) model of executive compensation. The IFE model allows for time variation in the market valuation of unobserved managerial attributes. The model can also incorporate multiple managerial fixed effects. We find that two managerial attributes are economically important in explaining executive pay. The first one captures general managerial talent, and the second appears to capture managerial optimism, risk tolerance, and specific human capital. The results show that the market prices of these attributes have substantial time variations. Finally, the IFE model can estimate the coefficients on time-constant variables, while standard fixed effect model cannot because such variables are absorbed in the fixed effects. The IFE model proposed in the paper may have potential applications in other areas in economics and finance.
Product Market Peers and Relative Performance Evaluation
Sudarshan Jayaraman
(University of Rochester)
Todd Milbourn
(Washington University-St. Louis)
Hojun Seo
(Washington University-St. Louis)
[View Abstract]
[Download Preview] Relative Performance Evaluation (RPE) theory predicts that firms filter out common shocks (i.e., those affecting the firm and its peers) while evaluating CEO performance, and that the extent of filtering increases with the number of firms in the peer group. Despite the intuitive appeal of the theory, previous tests of RPE find weak and inconsistent evidence. We hypothesize that one reason for the mixed evidence is the inaccurate classification of peers. Rather than using static, pre-defined Standard Industry Classifications (SIC), we exploit recent advances in textual analysis and define peers based on firms’ product descriptions in their 10-K filings (e.g., Hoberg and Phillips, 2015). This alternative classification not only captures common shocks to firms’ product markets more effectively, but also tracks the evolving nature of these markets, as 10-Ks are updated annually. Using product market peers, we find three pieces of evidence consistent with RPE – (i) firms on average filter out common shocks to performance measures, (ii) the extent of filtering increases with the number of peers, and (iii) firms completely filter out common shocks in the presence of a large number of peers. We are able to replicate the first finding but not the other two using pre-defined industry classifications. Overall, our results suggest that a key identification strategy to testing RPE theory lies in accurately defining the peer group.
Discussants:
Miguel Ferreira
(Nova School of Business and Economics)
Carola Frydman
(Northwestern University)
Charles Hadlock
(Michigan State University)
Kevin Murphy
(University of Southern California)
Jan 03, 2016 2:30 pm, Marriott Marquis, Nob Hill C & D
American Finance Association
Corporate Disclosure and Accounting
(G3)
Presiding:
Michelle Hanlon
(Massachusetts Institute of Technology)
Competition and Bank Opacity
Liangliang Jiang
(Lingnan University)
Ross Levine
(University of California-Berkeley)
Lin Chen
(University of Hong Kong)
[View Abstract]
[Download Preview] Did regulatory reforms that lowered barriers to competition increase or decrease the quality of information that banks disclose to the public? By integrating the gravity model of investment with the state-specific process of bank deregulation that occurred in the United States from the 1980s through the 1990s, we develop a bank-specific, time-varying measure of deregulation-induced competition. We find that an intensification of competition reduced abnormal accruals of loan loss provisions and the frequency with which banks restate financial statements. The results suggest that competition reduces bank opacity, potentially enhancing the ability of markets to monitor banks.
Financial Constraints and Corporate Disclosure: Evidence from Capital Market Segmentation
Rustom Irani
(University of Illinois-Urbana-Champaign)
David Oesch
(University of Zurich)
[View Abstract]
[Download Preview] The sharp distinction drawn between firms rated narrowly above (BBB–) and below (BB+) the investment-grade cutoff provides variation in debt financing availability unrelated to firm fundamentals. We exploit this market segmentation to identify an asymmetric effect of debt capital supply on voluntary disclosure: BB+ firms step up disclosure in response to high-yield bond mutual fund outflows. This effect is con- centrated in periods of large fund outflows and among financially constrained firms. Conditional on greater disclosure, these firms increase equity issuance. Thus, disclo- sure may alleviate information-based financing frictions, allowing firms to smooth out temporary disruptions to the availability of finance.
The Informativeness and Monitoring Effect of Analysts’ Comments on Earnings Quality
Zhongwei Huang
(City University London)
[View Abstract]
This paper investigates the monitoring role of financial analysts by examining the informativeness and monitoring effect of their written comments on earnings quality. I find that these comments convey information to investors beyond that in the earnings forecasts, stock ratings, price targets, and other qualitative text in analyst reports. Further analysis suggests that the market’s reaction to earnings quality comments is primarily driven by comments written with certainty. In addition, firms with earnings quality that is criticized by analysts exhibit a higher level of accruals-based earnings management than non-criticized firms. Controlling for accrual reversals, I find that firms significantly reduce the level of accruals-based earnings management after being criticized, and this reduction is not accompanied by an increase in real activities management.
Discussants:
Joao Granja
(Massachusetts Institute of Technology)
Michael Minnis
(University of Chicago)
Mark T. Bradshaw
(Boston College)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Finance and the Firm's Workforce
(G3)
Presiding:
David Matsa
(Northwestern University)
The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity
Daniel Carvalho
(University of Southern California)
Gordon Phillips
(Dartmouth College)
[View Abstract]
[Download Preview] Using a difference-in-difference methodology, we find that the state-level banking deregulation of local U.S. credit markets leads to significant increases in the reallocation of labor within local industries towards firms with higher marginal products of labor. Using firm production functions estimated with plant-level data, we propose and examine an approach that quantifies the industry productivity gains from labor reallocation and find that these gains are economically important. Our analysis suggests that labor reallocation is a significant channel through which credit market conditions affect the aggregate productivity and performance of local industries.
Winners and Losers of Financial Crises: Evidence from Individuals and Firms
Daniela Hochfellner
(University of Michigan)
Joshua Montes
(Congressional Budget Office)
Martin Schmalz
(University of Michigan)
Denis Sosyura
(University of Michigan)
[View Abstract]
[Download Preview] [Download PowerPoint] Using a comprehensive employer-employee dataset from German social security records, we ex- amine the impact of an exogenous shock to bank capital on firms’ employment and investment decisions, and on individual workers’ careers. We find that German regional banks’ trading losses from U.S. mortgage-backed securities cause a deep economic contraction in the banks’ exclusive geographic domains. Loan growth and output growth decline by 20 and 0.6 percentage points per crisis year, respectively, and the unemployment rate rises by 1.4 percentage points during each year of the crisis in affected states compared to unaffected states. The effect is stronger for privately held, bank-dependent firms than for publicly listed firms: private firms in affected states reduce net hiring by 24 percentage points and cut investment by one-half compared to publicly listed firms. We then study how firms’ access to bank credit affects individuals’ wages, unemployment dura- tion, and occupational choices. Workers in affected firms experience persistent earnings losses of approximately 1,000 Euro per year, nine weeks longer unemployment spells, and a lower probability of climbing the job ladder than workers in unaffected firms.
“Since You’re So Rich, You Must be Really Smart”: Talent and the Finance Wage Premium
Michael Johannes Boehm
(University of Bonn)
Daniel Metzger
(Stockholm School of Economics)
Per Stromberg
(Stockholm School of Economics)
[View Abstract]
[Download Preview] Relative pay in the financial sector has experienced an extraordinary increase over the last few decades. A proposed explanation for this pattern has been that demand for skilled workers in finance has increased more than in other sectors. We exploit Swedish administrative data, which include detailed cognitive and non-cognitive test scores for individuals, to examine the implications of this hypothesis for talent allocation and relative wages in the financial sector. We find no evidence that the selection of talent into finance increased or improved, neither on average nor at the top of the talent distribution. Finance does not become more skill-biased and changing composition of skills or their returns cannot account for the surge in the finance wage premium. These findings alleviate concerns about a “brain drain” into finance at the expense of other sectors, but they also suggest that rents in finance are high, increasing, and largely unexplained.<br />
Discussants:
John Haltiwanger
(University of Maryland)
Jonathan Parker
(Massachusetts Institute of Technology)
Thomas Lemieux
(University of British Columbia)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Firms and Markets
(G3)
Presiding:
Gregor Matvos
(University of Chicago )
Detail Disagreement and Innovation Booms
Valentin Haddad
(Princeton University)
Paul Ho
(Princeton University)
Erik Loualiche
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We theoretically investigate how disagreement among investors shapes the innovative landscape. Disagreement about which project is likely to succeed creates a form of competition neglect: investors finance their favorite project, ignoring displacement from other firms. More generally, in a market where investors disagree, firms’ interactions — positive or negative — are neglected, affecting the nature of the innovation process. Depending on what opinions differ about, disagreement can lead to the exploration of diverse innovative paths or the concentration on a single direction. Those results highlight how features of financing markets affect innovation. We revisit the impact of various interventions put forward to support healthier innovation in the context of markets with heterogenous beliefs.
Collateral-Based Asset Pricing
Roberto Steri
(University of Lausanne - Swiss Finance Institute)
[View Abstract]
[Download Preview] Recent corporate finance studies show that hedging is a first-order driver of corporate decisions. I use firms’ hedging behavior to build a novel asset pricing model, the Corporate CAPM. I propose a dynamic contracting framework in which collateral constraints induce a tradeoff between hedging and immediate needs for funding. Firms hedge by transferring resources to future states that are most important for firm’s value. In the model, firms’ hedging behavior is informative of the shareholders’ stochastic discount factor, which measures the value of each state. As a consequence, discount rates can be inferred from firm’s observed investment, financing, and hedging policies. On the corporate finance side, a calibrated version of the model is broadly consistent with observed corporate policies of US listed firms. On the asset pricing side, the Corporate CAPM is successful in pricing different test assets, also in comparison to leading asset pricing models.
Brokers vs. Retail Investors: Conflicting Interests and Dominated Products
Mark Egan
(University of Minnesota)
[Download Preview] tbd
Discussants:
Bruce Carlin
(University of California-Los Angeles)
Christian Opp
(University of Pennsylvania)
Robert McDonald
(Northwestern University)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Information Processing, Transmission and Trading
(G1)
Presiding:
Vyacheslav Fos
(Boston College)
Investor Demand for Information in Newly Issued Securities
Scott Bauguess
(Securities and Exchange Commission)
John Cooney
(Texas Tech University)
Kathleen Hanley
(Lehigh University)
[View Abstract]
[Download Preview] Empirical studies of how information is impounded in prices often focus on the supply of information from corporate announcements, analyst reports, and news stories, or rely on proxies for the presence of informed traders such as insiders, institutional traders, trade size and short sellers. The demand for information by investors is less well understood because of the lack of data on the information acquisition process. Our study directly measures investor demand for information and its impact on security prices using search traffic associated with corporate filings on the EDGAR system of the Securities and Exchange Commission (SEC). Our analysis focuses on the registration period for IPOs when information asymmetries between investors and the issuing firm are likely to be high. Consistent with the important role of informed investors in the price discovery process, we find that EDGAR search traffic significantly increases for peer firms on IPO filing dates. We also find that investor demand for information is positively related to the probability of IPO success, and can predict both price revisions and initial returns. Overall, our results indicate that information acquisition is reflected in the pricing of newly issued securities.
Potential Pilot Problems: Treatment Spillovers in Financial Regulatory Experiments
Ekkehart Boehmer
(Singapore Management University)
Charles Jones
(Columbia University)
Xiaoyan Zhang
(Purdue University)
[View Abstract]
[Download Preview] In analyzing regulatory experiments, a fundamental assumption is that the control group is unaffected. However, in many settings, this assumption may not hold. Generally, the total effect of a regulatory change consists of direct and indirect effects, but the standard difference-in-difference approach measures only direct effects. We apply our methods to the 2007 repeal of the uptick rule by the SEC. The indirect effects are substantial, because unlike the 2005 partial repeal, total repeal enabled aggressive portfolio shorting. The 2007 repeal causes increased price efficiency and slightly worse liquidity. We conclude that regulatory pilot designers should carefully consider potential spillovers.
How Quickly Do Markets Learn? Private Information Dissemination in a Natural Experiment
Robert Jackson
(Columbia University)
Wei Jiang
(Columbia University)
Joshua Mitts
(Columbia University)
[View Abstract]
[Download Preview] Using data from a unique episode in which the SEC disseminated securities filings to a small group of private investors before releasing them to the public, we provide a direct test of the process through which private information is impounded into stock prices. Because the delay between the time when the filings were privately distributed and when the filings were made public was randomly distributed, our setting provides a rare natural experiment for examining how markets process new private information. We find that it takes minutes—not seconds—for informed traders to incorporate fundamental information into stock prices. We also show that the private investors who had early access to fundamental information profited more, and convey more information into stock prices, when the delay before the filings are released to the public is longer. More importantly, the rate at which information is impounded into stock prices is more correlated with the length of the predicted delay before public release than the actual delay, suggesting that informed investors trade strategically. Our study serves as the modern counterpart to Koudijs’s (2014a) study on insider trading on eighteenth-century stock exchanges—except, in our case, week-long sailing voyages have been replaced by modern electronic transmission as the conduit for information flows.
Disclosure Timing, Information Asymmetry, and Stock Returns: Evidence from 8-K Filing Texts
Di (Andrew) Wu
(University of Pennsylvania)
Itay Goldstein
(University of Pennsylvania)
[View Abstract]
[Download Preview] Using a unique sample of unscheduled disclosures of material corporate events constructed from over 500,000 8-K filings, we find significant heterogeneity in the timeliness of information disclosure, both across and within firms. We demonstrate that this timing dimension of information structure has first-order effects on information asymmetry and stock prices. Taking 10 more business days to disclose is associated with an average filing period bid-ask spread ranging from 13.78% to 34.31% wider, compared to an immediate disclosure. Contrary to predictions in existing models, the effect of timeliness on stock returns varies by the type of the event. For good news, longer disclosure lags is associated with significantly lower abnormal returns during the filing period, whereas bad news exhibit the opposite relation. Furthermore, we find evidence consistent with firms strategically choosing the level of disclosure timeliness according to the type and business category of the event.
Discussants:
Heather Tookes
(Yale University)
Chester Spatt
(Carnegie Mellon University)
Peter Koudijs
(Stanford University)
Lily Fang
(Massachusetts Institute of Technology)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Pricing of Variance and Tail Risk in Derivatives Markets
(G1)
Presiding:
Bryan Kelly
(University of Chicago)
Where Do Informed Traders Trade First? Option Trading Activity, News Releases, and Stock Return Predictability
Martijn Cremers
(University of Notre Dame)
Andy Fodor
(Ohio University)
David Weinbaum
(Syracuse University)
[View Abstract]
[Download Preview] We examine patterns of option trading activity around news announcements. Combining a database of option volume by trade type with a database of news releases, we find that option trading activity is unu-sually high both immediately before news days and on news days. As option volume on both days is a stronger predictor of future stock returns than option volume on other days, the trading advantage of in-formed option traders stems from their ability to analyze publicly available information as well as anticipate upcoming news events. Our main contribution is to show that where informed option traders trade depends on whether news releases are anticipated. We show theoretically that, when no news is scheduled to be released, informed traders prefer long option positions to short option positions and that the opposite is true ahead of scheduled news releases. Consistent with this, we find that purchases of options predict returns on news days and ahead of unscheduled events, but not before scheduled events, and sales of options are informative only ahead of scheduled news releases.
Pricing of Idiosyncratic Equity and Variance Risks
Elise Gourier
(Queen Mary University of London )
[View Abstract]
[Download Preview] This paper decomposes the risk premia of individual stocks into contributions from systematic and idiosyncratic risks. I introduce an affine jump-diffusion model, which accounts for both the factor structure of asset returns and that of the variance of idiosyncratic returns. The estimation is performed on a time series of returns and option prices from 2006 to 2012. I find that investors not only require compensation for the systematic movements in returns and variance, but also for non hedgeable idiosyncratic risks. For the stocks of the Dow Jones, these risks account for an average of 50% and 80% of the equity and variance risk premia, respectively. I provide a categorization of sectors based on the risk profile of their Exchange Traded Funds and highlight the high prices of idiosyncratic risks in the Energy, Financial and Consumer Discretionary sectors. Other sectors are found to be appealing alternatives for investors who are not willing to be exposed to non diversifiable risks.
Fear Trading
Paul Schneider
(University of Lugano and Swiss Finance I)
Fabio Trojani
(University of Lugano)
[View Abstract]
[Download Preview] We introduce a class of simple model-free trading strategies in incomplete option markets, which allow us to trade time-varying disaster risk. These strategies disaggregate the exposure to second- and higher-order risks over distinct regions of the distribution of S&P 500 returns. Excess returns from portfolios of simple trading strategies do not vanish after transaction costs and are systematically related to non-tradeable indices of fear. A simple strategy creating exposure to skewness captures the economic notion of prudence and appears as the most appropriate instrument for pricing and trading fear.
Discussants:
Travis Johnson
(University of Texas)
Kris Jacobs
(University of Houston)
Stefano Giglio
(University of Chicago)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Private Equity
(G2)
Presiding:
Victoria Ivashina
(Harvard Business School)
How Much for a Haircut? Illiquidity, the Secondary Market, and the Value of Private Equity
Nicolas Bollen
(Vanderbilt University)
Berk Sensoy
(Ohio State University)
[View Abstract]
Limited partners of private equity funds commit capital with extreme restrictions on liquidity and a large degree of uncertainty regarding the timing of capital calls and payoffs. Secondary markets have emerged which alleviate some of the associated cost of illiquidity. This paper develops a subjective valuation model that incorporates these institutional features. We find that for a risk-averse limited partner the value of a private equity investment is highly sensitive to the time-varying discount observed in secondary market transactions. Model-implied breakeven returns required to compensate the limited partner for liquidity costs, market risk, and fees of investing in private equity funds generally exceed empirically observed returns. Only for highly risk-tolerant LPs facing an efficient secondary market and able to access above-average funds are the costs of private equity justified by performance.
Private Equity Portfolio Company Fees
Ludovic Phalippou
(University of Oxford)
Christian Rauch
(Goethe University)
Marc Umber
(Frankfurt School of Finance & Management)
[View Abstract]
[Download Preview] A less known fact about private equity is that General Partners (GPs) enter ‘service agreements’ specifying fee payments by companies whose boards they control. We describe these contracts and find that related fee payments sum up to $20 billion evenly distributed over twenty years, representing over 6% of the equity invested by GPs on behalf of their investors. Fees do not vary according to business cycles, company characteristics, or GP performance. Fees vary significantly across GPs and are persistent within GPs. Once these fees became public information GPs charging the least to companies raised significantly more capital. GPs that went public distinctively increased their fees. We discuss how results can be explained by optimal contracting versus tunneling theories.
Interim Fund Performance and Fundraising in Private Equity
Brad Barber
(University of California-Davis)
Ayako Yasuda
(University of California-Davis)
[View Abstract]
[Download Preview] General partners (GPs) in private equity (PE) report the performance of an existing fund while raising capital for a follow-on fund. We document interim performance has large effects on fundraising outcomes; the impact is greatest when backed by exits and for low reputation GPs. Faced with these incentives, GPs time their fundraising to coincide with periods of peak performance through two strategies: “exit and fundraise” and “inflated valuations.” Consistent with the former, we find performance peaks are greatest for funds with high realization rates. Consistent with the latter, we find low reputation GPs with low realization rates also experience performance peaks followed by erosions in performance post-fundraising.
How Persistent is Private Equity Performance? Evidence from Deal-Level Data
Reiner Braun
(Technical University Munich)
Tim Jenkinson
(Oxford University)
Ingo Stoff
(Technical University Munich)
[View Abstract]
[Download Preview] The persistence of returns is a critical issue for investors in their choice of private equity managers. In this paper we analyse buyout performance persistence in new ways, using a unique database containing cash-flow data on 13,523 portfolio company investments by 865 buyout funds. We focus on unique realized deals and find that persistence of fund managers has largely disappeared as the private equity sector has matured and become more competitive. However, persistence remains a feature of the worst performing managers. Private equity has, therefore, largely conformed to the pattern found in most other asset classes in which past performance is a poor predictor of the future.
Discussants:
Arthur Korteweg
(University of Southern California)
Andrey Malenko
(Massachusetts Institute of Technology)
Sabrina Howell
(New York University)
Jules van Binsbergen
(University of Pennsylvania)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salon 8
American Finance Association
Sports, Economics and Finance
(G1) (Panel Discussion)
Panel Moderator:
Tobias Moskowitz
(University of Chicago)
Daryl Morey
(Houston Rockets of the National Basketball Association (NBA))
Brian Burke
(Advanced NFL Analytics and ESPN)
Tobias Moskowitz
(University of Chicago, NBER, and AQR)
Jeff Ma
(TenXer and ESPN)
Jan 03, 2016 2:30 pm, Parc 55, Mission I
American Real Estate & Urban Economic Association
Chinese Housing Markets
(R2, O1)
Presiding:
Tsur Somerville
(University of British Columbia)
Education and Rural-Urban Migration: The Role of Zhaosheng in China
Ping Wang
(Washington University-St. Louis)
Pei-Ju Liao
(Academia Sinica)
Yin-Chi Wang
(Chinese University of Hong Kong)
Chong Kee Yip
(Chinese University of Hong Kong)
[View Abstract]
Because of hukou registration system, people in China lost the freedom of migration. This paper focuses on one of the formal channels to migrate to cities: zhaosheng. To better capture the reality, we also consider the migration of rural workers, or nongmingong, to cities. A general equilibrium model with endogenous education migration decision is employed. The framework is calibrated to data from China and then counterfactual experiments are conducted. In particular, the abolishment of government job assignment for college graduates in 1994 is examined in this paper. We find that if rural-urban migration is completely debarred, urban output would be 15.89 percent lower than that in the benchmark model and total output would be 7.75 percent lower during 1981-2007. We also find a complementarity between college graduates and nongmingong in production and migration via zhaosheng contributes to more of the increase in total output. Our counterfactual experiments indicate that (1) If the policy of government job assignment had been continued, total output would only increase by 0.72 percent during 1995-2007; (2) If China had adopted a more relaxing policy on rural migrant workers, total output would increase by 2.58 percent in 1981-2007; (3) If China had not loosened its control on rural migrant workers in the 1990s, total output would decrease by 1.51 percent in 1995-2007; (4) If the technology in urban production is improved by 5 percent, urban output would increase by 1.91 percent throughout 1981-2007.
Measuring the Stringency of Land-Use Regulation and Its Determinants: The Case of China's Building-Height Limits
Junfu Zhang
(Clark University)
Jan Brueckner
(University of California-Irvine)
Shihe Fu
(Southwestern University of Finance and Economics)
Yizhen Gu
(University of California-Berkeley)
[View Abstract]
[Download Preview] During the rapid urbanization in recent years, local governments in China constantly sell land leases 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 how floor-area-ratio restrictions affect urban land value and how such restrictions vary across locations and over time. Our model implies that government imposed floor-area-ratio restrictions are binding; relaxation of the restriction increases land value; and the elasticity of land value with respect to changes in the imposed floor area ratio reflects the restrictiveness of the limit. 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 higher allowed floor area ratios lead to higher land prices, this effect varies a lot across cities, and planned floor area ratios tend to be adjusted upward for land parcels closer to newly constructed infrastructure, all consistent with the predictions of our model.
Housing Supply and Regulation in 35 Chinese Cities
Lingxiao Li
(Longwood University)
Stephen Malpezzi
(University of Wisconsin)
[View Abstract]
Since over the past decade, China's housing market has seen a remarkable transition, particular runup in land and house prices. Using an innovative panel data set of 35 major cities in China from 2000 to 2011, we examine alternative housing price models focusing on the price elasticity of supply of housing, and its determinants. We develop a two-stage model to estimate supply elasticity for each city using an equilibrium model of supply and demand in the first stage and to estimate the determinants of supply elasticity with a cross-section of city data in the second stage. To further our investigation of the supply elasticity in China, we have constructed several indexes of the regulatory environment in each of our 35 cities with a new real estate regulations dataset, as well as a new measure of topographical constraints. In addition to the regulatory variables, we examine the effects of geography, environmental infrastructure, density, and the level and growth rate of population. Our findings demonstrate that, consistent with literature, the national supply elasticity falls in the range of 0.31 to 2.12 under various parameter assumptions. The city level supply elasticity varies according to their economic and real estate development. Mountain area has a negative impact on supply elasticity. Regulatory environment negatively affects housing supply elasticity; consistent with the literature that strictly regulatory environment restricts the supply elasticity in a local market. Index of environment infrastructure positively affects housing supply elasticity. Population size and growth rate negatively affect housing supply elasticity.
Understanding the Risk of China
Brent Ambrose
(Pennsylvania State University)
Yongheng Deng
(National University of Singapore)
Jing Wu
(Tsinghua University)
[View Abstract]
[Download Preview] The intertwining of local Chinese housing markets with government fiscal policies coincides with the significant economic growth in China over the past 25-years. This connection is the direct result of China’s central government reforms to its fiscal system that have encouraged local governments to rely on land sales and development to fund required infrastructure projects. Since China does not allow local governments to directly participate in the municipal bond market, these governments rely on a unique funding mechanism known as Local Government-Backed Investment Units (LGBIU). We study the linkage between the solvency of local government debt and local housing market risk. Our results indicate that areas with higher expected house price growth issue debt with lower risk premiums. Furthermore, bonds issued by LGBIUs from areas that experience greater changes in housing prices have a corresponding decline in observed yield spreads. Thus, the results suggest that investors do price local housing risk into Chinese municipal bond risk premiums.
Discussants:
Kaiji Chen
(Emory University)
Thomas Davidoff
(University of British Columbia)
Raven Molloy
(Federal Reserve Board)
Hua Sum
(Iowa State University)
Jan 03, 2016 2:30 pm, Parc 55, Mission II & III
American Real Estate & Urban Economic Association
Real Estate Markets
(R2, D9)
Presiding:
Jeffrey Zabel
(Tufts University)
Housing Decisions Under Divorce Risk
Natalia Khorunzhina
(Copenhagen Business School)
Marcel Fischer
(University of Konstanz)
[View Abstract]
[Download Preview] We investigate the role of divorce as a risk factor that affects household consumption and housing decisions in a realistically calibrated life-cycle model. Divorces result in a reduction of household net worth, and therefore reduce the likelihood of being a homeowner. The reduction in homeownership lasts for decades, even though households can remarry later. Welfare costs from getting divorced can exceed 20% of lifetime consumption at the age of 30, and more than double by the age of 60. The risk of divorce leads to precautionary savings, facilitates earlier homeownership, and has welfare implications even for individuals not getting divorced.
Advanced Space-Time Analysis: Application to the U.S. Housing Market
Darren Hayunga
(University of Georgia)
Alexander Kolovos
(SpaceTimeWorks, LLC)
[View Abstract]
[Download Preview] Real estate data exhibit autocorrelation and heterogeneity across both space and time. The literature is beginning to advance methods that account for the four components. This article accordingly introduces the Bayesian Maximum Entropy (BME) method to real estate analysis. In addition to controlling for spatiotemporal autocorrelation and heterogeneity, BME allows for probabilistic and missing data and does not require a known distribution as assumed by linear and log-likelihood techniques. We apply BME to a dataset of house prices, which illustrates the use of the technique for developing a price index on a small geographical area.
Immigration and Real Estate Returns
Andrey Pavlov
(Simon Fraser University)
Tsur Somerville
(University of British Columbia)
[View Abstract]
[Download Preview] We exploit a surprise suspension and subsequent closure of a popular investor immi- gration program in Canada to assess the impact of immigration and capital inflows on local real estate markets. Using transaction data from the Greater Vancouver area, we find that the closure of the program had a significant negative impact on the neighborhoods and market segments most favored by the investor immigrants. The negative impact we document was quick and persistent, reflecting both a change in seller expectations and subsequent drop in demand. Our findings suggest that immigration impacts real estate primarily through changes in demand for space it causes. None of our findings hold for property types not likely to be favored by in- vestor immigrants. Comparing our findings with the existing literature these results indicate that in assessing the effects of immigration on housing markets immigrant type matters. They also support the argument that capital inflows in real estate raise prices more in the destination neighbourhoods than they raise the overall level of house prices.
Does Quality Matter in Local Consumption Amenities? An Empirical Investigation with Yelp
Chun Kuang
(George Washington University)
[View Abstract]
[Download Preview] The possibility that local consumption amenities provided by bars, restaurants, and other retail services improve neighborhood or city attractiveness has received increasing attention in the literature. Empirical research thus far has focused on the number of establishments in an area. This paper proposes and tests a method for differentiating consumption amenities along a quality dimension, based on either consumer ratings or price estimates from Yelp.com. Appealing to the implicit market model of Rosen (1974), consumption amenity is capitalized in the value of nearby housing. The results demonstrate that both the quantity and quality aspects of consumption amenities matter, and that consumer ratings are more informative about unobservable restaurant amenity than price estimates. Furthermore, comparisons between the results for the pre- and post-Yelp periods show that provision of information on restaurant amenity over Yelp has an added effect on capitalization. The method used in this paper to measure the quality of consumption amenities could be applied to other private retail businesses or even local public goods.
Discussants:
Nadia Greenhalgh-Stanley
(Kent State University)
Alvin Murphy
(Arizona State University)
Erik Johnson
(University of Richmond)
Jenny Schuetz
(Federal Reserve Board )
Jan 03, 2016 2:30 pm, Parc 55, Powell I
American Real Estate & Urban Economic Association
Urban Productivity
(R1, R4)
Presiding:
William Strange
(University of Toronto)
Productivity, Congested Commuting, and Metro Size
Jordan Rappaport
(Federal Reserve Bank of Kansas City)
[View Abstract]
[Download Preview] The monocentric city model is generalized to a fully structural form with leisure in utility, congested commuting, and the equalizing of utility and perimeter land price across metros. Exogenous and agglomerative differences in TFP drive differences in metro population, radius, land use, and prices. Quantitative results approximate observed correspondences across a range of small and medium U.S. metros. Traffic congestion proves the critical force constraining metro size. Self-driving cars significantly boost the size of metros with high productivity and significantly depress the size of metros with low productivity. Population becomes less responsive to increases in TFP as metros become larger. Correspondingly, the productivity ``cost'' of metro population---the TFP required to support a given population---increases convexly with size. Benchmark estimates suggest that agglomerative TFP suffices to support increases in population from low and intermediate levels but falls considerably short of doing so from high levels. Chance may thus play a significant role in determining which parcels of land develop into small and medium metros. But large metros depend on high exogenous TFP (``fundamentals'') together with high exogenous and agglomerative consumption amenities.
The Supply and Demand of Skilled Workers in Cities and the Role of Industry Composition
Jeffrey Brinkman
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] The share of high-skilled workers in U.S. cities is positively correlated with city size, and this correlation strengthened between 1980 and 2010. Furthermore, during the same time period, the U.S. economy experienced a significant structural transformation with regard to industrial composition, most notably in the decline of manufacturing and the rise of high-skilled service industries. To decompose and investigate these trends, this paper develops and estimates a spatial equilibrium model with heterogeneous firms and workers that allows for both industry-specific and skill-specific technology changes across cities. The estimates imply that both supply and demand of high-skilled labor have increased over time in big cities. In addition, demand for skilled labor in large cities has increased somewhat within all industries. However, the aggregate skill demand in cities is disproportionately concentrated in a few industries. For example, the finance, insurance, and real estate sectors alone account for 38 percent of the population elasticity of skilled labor demand in 2010 and 30 percent of the net change in demand elasticity over time.
Space Race: Innovation and Productivity in Cities
Alexander Whalley
(University of California-Merced)
Shawn Kantor
(Florida State University )
[View Abstract]
The spatial concentration of knowledge and productivity are central to economic geography. Yet, how the location of knowledge shapes the location of productivity is not well studied. We examine how knowledge acquired through the Space Race affected productivity growth in US cities in the manufacturing sector. Our analysis of MSA-level Manufacturing census data from 1954 to 2007 reveals three results. First, we find that the Space Race acquired knowledge affected local Manufactures productivity from 1972 to 1982, but not after. Second, we find the majority of the benefits of Space Race knowledge accrued to other local firms, and little to Space Race firms themselves. Third, the effects of local Space Race knowledge stock on other firms productivity increases industry skill and R&D intensity, but not technological closeness to the space sector.
The Local Impact of Containerization
Gisela Rua
(Federal Reserve Board )
Leah Brooks
(George Washington University)
Nicolas Gendron-Carrier
(University of Toronto)
[View Abstract]
[Download Preview] The biggest decline in global trade costs since the advent of the railroad is premised on a simple insight: packaging goods into a standardized container makes them cheaper to ship. Containerization has eased the transfer from ship to train to truck and facilitated the national and international transport of goods. We ask how this reshaping of global trade has redistributed economic activity, both across and within cities. We contend with the non-random adoption of containerization by employing a novel instrument: being a very deep port in 1953, before containerization. Before containerization, although being a somewhat deep port was useful, being a very deep port was not additionally useful. After containerization, being a deep port became a distinct advantage, because container ships were much larger and had a lower draft than their predecessors. Analogous to a supply shifter, port depth should affect the supply of ports, but have no effect on the demand for ports. We use data from the U.S. County Business Patterns for 1956 and 1967-2011, and our preliminary results suggest that initially (1953) deeper ports were indeed likely to containerize earlier. In addition, we find a significant impact of containerization on jobs, particularly in the manufacturing sector, as manufactured goods ship primarily in containers. Manufacturing employment increased by 12 percent more in containerized counties than in the rest of the country, and by almost 20 percent more than in other port counties. We are currently working on additional county-level evidence on employment and wages.
Discussants:
Jeffery Lin
(Federal Reserve Bank of Philadelphia)
Jorge de la Roca
(New York University)
Victor Couture
(University of California-Berkeley)
Jessie Handbury
(University of Pennsylvania)
Jan 03, 2016 2:30 pm, Parc 55, Market Street
Association for Comparative Economic Studies
Money’s Too Tight to Mention: Determinants and Effects of Firms’ Financing Constraints
(G2, F3)
Presiding:
Katja Neugebauer
(London School of Economics)
The Limits of Lending. Banks and Technology Adoption across Russia
Çağatay Bircan
(EBRD)
Ralph De Haas
(EBRD)
[View Abstract]
[Download Preview] We exploit historical and contemporaneous variation in local credit markets across Russia to
identify the impact of credit constraints on firm-level innovation. We find that access to bank
credit helps firms to adopt existing products and production processes that are new to them.
They introduce these technologies either with the help of suppliers and clients or by acquiring
external know-how. We find no evidence that bank credit also stimulates firm innovation
through in-house R&D. This suggests that banks can facilitate the diffusion of technologies
within developing countries but that their role in pushing the technological frontier is limited.
Markups, Productivity and the Financial Capability of Firms
Carlo Altomonte
(Bocconi University and Bruegel)
Italo Colantone
(Bocconi University)
Domenico M. Favoino
(Bocconi University)
Tommaso Sonno
(IRES-ULC and Bocconi University)
[View Abstract]
[Download Preview] In this paper we introduce credit constraints as in Manova (2013) in a framework of monopolistically competitive firms with endogenous markups, as in Melitz and Ottaviano (2008). Before producing, firms need to invest in tangible fixed assets to be used as collateral in order to obtain credit. In addition to productivity, firms are also heterogeneous in their financial capability, so that a higher financial expertise would involve advantages in the negotiation of redeployable assets, which the literature recognizes as crucial in decreasing the cost of collateral. By introducing heterogeneity in financial capability, our theoretical model predicts that, conditional on productivity, a higher financial capability is associated to higher markups. This allows us to study the implications of changes in collateral requirements faced by firms in their external borrowing. Specifically, the model predicts that a tightening of collateral requirements produces two effects on markups: a market cleansing effect, through which a more competitive environment leads to lower markups, and a relative advantage of firms with higher financial capability, leading to relatively higher markups. The theoretical results are tested empirically capitalizing on a representative sample of manufacturing firms covering a subset of European countries during the financial crisis.
Don’t Stop Me Now: The Impact of Credit Market Segmentation on Firms’ Financing Constraints
Franziska Bremus
(DIW Berlin)
Katja Neugebauer
(Systemic Risk Centre and London School of Economics)
[View Abstract]
[Download Preview] This paper investigates how the withdrawal of banks from their cross-border business
has impacted on firms’ borrowing costs since the recent crisis. We combine aggregate
information on total and cross-border credit with firm-level survey data. We find
that the decline in cross-border lending has led to a deterioration in the borrowing
conditions of SMEs. In countries with more pronounced reductions in cross-border
credit inflows, the likelihood of an increase in firms’ external financing costs has
increased. This result is mainly driven by the interbank channel, which has played
a crucial role in transmitting shocks to the real sector across borders.
The Real Effects of Credit Constraints. Evidence from Discouraged Borrowers in the Euro Area
Annalisa Ferrando
(European Central Bank)
Klaas Mulier
(Ghent University)
[View Abstract]
[Download Preview] This paper uses a new survey-based data set and a model with strong theoretical underpinnings
to explain the characteristics and behavior of discouraged borrowers in the euro area. The
results show that more borrowers are discouraged when the average interest rate charged by
banks is higher, when the potential return on investment is lower, and when the application
costs and opportunity costs of bank lending are higher. In line with the trade-off theory, higher
tax rates lead to lower discouragement. Further, we show that discouragement has strong
negative effects on employment and growth due to the lack of access to finance. However, we
estimate that the majority of discouraged borrowers would be unable to get a loan if they
applied. Finally, we show, consistent with their low approval likelihood that discouraged
borrowers tend to be relatively risky firms.
Discussants:
Katheryn N. Russ
(University of California-Davis)
Ralph De Haas
(EBRD)
John Bonin
(Wesleyan University)
Katja Neugebauer
(London School of Economics)
Jan 03, 2016 2:30 pm, Marriott Marquis, Sierra A
Association for Economic and Development Studies on Bangladesh
Microeconometric Studies on Development
(O1, L1)
Presiding:
Tanweer Akram
(Voya Investment Management)
Can a Rule-of-Thumb Tool Improve Fertilizer Management? Experimental Evidence from Bangladesh
Mahnaz Islam
(Harvard University)
[View Abstract]
This paper demonstrates high returns to a simple rule-of-thumb tool to help farmers manage use of fertilizers, suggesting considerable scope for productivity gains through better management of inputs. The green revolution led to significant improvements in rice yields in South Asia, through the adoption of high-yielding varieties and the increase of inputs including fertilizers. Although adoption of fertilizers has been high, farmers may still fail to use it efficiently. In a field experiment in Bangladesh, I provide treatment farmers with a simple rule-of-thumb tool (leaf color chart) to improve the timing of fertilizer applications for urea, a popular nitrogen fertilizer. I find that treatment group farmers reduce urea use by 8% and that yields increase by 7% on average, suggesting there is significant scope to improve urea management. Results show that farmers apply urea too early in the season, during a period when it is likely to be wasted, and that farmers at all levels of urea use can save urea without sacrificing yields. Farmers who performed better at baseline have the largest gains from treatment. Cost-effectiveness estimates suggest that each $1 spent on this intervention produces a return of $9 through a combination of savings of urea and higher revenue.
Do Consumers Benefit from Supply Chain Intermediaries? Evidence from a Policy Experiment in Edible Oils Market in Bangladesh
M. Shahe Emran
(Columbia University)
Forhad Shilpi
(World Bank)
M. Helal Uddin
(University of Dhaka)
Dilip Mookherjee
(Boston University)
[View Abstract]
[Download Preview] [Download PowerPoint] Commodity traders have been the focus of popular resentment throughout the history. Food price hikes in 2007-2008 resulted in protests and food riots, and spurred governments to intervene in the market. In March 2011, Bangladesh Government banned Delivery Order traders (DOTs) in edible oils market, citing cartelization, and replaced them with a dealer’s network appointed by the refiners. The reform provides a natural experiment to test the widely-held double marginalization model of marketing intermediaries, and to discriminate among alternative explanations for the observed price behavior and the role of middlemen in the market. We consider competing models that focus on supplier credit at low interest rate, and relaxation of credit rationing faced by the wholesalers. For empirical analysis, we develop a difference-in-difference strategy, with wheat as the comparison commodity. The DID design takes into account non-stationarity of time-series data and the implications of incomplete pass-through of international price in the up and down swing. Long time-series allows credible test of the parallel trend assumption. The evidence shows that the reform led to (i) an increase in domestic prices and marketing margins, and (ii) a weakening of the pass-through of international price. The reform failed to take hold, six months after the policy announcement, the market reverted back as the refiners sought out the DOTs. The evidence is not consistent with a market power model, or a model of suppliers credit at low interest rate, but supports a model of credit rationing where the DOTs relax binding credit constraint faced by the wholesalers.
Managerial Capital and Productivity: Evidence from a Training Program in the Bangladeshi Garment Sector
Rocco Macchiavello
(University of Warwick)
Andreas Menzel
(University of Warwick)
Atonu Rabbani
(University of Dhaka)
Christopher Woodruff
(University of Warwick)
[View Abstract]
[Download Preview] Data from the garment factories in Bangladesh show that four of every five production workers are women, while just over one in 20 supervisors is a woman. Is it likely that 95 percent of the management talent comes from 20 percent of the workforce? We confront this question head on by providing training to four women and one man in a large number of factories. Promoting all five trainees clearly induces behavior on the part of the median factory different from what it has done in the past, and almost certainly what it would have done in the absence of our intervention. Using a randomly selected comparison group, we examine the whether the trainees continue to work at the same factory, whether they are given a trial as a supervisor, and whether they are promoted. We find that the female trainees are as likely as the male trainees to remain at the factory, but less likely to be tried out or to be promoted. In management simulation exercises, the female trainees outperform the male trainees. Using detailed data from production lines on which the trainees work as supervisors, we find some evidence that the male trainees outperform the female trainees, though the differences across gender are not statistically significant. Evidence from survey responses and exercises suggests that the female trainees face some initial resistance as supervisors, which could account for the lower initial performance on the line.
Household Recombination, Retrospective Evaluation, and Educational Mobility over 40 Years
Andrew Foster
(Brown University)
Sveta Milusheva
(Brown University)
[View Abstract]
[Download Preview] Despite longstanding belief in certain circles that investment in primary health care and education can help to encourage reductions in inequality and increases in intergenerational economic mobility, evidence is scarce due to the lack of systematically collected data from developing countries that links households over multiple decades. Bangladesh would seem an especially fruitful avenue for looking at these issues given international recognition of its success in improving basic health care. In this paper we use a newly collected survey data connected to the Matlab Demographic Surveillance System (DSS) maintained by the International Center for Diarrhoeal Disease Research in Bangladesh (ICDDRB) to take a first look at this issue. A novel insight from this paper is that standard methods for correcting sampling weights in panel data do not adequately account for the process of household formation and dissolution.We develop a new approach to weighting that requires the kind of information available in the context of a DSS, and use these weights to look at long term changes in educational investment of households in the Matlab area. We show that a substantial rise in average educational investment among children 6-16 has been accompanied by high levels of economic mobility but little reduction in economic inequality.
Discussants:
Rachel Heath
(University of Washington)
Raymond Guiteras
(University of Maryland)
Marcel Fafchamps
(Stanford University)
Paul Schultz
(Yale University)
Jan 03, 2016 2:30 pm, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Inside Institutions: Evolutionary Perspectives
(B5, E2)
Presiding:
Kosta Josifidis
(University of Novi Sad-Serbia)
Inside of the Institution of Growthmanship: Reprising the Stagnation Hypothesis
James M. Cypher
(Universidad Autónoma de Zacatecas-Mexico)
[View Abstract]
Growthmanship, the institutionalized legacy of the Keynesian Revolution, posits rapid, sustained growth in GDP as the uppermost macroeconomic policy objective. The counter-hegemonic discourse, the Stagnation Hypothesis, is likewise historically rooted, but denied institutional stature. The evolution of the stagnation hypothesis is critically evaluated in light of chronic anemic growth.
Probing Deeper Inside of Evolution: Mutual Aid versus Competition
John Hall
(Portland State University)
Svetlana Kirdina
(Russian Academy of Sciences)
[View Abstract]
[Download Preview] Economic and social evolution suggests that change takes place over time. However, when looking deeper inside, economic and social evolution can be understood though various, even conflicting approaches. With this inquiry we shall consider “mutual aid” advanced by Peter Kropotkin and contrast his thinking with approaches emphasizing competition in evolution.
Inside Institutions of Progressive Era Social Sciences: The Interdisciplinarity between Economics and Sociology
Marco Cavalieri
(Federal University of Paraná-Brazil)
[View Abstract]
In the Progressive Era, economics and sociology focused on themes of social control and institutions. This inquiry explores some of the similarities and dissimilarities of these two disciplines that became increasingly distinct during the Progressive Era, especially regarding how each discipline dealt with the issues of social control and institutions.
Inside of the Institution of Minimum Wages in Europe: Between the Devils of Neoliberal Globalization and Work Automation
Pascal Petit
(Centre d’économie de Paris Nord)
[View Abstract]
[Download Preview] Minimum wages institutions emerged as integral elements of the variants of postwar capitalism found in Western Europe and have different institutional forms, applying at industrial sector or national levels. This inquiry considers how these differing wage regimes have generated outcomes affecting productivity gains and also income distribution.
Inside of Income Inequalities and Workers' Powerlessness in Selected OECD Countries
Kosta Josifidis
(University of Novi Sad-Serbia)
Novica Supic
(University of Novi Sad-Serbia)
[View Abstract]
[Download Preview] The aim of paper is to indicate the effects of “elitization” on income inequality in the affluent countries over the last two decades. By applying a robust regression model on a sample of 21 OECD countries, it was observed that a high concentration of wealth by the richest one percent of the population results in reducing the impact of trade unions, through political institutions, on income redistribution. Insufficient redistribution can be interpreted not only by elites’ control over the resources that influence public policy and opinion, but also by affecting the evolutionary path of the economy. Moreover, this influence reduces the importance of traditional institutions and serves as an inspiration to reconsider the established social consensus regarding the welfare state.
Discussants:
Faruk Ülgen
(University Grenoble Alpes-France)
Jan 03, 2016 2:30 pm, Marriott Marquis, Pacific B
Association for Social Economics
Financialisation and Inequality
(E4, D6)
Presiding:
Philip Arestis
(University of Cambridge)
Direct Evidence on the Financial Sources of Rising and Falling Inequality
James K. Galbraith
(University of Texas-Austin)
[View Abstract]
The study of inequality has been weighted toward forces ostensibly affecting the labor market -- such as technology, trade, and education -- and toward evidence drawn from surveys, which focus attention on individual characteristics -- such as race, gender, age, education. There is still no JEL code for an alternative approach linking inequality and macroeconomic phenomena, nor for work on the institutional and inter-sectoral forces affecting economic inequality. Yet evidence drawn from administrative data strongly associates the size and power of financial institutions, the posture of monetary policy and the phenomenon of financial crisis with the movement of economic inequality. This can be shown for numerous countries, for multi-country regions such as Europe, and at the world scale.
Financial Deepening and Economic Inequality
Salvatore Morelli
(Center for Studies in Economics and Finance and University of Naples)
[View Abstract]
We explore how changes in financial deepening, integration and regulations can affect the way income and wealth are distributed within a range of advanced and developing economies. We use a counterfactual approach, the synthetic control method, and compare the evolution of economic inequality measures for the countries affected by relevant changes in financial deepening and regulations with the evolution of a synthetic counterfactual that replicates the initial conditions and the potential outcomes of the countries of interest before exposure to the above stated changes. The results obtained will be robust to the presence of potential reverse causality within the data and will be useful to shed further lights on the validity of existing theories explaining the interrelation between the multifaceted nature of financial development and income and wealth distribution.
Rising Inequality, Household Finance, and Prospects for the U.S. Economy
Barry Z Cynamon
(Federal Reserve Bank of Saint Louis)
Steven M Fazzari
(Washington University-St. Louis)
[View Abstract]
[Download Preview] Income inequality has risen substantially in many developed economies for several decades. Economic models, going back at least to Kalecki have explored the demand drag caused when a greater share of aggregate income accrues to groups that spend a smaller proportion of their income. Empirical evidence that this phenomenon has actually affected modern economies with rising inequality is rather thin, however. In our recent research, we conclude that rising inequality did indeed play a central role in the financial dynamics of the household sector that led up to the US Great Recession and that elevated income inequality helps to explain the remarkably slow recovery of US consumer spending since the trough of the recession. In addition, we find that rising inequality is correlated with deterioration in a direct measure of financial sustainability for US households. This presentation will extend evidence from our earlier work to make the argument that rising income inequality is a significant barrier to economic growth and full employment in the US economy, which through a variety of channels affects the rest of the world as well.
The Financial Sector, Economic Growth and the Inequality of Income Nexus: A Critical Assessment
John S.L McCombie
(University of Cambridge)
Marta Spreafico
(Catholic University of Milan)
[View Abstract]
The traditional view is that an increase in financialisation is a necessary condition for economic development as it leads, inter alia, to a greater rate of capital accumulation and a more efficient allocation of resources. However, recent empirical research using cross-country panel data now suggests that after a certain point an increase in the financial sector actually harms growth in the long run. There is also evidence that increased income inequality restricts economic growth. Moreover, it transpires that an increase in financialisation, in turn, worsens income inequality. This may well be a more important factor in explaining income inequality than the traditional explanations of globalization, skill-biased technical change and disparities in human capital formation. The subprime crisis showed many of the failings of the deregulated financial sector in especially the US and UK and the adverse effect it had on economic activity in the short run. However, detailed studies of individual countries, especially the US, suggest that the marked increase in inequality is also partly the result of the rapid increase in the financial sector. This paper presents an overview of these various arguments and presents new empirical evidence on the debates.
Inequality and Indebtedness: Domestic and International Considerations
Michael Kumhof
(Bank of England)
Claire Lebarz
(Paris School of Economics)
Romain Ranciere
(Paris School of Economics and International Monetary Fund)
Alexander W. Richter
(Auburn University)
Nathaniel A. Throckmorton
(College of William and Mary)
[View Abstract]
[Download Preview] The closed economy paper that underlies this presentation studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920–1929 and 1983–2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income
ratio and crisis risk for the three decades preceding the Great Recession.
The open economy paper that underlies this presentation extends this model to explore the role of greater income inequality in triggering current account imbalances. Current account regressions show that when top income shares are added to the comprehensive set of conventional explanatory variables used by the IMF, they predict significantly larger current account deficits in a cross-section of advanced economies, but with important outliers among countries that have pursued export-led rather than finance-led growth strategies. To study this mechanism, we develop a DSGE model where the income share of top earners increases at the expense of bottom earners. Due to preferences for wealth, top earners have a much higher marginal propensity to save than bottom earners, as they do in the data. We find that, when the redistributive shock has a large positive effect on asset values, and if domestic financial markets are large, the result will be a sizeable current account deficit. On the other hand, when the redistributive shock mostly affects relative labor incomes, and if
domestic financial markets are small, the result will be a current account surplus.
Jan 03, 2016 2:30 pm, Marriott Marquis, Walnut
Association for the Study of Generosity in Economics
Charitable Giving and Natural Disasters
(D6, H4)
Presiding:
Abigail Payne
(McMaster University)
Do Causes Crowd Each Other Out? Evidence From Tornado Strikes
Benjamin M. Marx
(University of Illinois-Urbana-Champaign)
Tatyana Deryugina
(University of Illinois)
[View Abstract]
[Download Preview] [Download PowerPoint] Does charitable giving respond to new demands, and if so, does the response come at the
expense of other charitable causes? To answer these questions we exploit exogenous variation
in need arising from the random event of a nearby tornado. We use location fixed effects
estimators and examine changes in charitable donations claimed for tax deductions in IRS data
on individual income taxes by geographic area. We find that having a tornado causing at least
ten injuries in one’s state raises charitable contributions by about 2 percent in the year of the
tornado and two years afterwards. We test for heterogeneous responses by tornado severity,
which gives measures of local need, finding that higher fatality and injury levels lead to more
donations.
The Sensitivity of Charitable Giving to the Timing and Salience of Tax Credits
Ross Hickey
(University of British Columbia - Okanagan)
Bradley Minaker
(McMaster University)
Abigail Payne
(McMaster University)
[View Abstract]
[Download Preview] The January 12, 2010 Haiti Earthquake led to a strong response from donors from around the world. Canada, like the US, responded to the disaster by providing donor incentives. The federal government matched donations dollar for dollar. At the provincial level, Quebec provided an additional incentive by allowing taxpayers to claim donations made between January 12th and February 28th, 2010 on their 2009 tax return. This latter incentive provides a natural experiment to study how the timing of tax incentives affects charitable donations. We use several different estimation techniques to cleanly and robustly estimate the effect of the Quebec tax incentive on giving using a panel data set that captures tax-receipted giving on individual tax returns at a neighbourhood level. Using a propensity score matching method to match neighbourhoods in Quebec with neighbourhoods in the rest of Canada, we find the incentive led to strong positive effects for both the share of tax-filers donating as well as on the level of giving suggesting that the increased salience and immediacy of the tax credit increased giving on both an extensive and an intensive margin. This result has important policy implications and contributes to current debates on the use of tax incentives to encourage charitable giving.
Do disaster appeals reduce other donations? Evidence from the U.K.
Sarah Smith
(University of Bristol)
Mark O. Wilhelm
(Indiana University-Purdue University Indianapolis)
Kimberley Scharf
(University of Warwick)
[View Abstract]
[Download Preview] Appeals for emergency relief in the aftermath of natural disasters, such as the East Asia Tsunami or the Haiti Earthquake, prompt large responses in terms of donations of money to overseas aid charities. This paper presents new evidence from the UK on whether these come at the expense of other donations – whether to other charities or to the same overseas aid charities at a later point in time. We exploit a uniquely detailed panel of 130,000+ donors with information on the exact timing of donations and the charities they are made to, allowing us to track donations around the time that the appeals are made.
Discussants:
Sarah Jacobson
(Williams College)
Andreas Madestam
(Stockholm University)
Andreas Lange
(University of Hamburg)
Jan 03, 2016 2:30 pm, Hilton Union Square, Sutter A & B
Association of Environmental & Resource Economists/American Economic Association
Economics of Climate Change
(Q5)
Presiding:
Vic Adamowicz
(University of Alberta)
Strategic Social Cost of Carbon
Matthew Kotchen
(Yale University)
[View Abstract]
The "social cost of carbon" (SCC) is a concept that reflects the marginal external costs of emissions: it represents the monetized damage caused by each additional unit of carbon dioxide, or the carbon equivalent of another greenhouse gas, emitted into the atmosphere. Several countries, including United States, the United Kingdom, the Netherlands, Finland, and Italy, have begun accounting for the SCC in regulatory impact analysis of domestic policy. In doing so, these countries account for the global benefits of reducing CO2 emissions in cost-benefit analyses of their domestic regulatory actions.
In this paper, I develop a third alternative for conceptualizing the right social cost of carbon that countries should use for implementing and evaluating domestic climate policy. I refer to it as the "strategic social cost of carbon," or SSCC. The SSCC has three important characteristics that distinguish it from either a global or domestic SCC: (1) it is in each country's own self interest to adapt the SSCC, (2) the SSCC internalizes positive externalities from domestic climate policy based on reciprocal benefits from other countries, and (3) the formulation of the SSCC accounts for a general set of institutional frameworks and decision rules in which international agreements on climate change may take place. The model shows how countries have different incentives regarding the SCC, and for practical purposes, seeking the one right SCC upon which there will be international agreement is misguided. The results show precisely how countries will conceptualize their own SSCC, and I find that countries will always seek a higher SSCC than the standard domestic SCC, and that many countries have an incentive to pursue domestic policies that imply a SSCC even greater than the global SCC. Overall, the analysis provides a constructive way forward for more efficiently and pragmatically addressing the challenges of climate change in an international setting.
Inequality and the Social Cost of Carbon
David Anthoff
(University of California-Berkeley)
Johannes Emmerling
(Fondazione Eni Enrico Mattei)
[View Abstract]
This paper presents a novel way to disentangle inequality aversion over time from inequality aversion between regions in the computation of the Social Cost of Carbon. Our approach nests a standard efficiency based Social Cost of Carbon estimate and an equity weighted Social Cost of Carbon estimate as special cases. We also present a methodology to incorporate more fine grained regional resolutions of income and damage distributions than typically found in integrated assessment models. Finally, we present quantitative estimates of the Social Cost of Carbon that use our disentangling of different types of inequality aversion. We use two integrated assessment models (FUND and RICE) for our numerical exercise to get more robust findings. Our results suggest that inequality considerations lead to a higher (lower) SCC values in high (low) income regions relative to an efficiency based approach, but that the effect is less strong than found in previous studies that use equity weighting. Our central estimate is that the Social Cost of Carbon increases roughly by a factor of 2.5 from a US perspective when our disentangled equity weighting approach is used.
Smart Cap
Christian Traeger
(University of California-Berkeley)
Larry Karp
(University of California-Berkeley)
[View Abstract]
We introduce a novel cap and trade system that eliminates the welfare costs of asymmetric information (“uncertainty”). Weitzman (1974) compares these welfare costs between a tax and a quantity regulation. In the case of CO2, where the marginal damage curve is relatively flat as compared to the firm’s marginal cost curve, a tax yields lower welfare loss as compared to a cap. Yet, most countries rely on cap and trade systems. The European Union’s Emission Trading System (EU-ETS) has recently experienced a large fall in permit prices following an unforeseen drop in demand. This price plunge, or oversupply of certificates, leaves cheap abatement options idle. Similarly, a positive demand shock can lead to excessively high abatement costs. The possibility of these high costs are an obstacle to using a tight cap.
Hybrid cap and trade-systems use a price floor and a price ceiling to reduce the welfare cost from fluctuations in the firm’s marginal abatement costs. Our proposed smart cap takes the cap and trade system one step further by fully eliminating these welfare costs, making it superior also to a tax. In addition, the smart cap does not require a regulator to buy up certificates in the case of oversupply, addressing both cost and commitment concerns governing such “central bank” intervention currently discussed for the next phase of the EU-ETS. We discuss how the mechanism affects dynamic certificate trading and information aggregation across firms. To date, socially optimal emission reductions are the exception rather than the rule. The mechanism improves efficiency whenever there is a non-trivial trade-off between uncertain cost fluctuations and a quantitative emission target. In addition, the smart cap can help parties to agree on the target by implementing a “do more (only) if it is cheaper” approach.
Collective Intertemporal Choice: Time Consistency vs. Time Invariance
Antony Millner
(London School of Economics)
Geoffrey Heal
(Columbia University)
[View Abstract]
[Download Preview] We study collective choice when individuals have heterogeneous discounted utilitarian preferences. Two attractive properties of intertemporal preferences are indistinguishable for individuals, but have dramatically different implications for social preferences: Time consistency requires a plan that is optimal at one evaluation date to be optimal at all later evaluation dates, while time invariance requires preferences to be invariant under translations of the time axis. We study the implications of these two properties in a tractable dynamic model that captures both common resource and public goods problems. Social planners implement the first best if collective preferences are time consistent, but not if they are time invariant. Decentralized alternatives -- property rights (for common resources), and voting (for public goods) -- can improve on the planning equilibrium if social preferences are time invariant. We reflect on the implications of these findings for dynamic welfare economics. Time consistency/invariance is a plausible normative property in some applications, but not in others.
Discussants:
Gernot Wagner
(Environmental Defense Fund)
Lawrence Goulder
(Stanford University)
Severin Borenstein
(University of California-Berkeley)
Benjamin Groom
(London School of Economics)
Jan 03, 2016 2:30 pm, Marriott Marquis, Pacific C
Association of Financial Economists
Managerial Traits, Life Experiences and Firm Behavior
(G3, G3)
Presiding:
Manju Puri
(Duke University)
Lehman Sisters
Renée B. Adams
(University of New South Wales)
Vanitha Ragunathan
(University of Queensland)
[View Abstract]
[Download Preview] Would the crisis have happened if Lehman Brothers had been Lehman Sisters? Evidence on
population gender differences in risk aversion suggests not. But population averages can
mask important selection effects. We show that conditional on being in the finance industry,
women need not be more risk averse than men. Consistent with the importance of selection,
listed banks with more female directors did not have lower risk than other banks during the
crisis but they had better performances. While it is possible that diversity is valuable in a
crisis, we suggest an alternative policy focus than board gender quotas.
Do Women Stay out of Trouble? Evidence from Corporate Litigation
Binay Adhikari
(Miami University)
Anup Agrawal
(University of Alabama)
James Malm
(College of Charleston)
[View Abstract]
[Download Preview] [Download PowerPoint] We use a unique hand-collected dataset on corporate lawsuits to examine the effect of female representation in top management on corporate litigation. We find that firms with higher representation of women in the top management team face fewer lawsuits overall, particularly lawsuits related to product liability, environment, medical liability, labor and contracts. These results continue to hold under several alternative specifications and accounting for endogeneity using a novel instrument. The results are driven by the presence of multiple women in top management positions and are likely due to gender diversity in top management rather than an artifact of tokenism. Among firms with higher litigation risk, greater representation of female executives positively impacts the value of cash holdings. Overall, our results uncover an important and previously unidentified benefit of gender diversity in top management.
Terrorism, Emotions, and Corporate Policies
Constantinos Antoniou
(University of Warwick)
Alok Kumar
(University of Miami)
Anastasios Maligkris
(University of Warwick)
[View Abstract]
[Download Preview] This paper examines whether emotion-related biases induced by extraneous negative events affect corporate decision-making. Specifically, we conjecture that corporate managers located near major terrorist attacks will experience negative emotions, which would induce them to adopt more conservative corporate policies. Consistent with our conjecture, we demonstrate that firms located near terrorist events increase their cash holdings, and reduce their R&D expenditure and their long-term leverage around the events. These effects are temporary, become weaker as the distance between the firm and the event location increases, and are mainly concentrated among firms managed by younger CEOs. Using multiple media proxies to capture the saliency of negative events, we also find that events with greater media exposure are associated with larger changes in corporate policies.
Do Shocks to Personal Wealth Affect Risk-Taking in Delegated Portfolios?
Veronika Pool
(Indiana University)
Noah Stoffman
(Indiana University)
Scott Yonker
(Cornell University)
Hanjiang Zhang
(Nanyang Technological University)
[View Abstract]
[Download Preview] Using exogenous wealth shocks stemming from the collapse of the housing market, we show that
managers who experience substantial losses in their home values subsequently reduce the risk in
their funds. The decline in fund risk is seen in total risk, idiosyncratic risk, systematic risk, and
in tracking error. Our paper provides evidence that the idiosyncratic personal preferences of
mutual fund managers affect their professional decisions and offers a methodology for testing for
manager effects that is not subject to the selection critique of Fee, Hadlock, and Pierce (2013).
Discussants:
Geoffrey Tate
(University of North Carolina)
Scott Yonker
(Cornell University)
Kenneth Ahern
(University of Southern California)
Leonard Kostovetsky
(Boston College)
Jan 03, 2016 2:30 pm, Parc 55, Divisadero
Chinese Economic Association in North America
Trade, Innovation and Economic Growth
(O4, O1)
Presiding:
Jang-Ting Guo
(University of California-Riverside)
A New Way of Solving the Melitz Model Using Simple and Intuitive Diagrams
Paul S. Segerstrom
(Stockholm School of Economics)
Yoichi Sugita
(Institute of Developing Economies)
[View Abstract]
This paper presents a new way of solving the Melitz model using simple and intuitive diagrams. We show that these new techniques can be used to solve a multi-industry version of the Melitz model where there are asymmetries in tariff rates both across countries and across industries within a country. Our main finding is that when one country opens up to trade in one industry but not another, there are two possible effects on industrial productivity. If the liberalized industry is relatively small, then productivity falls in the liberalized industry and rises in the non-liberalized industry. On the other hand, if the liberalized industry is relatively large, then productivity rises in the liberalized industry and rises even more in the non-liberalized industry. The welfare of the liberalizing country rises regardless of whether productivity rises or falls in the liberalized industry.
Equilibrium Dynamics of an Endogenous Growth Model Under Alternative Financial Constraints
Been-Lon Chen
(Academia Sinica)
[View Abstract]
This paper explores dynamic behavior and balanced-growth characterization of an endogenous growth model with financial frictions and firm heterogeneity. We first examine a model with debt constraints in which each entrepreneur's debt is subject to a collateral constraint. We then analyzed a model with constraints on working capital where wage payments are constrained by intratemporal borrowing limit. We show that the model behavior is highly sensitive to the specification of financial constraint: our second model displays much more complex behavior than the first model.
Research Policy and U.S. Economic Growth
Richard M. H. Suen
(University of Leicester)
[View Abstract]
[Download Preview] This paper examines quantitatively the effects of R&D subsidy and government-financed basic research on U.S. economic growth and consumer welfare. To achieve this, we develop an endogenous growth model which takes into account both public and private research investment, and the differences between basic and non-basic research. A calibrated version of the model is able to replicate some important features of the U.S. economy over the period 1953-2009. Our model suggests that government spending on basic research is an effective policy instrument to promote economic growth. Subsidizing private R&D, on the other hand, has no effect on economic growth.
Through Scarcity to Prosperity: A Theory of the Transition to Sustainable Growth
Pietro F. Peretto
(Duke University)
[View Abstract]
This paper integrates fertility choice and exhaustible resource dynamics in a tractable model of endogenous technological change. The analysis shows that, under the right conditions, the interdependence of population, resources and technology produces a transition from unsustainable resource-based growth to sustainable knowledge-based growth that consists of three phases: (1) an initial phase where agents build up the economy by exploiting exhaustible natural resources to support population growth; (2) an intermediate phase where agents turn on the Schumpeterian engine of endogenous innovation in response to population-led market expansion; (3) a terminal phase where growth becomes fully driven by knowledge accumulation and no longer requires growth of physical inputs. The last phase is crucial: not only economic growth no longer requires growth of physical inputs, but technological change also compensates for the exhaustion of the natural resource stock.
Discussants:
Richard M. H. Suen
(University of Leicester)
Jang-Ting Guo
(University of California-Riverside)
Paul S. Segerstrom
(Stockholm School of Economics)
Shu-Hua Chen
(National Taipei University)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 24
Cliometric Society
Money and Banking: Local and Global
(N2)
Presiding:
Claude Diebolt
(University of Strasbourg)
Bank Concentration in the United States, 1800-1914
Matthew Jaremski
(Colgate University)
Caroline Fohlin
(Emory University)
[View Abstract]
[Download Preview] The Great Recession has led economists back to the study of history; however, the majority of these backward glances have focused on periods of financial panics rather than the broader evolution of the financial system that led to those panics. The few long-run studies have focused on specific financial regulation such as double liability (Grossman 2001), capital requirements (Grossman 2010), reserve requirements (Carlson 2014), and bank supervision (Mitchener and Jaremski 2015). These factors undoubtedly have an effect on the stability and growth of the financial system, but it is less clear how they affect its structure. Concerns over bank concentration and systemically important institutions are not a new problem. Even putting aside issues of systemically important financial institutions, banking industry structure may affect how efficiently commercial banks perform their core functions of offering savings and lending facilities to their local communities, which in turn would influence their effect on growth and development. Using a comprehensive collection of bank-level data, we study the concentration of U.S. commercial banking at the state-level from the early years of the republic through 1914.
Global Banking and the International Transmission of the 1931 Financial Crisis
Olivier Accominotti
(London School of Economics)
[View Abstract]
[Download Preview] This paper explores the impact of the Central European crisis of the summer of 1931 on US and British banks. Using archival bank-level data, I document US and British banks’ asset side exposure to Germany, Austria and Hungary in 1931. The freeze of Central European assets left few US banks insolvent but endangered many British financial institutions. In Britain, Central European frozen credits were mostly held by small and poorly diversified banks with little capital to absorb losses in the region. In the United States, Central European credits were mostly held by large and diversified banks which were better able to cushion the shock of the German crisis. Differences in the organization of foreign banking between the two creditor countries explain why the Central European crisis transmitted to London but not New York in 1931.
Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775
Farley Grubb
(University of Delaware)
[View Abstract]
[Download Preview] The British North American colonies were the first western economies to rely on legislature-issued paper monies as an important internal media of exchange. These paper monies were intended to replace barter for executing internal transactions. This system arose piecemeal, driven by differing political motivations and monetary goals with differing administration structures. It was monetary experimentation on a grand scale.
UK Monetary and Credit Policy around the Radcliffe Report
Oliver Bush
(London School of Economics)
David Aikman
(Bank of England)
Alan M. Taylor
(University of California-Davis)
[View Abstract]
[Download Preview] The Radcliffe Report (1959) was the most important statement of the British establishment view that monetary policy was not up to the task of macroeconomic stabilisation and should be complemented by policies which acted directly on lending. It was published during a three decade-long experiment of using credit policies alongside changes in the policy rate. These non-price tools are similar to policies now being considered by macroprudential policymakers. We describe what these tools were and how they were used and use a largely hand-collected dataset and a novel identification strategy – factor-augmented local projections (FALPs) – to investigate their effects.
We find that, contrary to the views of Radcliffe Committee members, the impact of changes in the policy rate on activity and prices was of the same direction and of similar order of magnitude as found for later periods in the UK and USA. Further, monetary policy shocks appear to have had an important bearing on the path of inflation, particularly in the 1970s. Our results hint at a negative effect of credit policy on output via a supply channel, although the robustness of these results is questionable. Our results call into question policymakers’ reliance on credit policies to stabilise output, inflation and the trade balance and raise questions about the consequences of this reliance on macroeconomic outcomes over this period. In contrast, our results suggest that policies that act directly on lending may be more suitable than monetary policy for financial stability policymakers.
Discussants:
Vincent Bignon
(Banque of France)
Eric Monnet
(Bank of France)
Sumner La Croix
(University of Hawaii)
Gary Richardson
(University of California-Irvine)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 16
Econometric Society
Bureaucrats and Politicians: Experimental and Quasi-Experimental Studies
(A1)
Presiding:
Johanna Rickne
(Research Institute for Industrial Economics)
Who Becomes a Politician?
Olle Folke
(Columbia University)
Johanna Rickne
(Research Institute for Industrial Economics)
Ernesto Dal Bo
(University of California, Berkeley)
Frederico Finan
(University of California, Berkeley)
Torsten Persson
(Stockholm University)
[View Abstract]
[Download Preview] Can a democracy attract competent leaders, while attaining broad representation? Economic models suggest that free-riding incentives and lower opportunity costs give the less competent a comparative advantage at entering political life. Also, if elites have more human capital, selecting on competence may lead to uneven representation. We examine patterns of political selection among the universe of municipal politicians in Sweden using extraordinarily rich data on competence traits and social background for the entire population. We document four new facts: First, Politicians are on average significantly smarter and better leaders than the population they represent. Second, the representation of social background, whether measured by intergenerational earnings or social class, is remarkably even. Third, there is at best a weak tradeoff in selection between competence and representation. Fourth, both material and intrinsic motives matter in selection, as does screening by political parties.
The Determinants and Consequences of Bureaucratic Effectiveness: Evidence from the Indian Administrative Service
Marianne Bertrand
(University of Chicago)
Robin Burgess
(London School of Economics)
Arunish Chawla
(Department of Economics)
Guo Xu
(London School of Economics)
N/A
Personalities and Public Sector Performance: Evidence from a Health Experiment in Pakistan
Michael Callen
(Harvard University)
Saad Gulzar
(New York University)
Ali Hasanain
(Lahore University of Management Sciences)
Yasir Khan
(International Growth Center)
[View Abstract]
[Download Preview] This paper provides evidence that the personality traits of policy actors matter for policy outcomes in the context of two large-scale experiments in Punjab, Pakistan. Three results support the relevance of personalities for policy outcomes. First, doctors with higher Big Five and Perry Public Sector Motivation scores attend work more and falsify inspection reports less. Second, health inspectors who score higher on these personality measures exhibit a larger treatment response to increased monitoring. Last, senior health officials with higher Big Five scores are more likely to respond to a report of an underperforming facility by compelling better subsequent staff attendance.
Efficiency Wages in the Public Sector? Evidence from a Natural Experiment
Nava Ashraf
(Harvard Business School)
Oriana Bandiera
(LSE)
N/A
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 3 & 4
Econometric Society
Financial Crises in Historical Perspective
(A1)
Presiding:
Thomas Gehrig
(University of Wien)
How Did Pre-Fed Panics End?
Gary Gorton
(Yale University)
Ellis Tallman
(Federal Reserve Bank of Cleveland)
[View Abstract]
[Download Preview] How did pre-Fed banking crises end? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility, that is, they refused to exchange cash for their liabilities (checking accounts). During the suspension period bank depositors’ beliefs, which had led to the panic to start with, changed and they no longer desired to run on their banks. At the start of the suspension period, the private clearing houses cut off bank specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, effectively a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded at a discount to cash in a market that opened during the suspension period. Confidence was restored when the currency premium reached zero.
Rumors and Runs in Opaque Markets: Evidence from the 1907 Panic
Caroline Fohlin
(Emory University)
Thomas Gehrig
(University of Wien)
Marlene Haas
(University of Wien)
[View Abstract]
[Download Preview] Using a new daily dataset for all stocks traded on the New York Stock Exchange, we study the impact of information asymmetry during the liquidity freeze and market run of October 1907 - one of the most severe financial crises of the 20th century. We estimate that the run on the market increased spreads from 0.5% to 3% during the peak of the crisis and, using a spread decomposition, we also demonstrate that fears of informed trading account for most of that deterioration of liquidity. Information costs rose most in the mining sector - the origin of the panic rumors - and in other sectors with poor track records of corporate reporting. In addition to wider spreads and tight money markets, we find other hallmarks of information-based illiquidity: trading volume dropped and price impact rose. Importantly, despite short-term cash infusions into the market, we find that the market remained relatively illiquid for several months following the panic. We go on to show that rising illiquidity enters positively in the cross section of stock returns. Thus, our findings demonstrate how opaque markets can easily transmit an idiosyncratic rumor into a long-lasting, market-wide crisis. Our results also demonstrate the usefulness of illiquidity measures to alert market participants to impending market runs.
Bubbles and Central Banks: Historical Perspectives
Markus K. Brunnermeier
(Princeton University)
Isabel Schnabel
(University of Bonn)
[View Abstract]
[Download Preview] This paper reviews some of the most prominent asset price bubbles from the past 400 years and documents how central banks (or other institutions) reacted to those bubbles. The historical evidence suggests that the emergence of bubbles is often preceded or accompanied by an expansionary monetary policy, lending booms, capital inflows, and financial innovation or deregulation. We find that the severity of the economic crisis following the bursting of a bubble is less linked to the type of asset than to the financing of the bubble—crises are most severe when accompanied by a lending boom and high leverage of market players, and when financial institutions themselves are participating in the buying frenzy. Past experience also suggests that a purely passive “cleaning up the mess” stance toward the buildup of bubbles is, in many cases, costly. Monetary policy and macroprudential measures that lean against inflating bubbles can and sometimes have helped deflate bubbles and mitigate the associated economic crises. However, the correct implementation of such proactive policy approaches remains fraught with difficulties.
Liquidity Risk, Bank Networks, and the Value of Joining the Fed
Charles Calomiris
(Columbia University)
Matthew Jaremski
(Colgate University and U.S. Dept. of the Treasury)
Haelim Park
(U.S. Dept. of the Treasury)
Gary Richardson
(Federal Reserve Bank of Richmond and UC Irvine)
[View Abstract]
Reducing systemic liquidity risk related to seasonal swings in loan demand was one reason for the founding of the Fed. Existing evidence on the post-Fed increase in the seasonal volatility of aggregate lending and the decrease in seasonal interest rate swings suggests that it succeeded in that mission. Nevertheless, less than 8 percent of state-chartered banks joined the Fed in its first decade. Some have speculated that non-members could avoid higher costs of Fed reserve requirements while still obtaining access indirectly to the Fed discount window through contacts with Fed members. We find that individual bank attributes related to the extent of banks’ ability to mitigate seasonal loan demand variation predict banks’ decisions to join the Fed. Consistent with the notion that banks could obtain indirect access to the discount window through interbank transfers, we find that a bank’s position within the interbank network (as a user or provider of liquidity) predicts the timing of its entry into the Fed system and the effect of Fed membership on its lending behavior. We also find that indirect access to the Fed was not as good as direct access. Fed member banks saw a greater increase in lending than non-member banks.
Discussants:
Charles Calomiris
(Columbia University)
Valentin Haddad
(Princeton)
Gary Gorton
(Yale University)
Thomas Gehrig
(University of Wien)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 5 & 6
Econometric Society
Forecasting and Prediction
(A1)
Presiding:
Barbara Rossi
(University Pompeu Fabra and Barcelona GSE)
Robust Forecast Comparison
Valentina Corradi
(University of Surrey)
Sainan Jin
(School of Economics)
Norman Swanson
(Rutgers University)
[View Abstract]
[Download Preview] Forecast accuracy is typically measured in terms of a given loss function. As a consequence, the relative ranking of forecasts from (possibly) misspecified models varies across different loss functions. This paper develops a novel criterion for forecast evaluation, based on the entire distribution of forecast errors. We introduce the concepts of general-loss (GL) forecast superiority and convex-loss (CL) forecast superiority, and we establish a mapping between GL (CL) superiority and first (second) order stochastic dominance. This allows us to develop a testing procedure based on an out-of-sample generalization of the tests introduced by Linton, Maasoumi and Whang (2005). The asymptotic null distributions are nonstandard and some resampling procedure is used to obtain the critical values. The tests are consistent and have nontrivial local power under a sequence of local alternatives. We further show that the tests could be extended to heterogeneous processes. Monte Carlo simulations suggest that the tests perform reasonably well in finite samples. An application to exchange rate data indicates that our tests can help identify some superior forecasting models regardless the forms of the loss functions.
Alternative Tests for Correct Specification of Conditional Forecast Densities
Barbara Rossi
(University Pompeu Fabra and Barcelona GSE)
Tatevik Sekhposyan
(Texas A&M University)
[View Abstract]
[Download Preview] We propose new methods for evaluating predictive densities that focus on the models' actual predictive ability in finite samples. The tests offer a simple way of evaluating the correct specification of predictive densities, either parametric or non-parametric. The results indicate that our tests are well sized and have good power in detecting mis-specification in predictive densities. An empirical application to the Survey of Professional Forecasters and a baseline Dynamic Stochastic General Equilibrium model shows the usefulness of our methodology.
Core Inflation and Trend Inflation
James Stock
(Harvard University)
Mark Watson
(Princeton University)
[View Abstract]
[Download Preview] An important input to monetary policymaking is estimating the current level of inflation. This paper examines empirically whether the measurement of trend inflation can be improved by using disaggregated data on sectoral inflation to construct indexes akin to core inflation, but with time-varying weights, where the sectoral weight depends on the time-varying volatility and persistence of the sectoral inflation series, and on the comovement among sectors. The model is estimated using U.S. data on 16 components of the personal consumption expenditure inflation index. The modeling framework is a dynamic factor model with time-varying coefficients and stochastic volatility as in del Negro and Otrok (2008); this is the multivariate extension of the univariate unobserved components-stochastic volatility model of trend inflation in Stock and Watson (2007). Our main empirical results are (i) the resulting multivariate estimate of trend inflation is similar to the univariate estimate of trend inflation computed using core PCE inflation (excluding food and energy) in the first half of the sample, but introduces food in the second half of the sample: early in the sample, food inflation was noisy and a poor indicator of trend inflation, but now food inflation is less volatile, more persistent, and a useful indicator; (ii) the model-based filtering uncertainty about trend inflation is substantially reduced by using the disaggregated series in a multivariate model, relative to computing the trend using only headline inflation; (iii) the multivariate trend and the univariate trend of PCE-ex-energy inflation have lower forecast error at the one- and two-year horizon than a variety of other benchmark inflation measures, with the univariate trend of PCE-ex-energy improving slightly upon the multivariate trend.
A Regime-Switching Model of the Yield Curve at the Zero Bound
Jens Christensen
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] This paper presents a regime-switching model of the yield curve with two states. One is a normal state, the other is a zero-bound state that represents the case when the monetary policy target rate is at its zero lower bound for a prolonged period. The model delivers estimates of the time-varying probability of exiting the zero-bound state, and it outperforms standard three- and four-factor term structure models as well as a shadow-rate model at matching short-rate expectations and the compression in yield volatility near the zero lower bound.
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 15
Econometric Society
Innovation and Technological Change
(A1)
Presiding:
Benjamin Roin
(Massachusetts Institute of Technology)
The Lifecycle of Inventors
Alex Bell
(Harvard University)
Raj Chetty
(Stanford University)
Xavier Jaravel
(Harvard University)
Neviana Petkova
(United States Department of Treasury)
John Van Reenen
(London School of Economics)
Not for circulation.
Intellectual Property Rights Protection, Ownership, and Innovation: Evidence from China
Lily Fang
(Massachusetts Institute of Technology and INSEAD)
Josh Lerner
(Harvard University)
Chaopeng Wu
(Xiamen University)
[View Abstract]
[Download Preview] [Download PowerPoint] We study how intellectual property right (IPR) protection and ownership type affect innovation singly and jointly in China. We find that stronger local IPR protection is positively related to firms’ R&D investments and innovation. Private sector firms invest more in R&D and innovate more than state-owned enterprises (SOEs), and this effect is more notable in regions with high IPR protection standards. We see the same effect in privatizations and when using instrumental variables. Our results support theoretical arguments that IPR protection strengthens firms’ incentives to innovate and that private sector firms are more sensitive to IPR protection than SOEs.
The Intellectual Spoils of War
Enrico Moretti
(University of California-Berkeley)
Claudia Steinwender
(Harvard Business School)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] We examine the impact of government funding for R&D on privately performed R&D and its ultimate effect on productivity growth. To deal with the potential endogeneity of where governments choose to allocate R&D funds, we use changes across countries and industries in defense R&D spending. Shocks to defense R&D are mainly driven by geopolitical factors that are arguably unrelated to industry shocks. We uncover strong evidence of “crowding in” rather than “crowding out”, as increases in government funded R&D result in significant increases in private sector R&D. Specifically, a $1 of government financed R&D generates $2 - $6 of additional privately funded R&D. Analysis of the wage and employment effects suggests that the increase in private R&D expenditures reflect actual increases in R&D employment, not just higher labor costs. In turn, increases in R&D in a country and industry pair result in size able productivity gains. A permanent one percentage point increase in the ratio of defense related R&D to value added is associated with a 5% increase in the annual TFP growth rate in that country - industry pair (e.g. from 1.0 to 1.05 percentage points a year). We estimate that the increase in US defense R&D caused by the 9/11 events, for example, generated an increase in the aggregate annual TFP growth rate of 2% in the US. At the international level, we find that increased R&D spending by foreign governments has two offsetting effects on domestic firms. On the one hand, it deters R&D spending by domestic firms; on the other hand it creates some beneficial domestic productivity gains through industry - specific knowledge spillovers. On net, the effect of foreign R&D on domestic productivity is significantly positive (but small in magnitude), pointing to the global benefits of national R&D increases.
Missing Markets for Innovation
Eric Budish
(University of Chicago)
Benjamin Roin
(Massachusetts Institute of Technology)
Heidi Williams
(Massachusetts Institute of Technology)
Not for circulation.
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 19
Econometric Society
Labor Markets in Developing Economies
(A1)
Presiding:
Supreet Kaur
(Columbia University)
Diversity and Team Performance in a Kenyan Organization
Benjamin Marx
(Massachusetts Institute of Technology)
Vincent Pons
(Harvard Business School)
Tavneet Suri
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We present findings from a field experiment on team diversity. Individuals working as canvassers in an elections-related experiment were randomly assigned a junior teammate, a
senior manager and a set of households to visit. This created random variation in the degree of horizontal diversity, vertical (or hierarchical) diversity and external (or client) diversity
within each team. We find that ethnic diversity among teammates decreases team performance, while diversity along the vertical dimension improves performance. The data on
time use suggests that horizontally homogeneous teams organized tasks in a more efficient way, while vertically homogeneous teams exerted lower effort.
Labor Market Experience and Returns to Education in Rapidly Developing Economies
Binzhen Wu
(School of Economics and Management)
Hongbin Li
(Tsinghua University)
[View Abstract]
[Download Preview] Rapidly developing economies such as China share some common characteristics of labor markets: college enrollment expanded rapidly, the college premium for young workers declined while that for senior workers increased, and wage inequality rose. We build a general equilibrium theory that considers two dimensions of human capital, i.e., education and labor market experience, and education is endogenously determined and elastic while the accumulation of labor market experience takes time. Firms have heterogeneous products and productivities. As a result, workers with different types of human capital are not substitutable in equilibrium. In this framework, an increase in the demand for high-skilled workers could be the driving force for the observed facts in fast growing economies, but a supply shock of college graduates cannot generate the same labor market dynamics. The college premium for young graduates is depressed because many young college graduates can be produced in a short time in response to the demand shock, while experienced college graduates are in shortage and enjoy a rising premium in both the short and medium run. Despite a low college premium in the short run, young individuals still flood into colleges because they foresee a high lifetime return to education. The policy of expanding college enrollment is conformable to the response to a rising demand for human capital, and can help to reduce inequality in the long run.
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 20
Econometric Society
Uncertainty, Risk and Fluctuations
(A1)
Presiding:
Joseph Vavra
(University of Chicago)
Time-Varying Idiosyncratic Risk and Aggregate Consumption Dynamics
Alisdair McKay
(Boston University)
[View Abstract]
[Download Preview] This paper presents an incomplete markets business cycle model in which idiosyncratic risk varies over time in accordance with recent empirical findings. The model's income process is calibrated to match the cyclicality of earnings risks documented by Guvenen et al. (2013). Market incompleteness raises the volatility of aggregate consumption growth by 49 percent relative to a complete markets benchmark. More than half of this increase is due to the time-varying precautionary saving motive that results from changes in the nature of idiosyncratic risks over the cycle. Idiosyncratic risk spiked during the Great Recession and this contributed 2.3 percentage points to the decline in aggregate consumption.
Fluctuations in Uncertainty, Efficient Borrowing Constraints and Firm Dynamics
Sebastian Dyrda
(University of Minnesota and University of Toronto (since July 2015))
[View Abstract]
In this paper, I quantify the importance of aggregate fluctuations in microeconomic uncertainty for the firm dynamics over the business cycle in an economy with frictional financial markets. To begin, I document facts on asymmetric response across age and size groups of firms in the U.S. to the changes in aggregate economic conditions. I argue that age rather than size is a relevant margin for the cyclical employment dynamics; in particular total employment of young firms varies 2.6 times more relative to the old firms. Then I propose a theory that, contrary to the existing studies, generates endogenously a link between firm's age and size and its ability to obtain financing, and induces an asymmetric response to shocks. A key element of my theory is a financial friction, originated from the firm's private information and long-term, efficient lending contract between a risk averse entrepreneur and financial intermediary, which manifests itself as a borrowing constraint. I argue that, for any given expected return on project, young firms are more constrained in borrowing and they grow out of the constraint as they age up to the optimal, unconstrained size. Next I establish that, for any given age, firm's financing increases in line with the average return on a project. In times of high idiosyncratic uncertainty the financial contract calls for tightening of the borrowing constraint transmitting the initial impulse into a decline in demand for production inputs and further, including general equilibrium effects, into an economic downturn. This mechanism affects disproportionally young firms. Not only are they more constrained in borrowing but also they start smaller due to a reduced level of initial financing.
Black Swans and the Many Shades of Uncertainty
Nicholas Kozeniauskas
(New York University)
Anna Orlik
(Federal Reserve Board of Governors)
Laura Veldkamp
(NYU Stern)
[View Abstract]
[Download Preview] Various types of uncertainty shocks can explain many phenomena in macroeconomics and finance. But does this amount to throwing in a new, exogenous, unobserved shock to explain every challenging feature of business cycles? This paper explores the origin of micro uncertainty (uncertainty about firm-level shocks), macro uncertainty (uncertainty about aggregate shocks) and higher-order uncertainty shocks (disagreement) in a unified econometric framework. When agents use standard econometric techniques and real-time data to re-estimate parameters that govern the probability of black swans (unobserved extreme events), micro, macro and higher-order uncertainty covary just like their empirical counterparts. The results teach us that time-varying disaster risk and the many shades of uncertainty shocks are not distinct phenomena. All originate from using macro data to re-estimate the true probability distribution of economic outcomes.
Short and Long Run Uncertainty
Nicholas Bloom
(Stanford University)
Jose Maria Barrero
(Stanford University)
Ian Wright
(Stanford University)
[View Abstract]
[Download Preview] We examine the impact of short and long run uncertainty in both a model and on US data. We find differential impacts on assets of differential durability and adjustability.
Volatility and Pass-Through
David W. Berger
(Northwestern University)
Joseph Vavra
(University of Chicago)
[View Abstract]
[Download Preview] What drives countercyclical volatility? A large literature has documented that many economic variables are more disperse in recessions, but this could either occur because shocks get bigger or because firms respond more to shocks which are the same size. Existing evidence that the dispersion of endogenous variables rises in recessions cannot tell us which of volatility or responsiveness is getting bigger, and these two explanations have very different policy implications. However, we document new facts in the open economy environment and show that they can be used to disentangle these explanations. In particular, we use confidential BLS micro data to show that there is a robust positive relationship between exchange rate pass-through and the dispersion of item-level price changes. We then argue that changes in responsiveness can explain this fact while volatility shocks cannot.
Jan 03, 2016 2:30 pm, Marriott Marquis, Sierra B
Economic Science Association
Internet Feedback Systems
(C9, D4)
Presiding:
Ben Greiner
(University of New South Wales)
The Limits of Reputation in Platform Markets
Chris Nosko
(University of Chicago and eBay Research Labs)
Steven Tadelis
(University of California-Berkeley, NBER and eBay Research Labs)
[View Abstract]
Reputation mechanisms used by platform markets suffer from two problems. First, buyers may draw conclusions about the quality of the platform from single transactions, causing a reputational externality. Second, reputation measures may be coarse or biased, preventing buyers from making proper inferences. We document these problems using eBay data and claim that platforms can benefit from identifying and promoting higher quality sellers. Using an unobservable measure of seller quality we demonstrate the benefits of our approach through a large-scale controlled experiment. Highlighting the importance of reputational externalities, we chart an agenda that aims to create more realistic models of platform markets
Why Do People Rate? Theory and Evidence on Online Ratings
Jonathan Lafky
(Lafayette College)
[View Abstract]
[Download Preview] This paper theoretically and experimentally examines factors that drive consumers to rate products, and explains how those factors influence the accuracy of ratings. It experimentally decomposes the motivation to rate into buyer-centric and seller-centric components, and identifies censoring that takes place due to rating costs. Two extensions are also addressed. The first examines the ability of different incentive structures to increase the frequency and accuracy of ratings. The second examines the tendency for ratings of objective traits to be influenced by unrelated interactions between the rater and rated.
Conflict Resolution Versus Conflict Escalation in Online Markets
Gary E. Bolton
(University of Texas-Dallas)
Ben Greiner
(University of New South Wales)
Axel Ockenfels
(University of Cologne)
[View Abstract]
[Download Preview] Many online markets encourage traders to make good after an unsatisfactory transaction by offering the opportunity of withdrawing negative reputational feedback in a conflict resolution phase. Motivated by field evidence and guided by theoretical considerations, we use laboratory markets with two-sided moral hazard to show that this option, contrary to the intended purpose, produces an escalation of conflict in the form of strategically distorted reputation information and less trust and trustworthiness in the trading phase. The detrimental impact is mitigated by buyers who refuse to give feedback strategically, even when it comes at a cost to themselves. It is also mitigated in markets with one-sided moral hazard.
Feedback Systems and Agent Behavior
Luis Cabral
(New York University)
[View Abstract]
The eBay and related Internet reputation mechanisms have been the subject of much empirical research, partly because the of the increased importance of online markets, partly because of the abundance of data and opportunities to run field experiments. In this paper, I present a selected survey of research that attempts to measure and explain buyer and seller behavior in the presence of formal reputation mechanisms.
Discussants:
Gary E. Bolton
(University of Texas-Dallas)
Andrey Fradkin
(NBER)
Ginger Zhe Jin
(University of Maryland)
John Wooders
(University of Technology-Sydney)
Jan 03, 2016 2:30 pm, Hilton Union Square, Continental – Parlor 2
Economists for Peace & Security
Balancing National Security and Transparency
(Y9) (Panel Discussion)
Panel Moderator:
Richard Kaufman
(Bethesda Research Institute)
Yanis Varoufakis
(Hellenic Republic)
Robert Skidelsky
(Warwick University)
Linda Bilmes
(Harvard University)
Daniel Ellsberg
(Nuclear Age Peace Foundation)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 23
History of Economics Society
200 Years of Women Economists (Co-Hosted with CSWEP)
(B1, B2)
Presiding:
Margaret Levenstein
(University of Michigan)
Jane Marcet and the Scholarship of Popularization
Evelyn Forget
(University of Manitoba)
[View Abstract]
[Download Preview] This essay argues that Jane Marcet was engaged in the work of the knowledge broker – facilitating the creation, sharing and use of economic knowledge. She created and maintained social and intellectual networks between and among scientists and the larger public. Knowledge sharing was based upon the personal and social connections she facilitated by entertaining bankers, scientists, and professional economists such as Malthus, Ricardo, Mill and others, from Britain and the continent, at her London salon, culturally rooted in the Genevan expatriate community. It was extended to the middle classes through the many editions of her Conversations On Political Economy. Her networks were enlarged to include the working classes as she constructed her John Hopkin’s Notions on Political Economy at the behest of Henry Brougham and the Society for the Diffusion of Useful Knowledge. Her work was not a simple vulgarization of knowledge created by others, but rather active work at the boundaries of various bodies of discourse among which knowledge flowed in all directions.
Women in the American Economics Association: The First Sixty Years (1885-1945)
Ann Mari May
(University of Nebraska)
Robert Dimand
(Brock University)
[View Abstract]
[Download Preview] In this essay we examine women’s role in the AEA in the early years of the association to
the Great Depression of the 1930s. Utilizing material from the archives of the AEA, we examine
the various ways in which gender was reflected in the priorities of the Association and its drive to
expand membership and gain revenue, the role of WWI in establishing authority to speak through
the collection of so-called “legitimate economists,” and the ways that practices within higher
education played an important role in the segmentation of academic labor in the early years of the
profession. The archives of the AEA cast a revealing light on power and influence in what was
emerging as a distinct academic discipline of economics and on the differing treatment of men
and women in the academic life of the time.
Female Award Winners in Economics
Kirsten Madden
(Millersville University)
[View Abstract]
[Download Preview] Focusing on the early decades of economics disciplinary professionalization, women economists faced numerous barriers to entry as well as limited support into academic economics. The paper outlines evidence for a variety of discriminatory barriers as well as for limited support. A small handful of acclaim-receiving women economists navigated the barriers, with productive, respected academic economist careers beginning in the early twentieth century; some women economists made acclaimed contributions and then either actively chose alternatives to economics or more passively succumbed to the barriers; the majority of women economists did not rise in the ranks of academia to the extent of their male colleagues. This paper assesses the biographical experiences and academic contributions of a handful of acclaim-receiving women economists from the early twentieth century to address the question: How did a small number of women economists who received professional accolades for their economic thought in the early twentieth century fare in productivity, in their careers and in their reception within economics? The hypothesized answer involves multi-dimensional barriers, limited supports, and response paths.
Women Economists in the Academy: Struggles and Strategy, 1890-1940
Mary Ann Dzuback
(Washington University-St. Louis)
[View Abstract]
[Download Preview] Women economists in the United States trained in the most rigorous PhD programs in history and political economy, beginning in the 1890s. They were considered strong, often exceptional, students, but were rarely able to find academic positions similar to those of their male peers in university economics departments. Instead, many of them taught in women's colleges, state universities, and, occasionally, in research units in private universities. This paper will focus on U.S. women academic economists' research contributions to the developing field and on their impact on the culture of the institutions in which they taught and produced scholarship. The paper will focus on the colleges and provide some comparison and contrast with the experiences of women in university economics departments and extra-departmental units and how those experiences changed over the fifty-year period under study.
Discussants:
Claire Hammond
(Wake Forest University)
Deirdre McCloskey
(University of Illinois-Chicago)
Margaret Levenstein
(University of Michigan)
Jan 03, 2016 2:30 pm, Marriott Marquis, Sierra H
International Banking, Economics and Finance Association
The Market Microstructure of Monetary Policy
(G1, E5)
Presiding:
Michael Ehrmann
(Bank of Canada)
The Scarcity Value of Treasury Collateral: Repo Market Effects of Security-Specific Supply and Demand Factors
Yuriy Kitsul
(Federal Reserve Board)
Stefania D'Amico
(Federal Reserve Bank of Chicago)
Roger Fan
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] In the specific collateral repo market, forward agreements are security-specific,
which may magnify demand and supply effects. We quantify the scarcity value of Treasury collateral by estimating the impact of security-specific demand and supply factors
on the repo rates of all outstanding U.S. Treasury securities. We find an economically
and statistically significant scarcity premium. This scarcity effect is quite persistent
and seems to pass through to Treasury market prices, providing additional evidence
for the scarcity channel of QE. Through the same mechanism, the Fed's reverse repo
operations could alleviate potential shortages of high-quality collateral.
MBS Liquidity: Drivers and Risk Premiums
Marcelo Ochoa
(Federal Reserve Board)
Yuriy Kitsul
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper examines determinants of liquidity in the agency MBS market, measured by dollar-roll
implied financing rates (IFRs). The IFRs can be viewed as measures of collateral scarcity
and funding liquidity in the MBS market. A decline (rise) in the IFR can be interpreted as a
signal that the MBS collateral is more scarce (readily available) and can be funded at a lower
(higher) cost. Our results suggest that factors representing higher net supply are generally
associated with lower implied financing rates. In addition, we find that liquidity risk is
compensated in the cross-section of expected returns—agency MBS that have a higher beta with
respect to liquidity shocks on average deliver higher returns—and that liquidity risk premiums
are separate from the premiums associated with prepayment and agency credit risks.
Monetary Policy under the Microscope: Intra-Bank Transmission of Asset Purchase Programs of the ECB
Michael Koetter
(Frankfurt School of Finance & Management and Institute for Economic Research Halle IWH)
Lisa Cycon
(Frankfurt School of Finance & Management)
[View Abstract]
[Download Preview] Based on comprehensive loan pricing data of a systemically relevant German bank, we test if and how unconventional monetary policy by the ECB reduced corporates’ borrowing costs. We observe the detailed decomposition of loan rates into refunding costs and markups. To identify policy effects on loan rates, we exploit the co-existence of Eurozone-wide security purchase programs and regional fiscal policies faced by corporations. ECB purchase programs reduced the bank’s refunding costs, but not loan rates charged to corporate clients. But asset purchases mitigated those loan price hikes that are due to additional credit demand triggered by regional tax policy.
Does Easing Monetary Policy Increase Financial Instability?
Alessandro Rebucci
(Johns Hopkins University)
Ambrogio Cesa-Bianchi
(Bank of England)
[View Abstract]
[Download Preview] This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macro-prudential policy and to the role of U.S. monetary and regulatory policy in the run up to the Great Recession. There are two main results. First, real interest rate rigidities in a monopolistic banking system increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macro-prudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available policy instrument, a monetary authority subject to the same constraints as private agents cannot always achieve a (constrained) efficient allocation and faces a trade-off between macroeconomic and financial stability in response to contractionary shocks. An implication of our analysis is that the weak link in the U.S. policy framework in the run up to the Global Recession was not excessively lax monetary policy after 2002, but rather the absence of an effective second policy instrument aimed at preserving financial stability.
Discussants:
Allen Zhang
(U.S. Department of Treasury)
David Lucca
(Federal Reserve Bank of New York)
Sascha Steffen
(University of Mannheim and ZEW)
Zheng Liu
(Federal Reserve Bank of San Francisco)
Jan 03, 2016 2:30 pm, Parc 55, Davidson
Labor & Employment Relations Association
Public Higher Education under Stress: Toward New Social Coalitions Amidst Changing Employment Relations?
(J5)
Presiding:
Gregory Saltzman
(Albion College)
Fresh Cracks in the Divided Welfare State: The Rise of Finance and the Emergence of New Higher Education Policy Coalitions in the U.S.
Charlie Eaton
(University of California-Berkeley)
[View Abstract]
Charlie Eaton is a PhD Candidate in Sociology at UC Berkeley. His presentation reviews the<br />
major findings of his research on the financialization of American higher education (Eaton<br />
et al 2015, Eaton et al 2013). Moreover, Eaton outlines the historical dynamics and future<br />
possibilities of coalition-building in support of public purposes in California’s public-private<br />
welfare state (Eaton and Weir 2015).
Diverging Lines of Conflict in the Politics of Higher Education
Tobias Schulze-Cleven
(Rutgers University)
[View Abstract]
Tobias Schulze-Cleven serves as an Assistant Professor of Labor Studies and Employment Relations. His
presentation reports on the major fault lines in the politics of higher education reform and
discusses how policy legacies have shaped their alignment in different countries (Schulze-Cleven 2015).
Worlds Apart: The Growing Divide Between Elite Private Research Universities and their Cost-Effective Public Counterparts
Henry Brady
(University of California-Berkeley)
[View Abstract]
Henry Brady is the Dean of UC Berkeley's Goldman School of Public Policy, past President <br />
of the American Political Science Association (APSA), as well as Fellow of both the American <br />
Academy of Arts & Sciences and the American Association for the Advancement of Science. <br />
His presentation speaks to the growing disparity in financial resources between public and <br />
private research universities and the constraints this has created for the public mission of <br />
public research universities. Brady combines insights from stewarding the Goldman School <br />
through California’s most recent financial crisis and from leading research for the Lincoln <br />
Project, an initiative to study the return on investment in public research universities by the <br />
American Academy of Arts and Sciences.
Discussants:
Robert Shireman
(Century Foundation)
Kathryn Lybarger
(California Labor Federation)
Jan 03, 2016 2:30 pm, Parc 55, Balboa
Labor & Employment Relations Association
Whatever Happened to Incomes Policy? In Honor of the Late Lloyd Ulman
(J3)
Presiding:
Sanford Jacoby
(University of California-Los Angeles)
Neocorporatism and Incomes Policy in Europe: Past, Present and Future
Barry Eichengreen
(University of California-Berkeley)
[View Abstract]
Neocorporatism -- a system of close collaboration between workers, employers and
government -- helped to restrain wages, encourage investment and foster economic
growth for a quarter of a century following World War II. After approximately 1973,
that system worked less successfully, prompting movement in the direction of labor
market decentralization. Yet Europe's quasi-decentralized labor markets did not prevent
inefficiencies and imbalances from mounting, culminating in a crisis. This paper asks why. It
then draws out the implications for the evolving structure of European labor markets.
Whatever Happened to U.S. Incomes Policy?
Robert J. Flanagan
(Stanford University)
[View Abstract]
With the Wage-Price Guideposts in 1962, the United States was one of the few countries to
introduce an incomes policy before inflation was a problem; the objective was to forestall
inflation as the economy moved out of a recession. There has been no mention of using
incomes policy for this purpose during the current expansion or during any expansion of the
U.S. economy over the past 35 years. This paper argues that this silence reflects the absence
of both theoretical and institutional prerequisites for a viable incomes policy.
Incomes Policy in Germany and Partial Decentralization of Collective Bargaining
Knut Gerlach
(University of Hannover)
[View Abstract]
[Download Preview] This paper firstly analyzes the decline of collective bargaining and the onset of decentralized wage bargaining. Secondly, political and economic factors for the setup of an official incomes policy, its principal objectives and economic approaches, diverging between unions and employers’ associations, as well as the ultimate failure are discussed. Thirdly, it is elaborated that after the demise of official incomes policy the decentralization of wage determination proceeded and flexible wage bargaining at the level of establishment, incorporating elements of the former official incomes policy, strongly expanded. Empirical results of this institutional turning point, including severe shortcoming, are pointed out.
Wage and Price Inflation in the 1990s: Perspectives from the Council of Economic Advisers
Laura Tyson
(University of California-Berkeley)
[View Abstract]
Laura Tyson, former chair of the CEA, presents her experiences and research on the macroeconomic
situation during the 1990s. She will consider the question of wage inflation during that period.
Discussants:
Clair Brown
(University of California-Berkeley)
Paola Giuliano
(University of California-Los Angeles)
Jan 03, 2016 2:30 pm, Hilton Union Square, Union Square 17 & 18
National Association for Business Economics
The United States and Global Economic Outlook
(E6) (Panel Discussion)
Panel Moderator:
Lisa Emsbo-Mattingly
(Fidelity Investments)
Douglas G. Duncan
(Fannie Mae)
The U.S. Housing Market Outlook
Lisa Emsbo-Mattingly
(Fidelity Investments)
U.S. and Global Financial Market Outlook
Martin Feldstein
(Harvard University)
The U.S. Economic Outlook
Catherine L. Mann
(OECD)
The Global Economic Outlook
Loretta J. Mester
(Federal Reserve Bank of Cleveland)
U.S. Economic and Monetary Policy Developments
Jan 03, 2016 2:30 pm, Marriott Marquis, Pacific J
National Association of Forensic Economics
Exposing Weaknesses in Forensic Economic Analysis
(K1, A1)
Presiding:
David Schap
(College of the Holy Cross)
Pitfalls in Forensic Economic Analysis: Valuation
Christopher Young
(Sobel-Tinari Economics Group, LLC)
[View Abstract]
Pitfalls in Forensic Economic Analysis: Valuation
Pitfalls in Forensic Economic Analysis: Employment
Dwight Steward
(EmployStats)
[View Abstract]
Pitfalls in Forensic Economic Analysis: Employment
Pitfalls in Forensic Economic Analysis: Commercial Damages
Steven Shapiro
(New York Institute of Technology)
[View Abstract]
Pitfalls in Forensic Economic Analysis: Commercial Damages
Discussants:
Michele Angerstein-Gaines
(Economic Consulting)
Marc Weinstein
(Team Economics, LLC)
Stephen Horner
(Economic Consulting)
Jan 03, 2016 2:30 pm, Hilton Union Square, Powell A & B
National Economic Association
Policy Interventions and Educational Outcomes
(I2, I3)
Presiding:
Ronald Oaxaca
(University of Arizona)
Coordinated Admissions Program
Rodney Andrews
(University of Texas-Dallas)
[View Abstract]
[Download Preview] In the wake of challenges to affirmative action and the implementation of alternative admission regimes, access to oversubscribed elite public universities remains a contentious issue. Much of the research on these issues focuses on freshman admissions.
There is little research that examines the development of alternative pathways to elite public universities. This paper examines the University of Texas at Austin’s Coordinated Admission Program. This program offers Texas residents that failed to gain admission as freshman the option of transferring from a participating University of Texas system institution to the University of Texas at Austin provided that the students complete 30 hours in their freshman year at the satellite university, complete a set of prescribed courses, and maintain the minimum required grade point average. This paper examines the effect of reaching the minimum grade threshold on the likelihood of transfer, graduation, choice of major, and earnings.
Match or Mismatch? The Role of College Readiness, High School Peers, and Application Uncertainty on College Application Behavior
Sandra E. Black
(University of Texas-Austin)
Kalena Cortes
(Texas A&M University)
Jane Arnold Lincove
(Tulane University)
[View Abstract]
Recent research has focused on the worrisome phenomenon of undermatch, where highly-qualified students do not apply to high-ranking universities, despite affirmative action in admissions and the availability of generous financial aid. But what determines where a student chooses to apply? We examine the population of Texas high school graduates who apply to four-year colleges and consider what factors affect their application behavior. Most importantly, we are not limited to examining only the highest achieving students. Because there is a common college application in Texas, we are able to observe whether each high school student applied to any four-year public postsecondary institution in the state. The notion of undermatch assumes that we are able to determine what constitutes a good match.
Unlike previous studies, we construct multiple measures of student-college matching, such as closest student-college match based on student preparedness by campus enrollment characteristics and completion characteristics. However, deconstructing potential causes of student-college match behavior is difficult because institutions vary in admissions strategies, levels of diversity, and location. Thus, we use a conditional logit strategy that enable us to analyze the characteristics of institutions, such as cost (e.g., application cost, tuition and fees, financial aid, and distance from students home), immediate consumption benefits (e.g., campus racial and ethnic diversity, quality and similarity of peers, academic quality, location
(urban, rural, etc.), and future returns (e.g., debt versus future earnings, probability of graduation, employment opportunities) that affect student’s likelihood of applying to college.
Is the Best Interest of the Child Best for Children? Educational Attainment and Child Custody Assignment
Trevon Logan
(Ohio State University)
Yang Chen
(IMPAQ International)
[View Abstract]
We examine the educational impact of gender-neutral custody laws on child outcomes. Between the 1970s and 1990s, state custody laws moved from maternal preference to the “best interests of the child” doctrine which gives fathers and mothers equal treatment in child custody cases, a change that is independent of divorce law reforms. While standard household bargaining models predict that changes in custody laws give fathers greater bargaining power in marriages, the net effect of the custody law reform on all children is unknown. We exploit the exogenous variation across states in the timing of custody law changes to estimate the long-term implications of exposure to a gender-neutral custody law regime. We find that childhood exposure to gender-neutral custody laws has a negative and significant effect on educational attainment, both the likelihood of completion of schooling milestones and years of education. For example, a man exposed to the new custody law as a child is less likely to graduate from high school by, on average, 2.04 percentage points. Results are similar for women. Moreover, the negative effects are independent of the effects of childhood exposure to unilateral divorce laws.
Education Environment Context Switching and Its Effects on Performance and Instructor Evaluation
Salvador Contreras
(University of Texas-Rio Grande Valley)
[View Abstract]
The peer effects literature on student outcomes has produced mixed results. Critics argue that the literature fails to properly correct for the endogeneity problem. This study proposes an experimental design to extrapolate the effects of environment on student performance and assessment of instruction. The sample population is drawn from a Hispanic servicing institution. We randomized a set of treatments that differ only in the context of the learning environment. We show that institution and instructor’s poor character hurt the assessment of instructor and lecture. Further, we find institutional qualities on student assessments to be secondary to the character of the instructor. In addition, we find little evidence that institutional and instructor characteristics affect student performance on an exam. Our results suggest that endogenous concerns in the peer effects literature may be over stated.
Discussants:
Marie T. Mora
(University of Texas Rio Grande Valley)
Lisa D. Cook
(Michigan State University)
Mark Lopez
(Pew Research Center)
Omari H. Swinton
(Howard University)
Jan 03, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 14 & 15
National Tax Association
Taxes and Mobility
(H2, H3)
Presiding:
David R. Agrawal
(University of Kentucky)
The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists
Enrico Moretti
(University of California-Berkeley)
Daniel J. Wilson
(Federal Reserve Bank of San Francisco)
[Download Preview] NA
Taxation and the International Mobility of Inventors
Ufuk Akcigit
(University of Chicago)
Salome Baslandze
(University of Pennsylvania)
Stefanie Stantcheva
(Harvard University)
NA
Effective Tax Rates and Effective Progressivity in a Fiscally Decentralized Country
Marcus Roller
(Universitat Basel)
Kurt Schmidheiny
(Universitat Basel)
[View Abstract]
[Download Preview] This paper proposes measures that quantify the effective level and the effective progressivity of tax schedules in a fiscally decentralized country taking income sorting into account. Using data on the universe of Swiss taxpayers, we find that rich households effectively face significantly lower average and marginal tax rates and lower progressivity than in the benchmark case that does not consider income sorting. This is because high-income households systematically avoid high taxation by locating in low-tax jurisdictions. The results are stronger for singles than for families indicating that singles are more sensitive to spatial tax differentials than families. We find evidence that the Swiss income tax system is effectively regressive for households without children and very high incomes. Our results also hold when we account for the disutility from housing prices into which tax rates capitalize.
State Taxes and Spatial Misallocation
Pablo Fajgelbaum
(University of California-Los Angeles)
Eduardo Morales
(Princeton University)
Juan Carlos Suarez Serrato
(Duke University)
Owen Zidar
(University of Chicago)
[Download Preview] NA
Discussants:
Jon M. Bakija
(Williams College)
Cristobal Young
(Stanford University)
Jesse Gregory
(University of Wisconsin-Madison)
Ian Schmutte
(University of Georgia)
Jan 03, 2016 2:30 pm, Parc 55, Mason
Peace Science Society International/American Economic Association
The Effects of Conflict
(F5, I1)
Presiding:
Carlos Seiglie
(Rutgers University)
Medium-Term Health Impacts of Shocks Experienced In Utero and After Birth: Evidence from Detailed Geographic Information on War Exposure
Richard Akresh
(University of Illinois-Urbana-Champaign)
German Caruso
(World Bank)
Harsha Thirumurthy
(University of North Carolina)
[View Abstract]
[Download Preview] This paper estimates the impact of armed conflict on subsequent health outcomes using detailed geographic information on households’ distance from conflict sites—a more accurate measure of conflict exposure— and compares the impact on children exposed in utero versus after birth. The identification strategy relies on exogenous variation in the conflict’s geographic extent and timing as well as the exposure of different birth cohorts while in utero or after birth. Results show that war-exposed children subsequently have lower height-for-age Z-scores, and impacts using GPS information are 87-188% larger than if exposure is measured at the imprecise regional level. Effects of in utero and after birth exposure are comparable in magnitude, and children in the war instigating and losing country (Eritrea) suffer more than the winning nation (Ethiopia). Results are robust to including region-specific time trends, alternative conflict exposure measures, and addressing potential bias due to selective migration.
The Impact of Refugee Crises on Host Labor Markets: the Case of the Syrian Refugee Crisis in Turkey
Yusuf Emre Akgündüz
(Utrecht University)
Marcel van den Berg
(Statistics Netherlands)
Wolter Hassink
(Utrecht University)
[View Abstract]
[Download Preview] The civil war in Syria has culminated into major refugee crises in its neighboring countries. By the end of 2013 more than half a million people were seeking shelter in cities and refugee camps in Turkey. We analyze how the Syrian refugee influx in Turkey has affected food and housing prices, employment rates and internal migration patterns in regions of Turkey where refugees are being accommodated. Refugee camps are geographically concentrated near the Syrian border, which enables us to employ the rest of regional Turkey as control group with a difference-in-difference approach to analyze the impact on local economies. Our findings suggest that housing and to a lesser degree food prices increased, but employment rates of natives in various skill groups are largely unaffected. Incumbent natives appear to be staying put considering the limited migration out of the region, but there is a significant decline in internal migration into regions hosting refugees. Nevertheless, the decline in internal in-migration is less than a tenth of the refugee influx, implying that there is little evidence of refugees crowding out natives in local labor markets
The War at Home: Military Service and Domestic Violence (with W. Stojetz)
Tilman Brück
(Institute of Vegetable and Ornamental Crops and London School of Economics)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper introduces and studies a new long-term link between wartime military service and post-war behavior. Our key result is that exposure to wartime sexual violence significantly increases an Angolan Civil War veteran’s propensity to commit domestic violence more than a decade after the end of the war. We find strong effects on non-sexual physical violence, similar and related effects on disputes between intimate partners, no effects on sexual violence, and a slightly negative effect on domineering behavior. Taken together, we interpret these findings as in favor of an underlying effect based on gender-based violent behavior rather than living up to gender norms. We find no evidence for alternative theories of domestic violence, based on a reduction in economic bargaining power or high levels of distress. This supports a perspective of domestic violence as expressive behavior that is not triggered by payoff-relevant considerations.
Valuing Peace: The Effects of Financial Market Exposure on Votes and Political Attitudes
Saumitra Jha
(Stanford University)
Moses Shayo
(Hebrew Universtiy)
[View Abstract]
[Download Preview] Financial markets expose individuals to the risks and returns of the broader economy. Can they also lead to a reevaluation of the costs and benefits of conflict and initiatives for peace? Can this happen even in the context of persistent ethnic conflict, and even affect voting decisions? Prior to the 2015 Israeli elections, we randomly assigned financial assets to likely voters and gave them incentives to actively trade for up to seven weeks. The assets included stocks of Israeli and Palestinian companies, with randomly assigned divestment dates and initial endowments. We find that this exposure caused systematic shifts in voting behavior and increased support for initiatives for peace. These shifts appear to reflect two main channels. First, financial market exposure leads individuals to follow financial markets over time and to positively reevaluate the effects of potential peace initiatives on the national economy. Second, exposure to Palestinian stocks increases out-group empathy, reflected in higher support for inter-ethnic social and business integration. The effects of financial market exposure are larger for the risk averse and for inexperienced investors, who become more like experienced investors in favoring concessions for peace.
Discussants:
Plamen Nikolov
(State University of New York–Binghamton University)
Phanindra V. Wunnava
(Middlebury College and IZA)
Julia Schwenkenberg
(Rutgers University)
Solomon W. Polachek
(State University of New York-Binghamton University)
Jan 03, 2016 2:30 pm, Marriott Marquis, Sierra I
Society of Government Economists
Changes in the Labor Market
(J3, J6)
Presiding:
Amelie Constant
(Institute for the Study of Labor)
The Recent Decline of Residential Mobility and Job Switching
Henry R. Hyatt
(U.S. Census Bureau)
Erika McEntarfer
(U.S. Census Bureau)
Ken Ueda
(University of Maryland)
Alexandria Zhang
(Johns Hopkins University)
[View Abstract]
In the last 15 years, the rates of both residential mobility and employer-switching have declined. Data from the Current Population Survey and American Community Survey have shown that the magnitudes of the two declines are similar. Using linked employer-employee data in conjunction with these survey data, we do a thorough comparison of the trends and conclude that about a third of the decline in interstate residential migration is associated with a direct job-to-job flow, even though only a small fraction of the decline in employer-switching is associated with job change that involves an inter-state move. We also conduct a shift-share analysis to measure the effects of changes in demographic composition on the changes in the two migration measures. We find that only a small fraction of the migration declines can be attributed to compositional changes, leaving most of the decline unexplained.
Imperfect Substitution, and Age-Differential Changes in the Wage Structure
Takashi Yamashita
(U.S. Bureau of Economic Analysis)
[View Abstract]
The Great Compression of the 1940s, when the American economy saw a substantial decline in earnings inequality, presents divergent patterns of wage compression by age and occupation groups. The wage gap narrowed between the old and the young in general, but the rate of wage compression varied substantially within age groups. I find that demand factors played crucial roles in the age-differential compression of wage structures; the increase in demand arising from the post-war construction boom boosted wages of low-skilled workers of all ages. Key to variations in compression by age is the differences in substitutability between workers of different ages by skill groups. Among low-skilled workers, young and old workers are highly substitutable and a high demand for young workers leads to an increase in demand for older workers. On the other hand, for high-skilled workers the substitutability between workers of different ages is low and an increase in demand for young workers does not necessarily translate into high demand for older workers. The estimates of elasticity of substitution for different skill groups confirm this view.
Offshoring, Low-Skilled Immigration, and Labor Market Polarization
Andrei Zlate
(Federal Reserve Bank of Boston)
Federico S. Mandelman
(Federal Reserve Bank of Atlanta)
[View Abstract]
[Download Preview] During the last three decades, the U.S. labor market has been characterized by its employment polarization. As jobs in the middle of the skill distribution have shrunk, employment has expanded for the high and low-skill occupations. However, real wages have not followed the same pattern. While earnings for the high-skill occupations have risen robustly, wages for both the low and middle-skill workers have 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 their asymmetric effect on employment and wages, as well as their implications for U.S. welfare. 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 low-skill workers, which generates employment polarization. However, low-skill wages remain depressed due to the rise in low-skilled 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. We show that offshoring and low-skilled immigration improve aggregate welfare in the U.S. economy, notwithstanding their asymmetric impact on native workers of different skill levels. The model is estimated with multilateral trade-weighted macroeconomic indicators and data on enforcement at the U.S.-Mexico border.
Intergenerational Long Term Effects of Preschool - Structural Estimates from a Discrete Dynamic Programming Model
Lakshmi K. Raut
(Social Security Administration)
James J. Heckman
(University of Chicago)
[View Abstract]
[Download Preview] This paper formulates a structural dynamic programming model of preschool investment choices of altruistic parents and then empirically estimates the structural parameters of the model using the NLSY79 data. The paper finds that preschool investment significantly boosts cognitive and non-cognitive skills, which enhance earnings and school outcomes. It also finds that a standard Mincer earnings function, by omitting measures of non-cognitive skills on the right hand side, overestimates the rate of return to schooling. From the estimated equilibrium Markov process, the paper studies the nature of within generation earnings distribution and intergenerational earnings and schooling mobility. The paper finds that a tax financed free preschool program for the children of poor socioeconomic status generates positive net gains to the society in terms of average earnings and higher intergenerational earnings and schooling mobility.
Discussants:
Robert G. Valletta
(Federal Reserve Bank of San Francisco)
Kristin McCue
(U.S. Census Bureau)
Brad Hershbein
(Upjohn Institute)
Ananth Seshadri
(University of Wisconsin-Madison)
Jan 03, 2016 2:30 pm, Marriott Marquis, Sierra J
Union for Radical Political Economics
Heterodox Approaches to Trade and Development
(F1)
Presiding:
Paul Cooney
(Universidad Nacional de General Sarmiento)
Changing Export Structure of the Turkish Manufacturing: A Story of New Dependency
Armağan Gezici
(Keene State College)
Özgür Orhangazi
(Kadir Has University)
[View Abstract]
We examine the export dynamics of the Turkish manufacturing industry to reveal the limitations of export-oriented growth in a financially dependent economy. Turkey’s export performance since 2002 has been celebrated as success - exports grew 15 percent a year on average in dollar terms, more than six percentage points above the average global growth of exports, and as much as the pace of expansion in Brazil, Russia, and India. This growth was coupled with changing technological intensity of exports, as mid-tech exports (mainly automobiles and auto parts) replaced “less sophisticated products” (garments and textiles) and allowed the country to narrow the ‘sophistication gap’ with countries such as Poland and Mexico” (World Bank 2014). To assess the sustainability of growth performance based on exports, we compare technological intensity, R&D and foreign component of value added across sectors. Our analysis suggests that new exporters are not investing in better technologies and not creating domestic value added. Recent change in the structure of manufacturing exports has been closely linked with higher import share of exports as well as higher indebtedness of firms. The case of Turkey sheds light on the mechanisms through which, a non-commodity exporter country in periphery is integrated with core countries in a new form of financial dependency.
Struggling for the Gains in Global Value Chains
Xiao Jiang
(Denison University)
José 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.
Sustainability of the Decline in Inequality in Latin America: The Effects of Changing Trade Patterns
Carmen Rosa Marull Maita
(Freie Universität Berlin)
Luis D. Rosero
(Framingham State University)
[View Abstract]
[Download Preview] After growing for most of the 1980s and 1990s, income inequality in Latin America has reversed course during the last few years. Declining levels of inequality are a welcomed change for a region that has typically topped the charts in this regard. Even more promising is the fact that this recent decline has also been accompanied by significant reductions in poverty rates. The literature has typically explained the decline in inequality as the result of two main factors: a decrease in the skill premium, and the reduced inequality in terms of non-wage income—primarily driven by the successful implementation of conditional income-transfer programs. We propose that these two are mainly channels through which changing terms of trade have affected inequality, particularly in light of the recent “commodities boom” and the favorable conditions that it has provided to the region. This paper reassesses the effects of trade on inequality by evaluating the degree to which these follow traditional comparative advantage theories. Using data for eighteen Latin American countries during the 1995-2012 period, we find overall evidence to support that terms of trade are inversely related to inequality. Moreover, we demonstrate that this effect is only significant for countries with moderate to high export concentration levels, and explore these in more detail through case studies. Finally, we acknowledge that the current trade patterns run the risk of proving ephemeral due to the vagaries of international markets, and discuss policy implications for sustaining this recent decline in inequality in the region.
The Anarchy of Globalization: Local and Global, Intended and Unintended Consequences
Michael Perelman
(California State University-Chico)
[View Abstract]
Globalization has so many meanings that the word has become almost meaningless: neoliberalism, free trade, and corporate power, only to mention a few; none of which serve the public interest. Globalization, propped up by trade negotiations written by corporate lobbyists has proved effective in limiting government regulation needed to protect society. Globalization also threatens indigenous cultures. This paper will look at globalization from the standpoint of the shuffling of power relations. One of the most important effects of globalization -- secrecy has facilitated all sorts of power. Perhaps the best-known dimension of secrecy is its role in tax evasion. On the most obvious level, globalization serves as a weapon to make labor more subservient. Globalization reinforces the power of powerful countries in the name of free trade. These so-called free trade treaties are written to serve the narrow interests of domestic business versus foreign competitors by strengthening intellectual property. In so doing, it brazenly treats monopoly power as if monopoly were a form of laissez-faire.
Reprimarization: Implications for the Environment and Development
Paul Cooney
(Universidad Nacional de General Sarmiento)
[View Abstract]
[Download Preview] Globalization has so many meanings that the word has become almost meaningless: There has been a tendency throughout Latin America, in recent decades of the expansion of activities associated with reprimarization. The latter refers to all activities of extractivism, such as mining and petroleum, as well as agricultural activities, such as cattle and soy. These are linked to the strong growth of the commodities markets and the amazing growth of China. This paper examines the implications for both the environment and development, in general, and considers the currently active development trajectories critically and presents alternative trajectories of development for the region. In examining the shift to reprimarization in Latin America there are a range of key impacts on the environment. The following issues are very much connected to the shifts toward reprimarization: (1) deforestation of the Amazon Rain Forest linked to, lumber, cattle and soy; (2) air, water, and soil pollution linked to the use of pesticides, and mining; (3) soil erosion as a result of mining and soy. There are also major socio-environmental issues around the issue of hydroelectric dams, strongly tied to mining. Many progressives are calling into question this extractivist model of development. Beyond the environment, major concerns are with respect to industry, wages, informal work, and the perennial problem of being just primary goods providers to the 1st world, rather than seeking a means by which a serious alternative development trajectory could be pursued.
Discussants:
Peter Bent
(University of Oxford/University of Massachusetts-Amherst)
Alexandria Eisenbarth
(New School)
Paul Cooney
(Universidad Nacional de General Sarmiento)
Jan 03, 2016 2:30 pm, Marriott Marquis, Pacific I
Union for Radical Political Economics
New Developments in Sraffian Theory
(B2)
Presiding:
Robin Hahnel
(American University)
Piero Sraffa’s Early Work on Joint Production: Probing the Intricacies of Multiple-product Systems
Heinz Kurz
(University of Graz-Austria)
[View Abstract]
This paper explores the relation between joint production and many of Sraffa's seminal contributions including: the possibility of negative labour values even when prices are strictly positive, how to calculate relative prices and the maximum rate of profit, the distinction between basic and non-basic commodities, and the existence and usefulness of the Standard system. The paper also explains how solving the problem of choice of technique in systems with joint production and fixed capital allowed Sraffa to see a possibility, which later, in the capital controversies of the 1960s and 1970s, became known as “reverse capital deepening” or “capital reversing.”
Environmental Sustainability in a Sraffa Framework
Robin Hahnel
(American University)
[View Abstract]
[Download Preview] This paper extends the Sraffa framework to address environmental sustainability. The key is showing how, in a Sraffa framework, the effects of any technological change on both overall labor productivity and environmental throughput efficiency can be rigorously measured. After using these new insights to define necessary and sufficient conditions for environmental sustainability in an economy experiencing technological change, the paper discusses important implications for steady-state and de-growth economics.
Hecksher-Ohlin-Samuelson Trade Theory and Capital Theory
Naoki Yoshihara
(Hitotsubashi University)
[View Abstract]
[Download Preview] Hecksher-Ohlin-Samuelson (HOS) trade theory and the factor price equalization theorem (FPET) treat “capital” as a primary factor. However, the Cambridge capital controversy demonstrates that marginal productivity theory does not hold in general whenever capital is treated as a bundle of reproducible material goods rather than as a primary input. This paper demonstrates that when capital is reproducible the FPET does not hold in general even when no capital intensity reversal occurs, and argues that dynamic HOS trade theory still fails to circumnavigate this dilemma successfully.
Classical Economics after Sraffa
Neri Salvadori
(University of Pisa)
[View Abstract]
[Download Preview] According to many interpreters the labor theory of value is an indispensable part of the classical economic theory of value and distribution. However, based on new archival materials this paper argues that Sraffa was of the opinion that the labor theory of value involved a “corruption” of classical theory. The paper goes on to provide an overview of Sraffa's seminal contributions, in particular his treatment of fixed capital, capital utilization, renewable and exhaustible natural resources, foreign trade, economic growth and taxation, and his critique of marginalist theory.
Sraffa’s Economics Reconsidered
Pier Luigi Porta
(University of Milano-Bicocca)
[View Abstract]
[Download Preview] Based on archival investigations a number of contributions have appeared recently interrogating Sraffa’s research program (e.g. CJE Special Issue “New Perspectives on the Work of Piero Sraffa,” 2012, Towards a New Understanding of Sraffa’s Economics, ed. by R. Bellofiore and S. Carter, 2014). This paper relies on archival research to outline a reconstruction of Piero Sraffa’s early views on Classical Political Economy. The paper focuses on evidence gathered from a selection of documents concerning the preparation of Sraffa’s own Lectures on the Advanced Theory of Value, believed to have been delivered in the second half of the 1920s in Cambridge.
Discussants:
Riccardo Belloriore
(University of Bergamo)
Scott Carter
(University of Tulsa)
Jan 03, 2016 4:45 pm, Hilton Union Square, Continental Ballroom 5 & 6
American Economic Association
Richard T. Ely Lecture
Presiding:
Robert Shiller
(Yale University)
John Y. Campbell
(Harvard University)
Restoring Rational Choice: The Challenge of Consumer Finance
Jan 03, 2016 4:45 pm, Parc 55, Cyril Magnin II
Labor & Employment Relations Association
Featured Plenary: The Changing Job Market: What to Expect
(J1)
Presiding:
Jesse Rothstein
(University of California-Berkeley)
Five Challenges the Labor Market Faces and the Implications for Economic Growth
Betsey Stevenson
(University of Michigan)
The Changing Job Market
Work in the Sharing Economy
Alan B. Krueger
(Princeton University)
What to Expect
Jan 03, 2016 6:00 pm, Hilton Union Square, Continental Ballroom 5 & 6
American Economic Association
Business Meeting
Jan 04, 2016 7:45 am, Marriott Marquis, Foothill G
Association for Social Economics
Presidential Breakfast - Fee Event
Presiding:
Giuseppe Fontana
(University of Leeds (UK) and University of Sannio (Italy))
Ellen Mutari
(Stockton University)
Social Practices and Economic Life
Jan 04, 2016 8:00 am, Marriott Marquis, Walnut
African Finance & Economics Association
International Trade and Macroeconomic Policy Considerations in African Economic Development
(F4)
Presiding:
Zuzana Brixiová
(African Development Bank, IZA and University of Cape Town)
Empirical Evidence of Exchange Rate Pass-Through to Prices and Inflations in Ghana
Edward E. Ghartey
(University of West Indies)
[View Abstract]
[Download Preview] [Download PowerPoint] Abstract: The study employs autoregressive distributed lag model to establish the relationships among changes in exchange rate, prices, petroleum prices, interest rates, cocoa prices, among others, after using 1988 to account for an exogenous structural change. Two price indices are employed alternatively to capture prices in the study, because of the introduction of new cedi in 2007 to facilitate the role of money as medium of exchange to enhance transactions in the country. Results of empirical analysis show that the extent of exchange rate pass-through to inflation in the country is incomplete but fairly larger than those observed on the average in other studies for advanced developed countries (ADCs). Additionally, the size of the exchange-rate pass-through to inflation is slightly larger in the short-run than in the long-run. The estimated impulse response functions show that inflation reinforces itself, increases Treasury Bills rates, and contributes more to depreciation than the latter’s effect on inflation. Improvements in cocoa prices strengthen the cedi’s value, and dampen Treasury Bills rates, although they slightly bump up inflation. However, increase in petroleum prices also depreciates the cedi, although it is not very inflationary. Monetary Authorities are cautioned that although monetary policy is effective and can be used to curb inflation, its excessive expansionary use is inflationary, and is the chief source of depreciation of the cedi.
Inflation Volatility and Labor Institutions in a panel of OECD countries
Jonathan Attey
(Temple University)
Cristelle Kouame
(Temple University)
[View Abstract]
[Download Preview] We examine theoretically and empirically the role of the institutional settings of the labor market in explaining inflation volatility over time and across countries. Allowing for time variation in the wage indexation, we establish a direct relationship between inflation volatility and three labor market institutions factors: the bargaining power of unions, the number and independence of negotiations. Using the system-GMM estimator for linear dynamic panel data models on a sample covering 15 OECD countries, analyzed in the period from 1960 to 2011, this paper finds that the bargaining power of unions increases the volatility of inflation whereas the number and independence of negotiations decrease inflation volatility. Furthermore, policy recommendations point towards a relatively more restrictive government intervention in the bargaining processes to reduce inflation volatility.
Firm Level Determinants of International Certification in Sub-Saharan Africa
Mahelet G. Fikru
(Missouri University of Science and Technology)
[View Abstract]
[Download Preview] Abstract: This paper investigates a wide range of plausible determinants of international certification (IC) such as ISO 9001 and ISO 14001 in some sub-Saharan African countries (SSA). IC in SSA is largely seen as being driven by pressure from international markets and trade relations with Western countries. That is, businesses trading with richer countries would have a need and/or ability to adopt IC. As a result, as Kaplinksky (2010) argues the importance of standards would diminish as exports to China grow at the expense of exports to the EU. In sharp contrast to Kaplinksky (2010) the percentage of certifying firms in SSA increased from 13% in 2006 to 17.4% in 2011, while SSA’s export share to China doubled during the same period. The contribution of this study is to examine the relative significance of pressure from international markets vis-à-vis other factors in the adoption of IC in SSA. The other factors we consider are pressure from international banks and foreign investors, pressure from local officials and local community. We also control for plant specific capabilities which create opportunities for certification. We base our arguments on a combination of the Stakeholder Theory, New Institutional Theory and Resource-Based View of the Firm. Plant-level data obtained from Enterprise Surveys of the World Bank 2009 is used to test our hypothesis.<br />
Our result suggests that international markets are not the only determinants for certification in SSA. Besides export orientation, our evidence suggests that businesses may certify as a response to pressure coming from international banks. International banks may exert a coercive as well as mimetic pressure on African businesses, even when coercive pressure from international markets is missing. International banks, most of which are committed to socially and environmentally sustainable practices, may facilitate the diffusion of standards in the host country. International banks may also perform sustainability-related risk analysis urging customers to demonstrate corporate social responsibility. Our result suggests that pressure from local sources such as officials and community is relatively weak to push businesses towards certification. <br />
The contribution of this paper is to provide a comprehensive study on the plant-level determinants of certification in SSA. We adopt a much needed but yet missing micro-level and multilevel approach in addressing our research objectives. Furthermore, unlike previous studies we theoretical ground and empirically test the role of pressure from international banks as a possible factor in driving plants towards standardization.
Institutional Framework and Taxation in African Countries: A Comparative Analysis of Small-Scale Firms in Benin, Ghana, and Togo
Moussa P. Blimpo
(University of Oklahoma)
Paul C. Dower
(New Economic School)
[View Abstract]
Abstract: The mobilization of tax revenue is crucial for economic and political development. If tax mobilization strongly depends upon government quality, then a vicious cycle could emerge whereby low tax revenue mobilization leads to poor government quality, which leads back to low mobilization. The institutions in most African countries are similar in nature to that of the formal colonial powers. While Benin and Ghana are closer in term of their level of democracy and the quality of institutions, Benin and Togo share the same institutional framework drawn from the French colonial legacy. Using a data set of over 700 small-scale firms, we exploit these differences and the proximity of these three countries to make cross-border comparisons of the tax and business environment in Benin, Ghana and Togo. We find that, across a number of dimensions related to tax payments, firms in Benin and Togo behave similarly to each other while both differ substantially from Ghana. This finding suggests that beyond the quality of the institutions, the basic institutional framework and layout may matter much as a determinant of several development outcomes.
Analysis of Gender Equality in Youth Employment in Africa
John Anyanwu
(African Development Bank)
[View Abstract]
[Download Preview] This paper empirically studies the key drivers of gender equality in youth employment over the period, 1991 and 2011. Our results suggest that in the all-Africa sample, quadratic levels of real per capita GDP, greater gender equality in primary education, greater trade openness, higher FDI inflows, higher political globalization, higher economic growth, increased urbanization, higher female share of the population, and being a net oil-exporting country are significantly positively associated with increased gender equality in youth employment while higher level of real GDP per capita, higher equality in secondary education, higher gross domestic investment, greater access to ICT (telephone) infrastructure, higher youth unemployment rate, and being a predominantly Muslim country tend to lower it. In Sub-Saharan Africa, the factors that are positively associated with gender equality in employment include the quadratic levels of real per capita GDP, greater gender equality in primary education, higher FDI inflows, higher economic growth, increased urbanization, higher female share of the population, and being a net oil-exporting country. Factors that are significantly negatively associated with gender equality in employment in SSA are higher level of real GDP per capita, higher equality in secondary education, higher government consumption expenditure, higher gross domestic investment, higher youth unemployment rate, and being a predominantly Muslim country. However, North Africa is different. The North African specific sample results indicate that while the level of real GDP per capita, greater gender equality in secondary education, and increased government consumption expenditure tend to increase gender equality in youth employment, being an oil-exporting country and higher youth unemployment rate tend to lower gender equality in youth employment in the sub-region. The policy implications of these results are discussed.
Creditor Protection Law and Venture Capital Investment in Africa: Country-Level Evidence
Jonathan O. Adongo
(Missouri Southern State University)
[View Abstract]
[Download Preview] This article exploits variation in creditor protection laws to empirically investigate their effect on country-level venture capital investment in Africa. Results, using bank branch density as an instrumental variable, indicate that stronger creditor protection laws have significantly positive effects on seed, start-up, or early and expansion venture capital investments. In addition, the magnitude of their effect on investment at both venture capital stages is relatively larger than on private equity investment. This supports theory that effects of a shock to financially constrained companies in imperfect financial markets are magnified when information asymmetry is more severe.
Discussants:
Stephen Armah
(Ashesi University College-Ghana)
John Anyanwu
(African Development Bank)
Edward E. Ghartey
(University of West Indies)
Mahelet G. Fikru
(Missouri University of Science and Technology)
Jonathan Attey
(Temple University)
Kidaya Ntoko
(Orange County Community College)
Jan 04, 2016 8:00 am, Marriott Marquis, Sierra C
Agricultural & Applied Economics Association
Food Access, Food Choice and Obesity: Theoretical and Empirical Advances
(I1, Q1)
Presiding:
Di Zeng
(University of Arkansas)
Food Desert and Weight Outcome: Disentangling confounding mechanisms
Di Zeng
(University of Arkansas)
Rodolfo M. Nayga, Jr.
(University of Arkansas)
Michael R. Thomsen
(University of Arkansas)
[View Abstract]
[Download Preview] Food deserts are increasingly considered as a potential cause of overweight and obesity, yet existing literature is largely inconclusive in part due to the infeasibility of sorting out multiple confounding mechanisms from a purely empirical perspective. This article investigates the hypothesized causality in a rational-choice framework, where the individual chooses how much to patronize a distant supermarket and/or a nearby convenience store, broadly defined, and the weight outcome depends on this choice. Results suggest that neither limited supermarket access nor low income, the key features of food deserts, would determine the weight outcome, which is also affected by individual preferences as well as time and monetary costs associated with grocery shopping. Parametric conditions under which varying effects on weight occur are further derived to elicit policy implications.
Food Access and Food Expenditures: A Multidimensional Examination
Jacqueline Yenerall
(Virginia Tech)
Wen You
(Virginia Tech)
[View Abstract]
[Download Preview] Despite a growing attention on neighborhoods with low access to healthy foods, the identification of possible effects of food access on obesity has been difficult and empirical findings are contradictory at times, possibly due to the lack of theoretical foundation, the limitation of data and the failure to accurately measure food access. We modified a household production model to theoretically justify the need for multidimensional look at the problem. We utilized a nationally representative rich data set, FoodAPS, to examine food environmental effect on household at-home-food spending and fruit and vegetable spending. Although not examining health outcomes directly, we are able to examine household level expenditure decisions that are the direct inputs into individual health production. Further, although this data set has provided more information for the investigation than any other known data set, it does not have direct measurement of other dimensions of the food environment such as acceptability and accommodation. To circumvent this limitation and guided by the theoretical model framework, we examined the common assumption of nearest store is the primary store of choice in the current literature by endogenous switching regression that allow the underlying mechanism differences and directly model the primary store choice process. We found that accessibility as measured in straight-line distance only has influences in primary store choice and did not influence actual expenditure amount decisions. This may explain findings of null effect in the current literature. On the contrary, availability of different types of food outlet seems to show some effect on actual spending amount (i.e., convenience store) but not store choice.
Can the Rise in Obesity in France be Blamed on the Food Environment? Evidence from French Urban Data
France Caillavet
(INRA-ALISS)
Gayaneh Kyureghian
(Korea University)
Rodolfo M. Nayga, Jr.
(University of Arkansas)
Pierre Chauvin
(INSERM)
[View Abstract]
[Download Preview] We examine the effect of the food retail environment on consumers’ body mass in France, a country that has experienced rising obesity rates in the last 15 years. We measure food availability in several ways – number of retail outlets, the combined shopping service area, the average surface area of retail outlets, as well as the retailer type mix expressed as the number of hypermarkets, number of supermarkets, and number of small grocery stores. We use a unique panel data set with information on body mass of a sample of approximately 1250 individuals at two points of time – 2005 and 2010, in the Parisian region. We also use different datasets to test the effect of different measures of food availability, and different geographic units or reference areas as well as different model estimations to test the robustness of our results. Our results do not generally suggest systematic or strong influence of any of the food environment measures on body mass. However, we robustly detect small negative effects of number of small grocery stores and small positive effects of number of hypermarkets on body mass. The findings imply that changing the food environment to counter the rise in obesity in France may be misguided.
Discussants:
Louis-Georges Soler
(INRA-ALISS)
Jan 04, 2016 8:00 am, Hilton Union Square, Franciscan D
American Economic Association
Behavioral Development Economics - New Theory and Evidence
(O1, D9)
Presiding:
Gautam Rao
(Harvard University)
The Cost of Keeping Track
Johannes Haushofer
(Princeton University)
[View Abstract]
People frequently decide between completing transactions (e.g. paying a bill) immediately or in the future. When they opt for the future, the transaction may fail: people may forget about it, or external factors may get in the way. I show that when such failures are associated with a lump-sum cost, this predicts several known departures from the standard discounting model: an agent who anticipates such costs will exhibit decreasing impatience with dynamic inconsistency; a magnitude effect, i.e. discounting large amounts less than small amounts; a reversal of this magnitude effect in the loss domain; a sign effect, i.e. discounting gains more than losses; and an Andreoni-Sprenger (2012) type reduction of discounting and decreasing impatience when money is added to existing payoffs. In addition, agents of this type may prefer to “pre-crastinate”, i.e. incur losses sooner rather than later. The model further predicts a gain-loss asymmetry similar to that which leads to loss aversion. The results do not depend on whether the cost arises for internal (e.g. forgetting) or external reasons (e.g. “acts of God”), and whether the cost of keeping track is incurred every period (e.g. a psychological hassle cost) or once (e.g. as a result of forgetting combined with a penalty). Naïveté causes agents to behave more like standard exponential discounters in most respects, except that it leads to a welfare loss when agents choose delayed outcomes because they underestimate their cost. Sophisticated agents are willing to pay for reminders. Empirical tests confirm that people are likely to fail to act on profitable future opportunities, and that they are partly aware of this fact, preferring to pre-crastinate on losses and being willing to pay for reminders. I discuss applications in development economics, such as low takeup of savings technology, water chlorination, vaccination, fertilizer, and insurance.
The Expertise of the Poor
Anuj K. Shah
(University of Chicago)
[View Abstract]
[Download Preview] Much attention is given to how poverty negatively affects cognition. In this paper, I explore a broader view of how poverty reshapes the way we think. I discuss how basic cognitive processes can indeed tax mental bandwidth and impede decision-making among the poor. But I also find evidence that certain decisions improve when money is scarce. Moreover, I describe how conditions like poverty might shift the content of everyday thinking. These findings suggest that poverty imposes a mindset that both focuses and constrains our mental capacities.
Self-Control and Chronic Illness: Evidence and Structural Estimation From a Field Experiment
Gautam Rao
(Harvard University)
Edward Miguel
(University of California-Berkeley and NBER)
Benjamin Handel
(University of California-Berkeley and NBER)
Liang Bai
(University of Edinburgh)
[View Abstract]
We construct a simple model of preventive health behavior under present biased time preferences, and show how beliefs about future time preferences (sophistication, partial naivete, and perfect naivete) affect how agents are predicted to use, under-use or misuse different types of commitment contracts. We propose a type of commitment contract that has the potential to benefit not just sophisticated present biased agents, but also naifs. We conduct a field experiment focused on increasing the share of patients who actively manage their hypertension by visiting a doctor periodically. The experiment is closely tied to the theory, allowing us to estimate the key parameters of the model.
Alcohol and Self-Control: A Field Experiment in India
Frank Schilbach
(Harvard University)
[View Abstract]
High levels of alcohol consumption are more common among the poor. This fact could have economic consequences beyond mere income effects because alcohol impairs mental processes and decision-making. Since alcohol is thought to induce myopia, this paper tests for impacts on self-control and on savings behavior. In a three-week field experiment with low-income workers in India, I provided 229 individuals with a high-return savings opportunity and randomized incentives for sobriety. The incentives significantly reduced daytime drinking as measured by decreased breathalyzer scores. This in turn increased savings by approximately 60 percent. No more than half of this effect is explained by changes in income net of alcohol expenditures. In addition, consistent with enhanced self-control due to lower inebriation levels, incentivizing sobriety reduced the impact of a savings commitment device. Finally, alcohol consumption itself is prone to self-control problems: over half of the study participants were willing to sacrifice money to receive incentives to be sober, exhibiting demand for commitment to increase their sobriety. These findings suggest that heavy alcohol consumption is not just a result of self-control problems, but also creates self-control problems in other areas, potentially even exacerbating poverty by reducing savings.
Discussants:
Aprajit Mahajan
(University of California-Berkeley)
Sendhil Mullainathan
(Harvard University)
Paul Niehaus
(University of California-San Diego)
Jan 04, 2016 8:00 am, Hilton Union Square, Franciscan C
American Economic Association
Big Data in the Labor Market: New Research from Job Boards and Networking Sites
(J6, C8)
Presiding:
Peter Kuhn
(University of California-Santa Barbara)
Age and Gender Profiling in the Chinese and Mexican Labor Markets: Evidence from Four Job Boards
Miguel Delgado Helleseter
(University of California-Santa Barbara)
Peter Kuhn
(University of California-Santa Barbara)
Kailing Shen
(Australian National University)
[View Abstract]
[Download Preview] When permitted by law, employers sometimes state the preferred age and sex of their employees in job ads. We extend Kuhn and Shen’s (2013) study of this practice to three new samples of job ads from China and Mexico, focusing on the interaction between firms’ age and gender preferences. In all four data sets, we find that both age and gender profiling become less common as job skill requirements rise (the "negative skill-targeting relationship"). Also, firms' explicit gender requests shift dramatically away from women and towards men when firms are seeking older (as opposed to younger) workers (the "age twist" in gender preferences). Some, but not all of this twist can be attributed to employers’ age-dependent demands for female beauty and male leadership. Gender differences in firms’ marital status preferences also appear to play a role.
Is Technological Change Exacerbated in Recessions? Evidence from Vacancy Postings
Brad Hershbein
(Upjohn Institute)
Lisa Kahn
(Yale University)
[View Abstract]
We test whether recessions exacerbate routine-biased technological change (RBTC), whereby firms replace routine-task workers with machines and overseas labor, and hire more-skilled workers that complement them, accelerating the job polarization of the U.S. labor market. In doing so we establish a new fact about the demand for skill over the business cycle. Using a new database containing the near-universe of electronic job vacancy postings in U.S. metro areas over the period 2007 and 2010--2015, we find evidence of upskilling -- firms demanding more-skilled workers when local employment growth is slower. In a large recession compared to a boom, our estimates imply that, across all types of jobs, firms demand roughly two-thirds of a year more experience and are 50% more likely to ask for a college degree. We find that the vast majority of these effects can be attributed to changes in skill requirements for the same firms and occupations, with only small roles for shifting distributions of the firms that hire and the occupations they seek. We propose upskilling is driven primarily by firm restructuring of production towards more-skilled workers. We show that (1) upskilling is persistent after local economies recover from the Great Recession and this elevated skill demand is driven by the same firms that upskilled early in the recovery; (2) among publicly traded firms in our data, those that upskill more also increase capital stock by more over the same time period, and (3) upskilling is concentrated within routine-task occupations -- those most vulnerable to RBTC. We also rule out a number of other cyclical explanations for upskilling. For example, we see little evidence that firms opportunistically seek to hire more- skilled workers in a slack labor market. We thus present the first direct evidence that the Great Recession exacerbated technological change.
The More You Know: Information Effects in Job Application Rates by Gender In A Large Field Experiment
Laura Gee
(Tufts University)
[View Abstract]
[Download Preview] This paper presents the results from a field experiment which varies the amount of information seen by two million job seekers when viewing 100,000 job postings on a large online job posting website. The information seen is the true number of people who previously started an application. This intervention increases the likelihood a person will start/finish an application by 2-5%, representing a potential increase of thousands of applications per day. Beyond increasing applications, the treatment also changes the makeup of the applicant pool by increasing the number of women who apply. Firms in industries like high tech and finance that are highly represented on this job posting website may be particularly interested in this low cost, light touch intervention to increase the number of female applicants.
Mismatch Unemployment and the Geography of Job Search
Ioana Marinescu
(University of Chicago)
Roland Rathelot
(University of Warwick)
[View Abstract]
[Download Preview] Could we significantly reduce U.S. unemployment by helping job seekers move closer to jobs? Using data from the leading employment board CareerBuilder.com, we show that, indeed, workers dislike applying to distant jobs: job seekers are 35\% less likely to apply to a job 10 miles away from their ZIP code of residence. However, because job seekers are close enough to vacancies on average, this distaste for distance is fairly inconsequential: our search and matching model predicts that relocating job seekers to minimize unemployment would decrease unemployment by only 5.3\%. Geographic mismatch is thus a minor driver of aggregate unemployment.
Discussants:
Amanda Agan
(Princeton University)
John Joseph Horton
(New York University)
Christopher Stanton
(London School of Economics)
Vera Brencic
(University of Alberta)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 17 & 18
American Economic Association
Capital Controls
(F3, E6)
Presiding:
Zheng Liu
(Federal Reserve Bank of San Francisco)
The Real Effects of Capital Controls: Credit Constraints, Exporters and Firm Investment
Laura Alfaro
(Harvard University)
Anusha Chari
(University of North Carolina)
Fabio Kanczuk
(University of Sao Paulo)
[View Abstract]
[Download Preview] This paper evaluates the effects of capital controls on firm-level stock returns and real investment using data from Brazil. Theory suggests that the imposition of capital controls can drive up the cost of capital and curb investment. Credit constraints are also more likely to bind for firms that are more dependent on external finance. The data suggest that there is a significant decline in cumulative abnormal returns for Brazilian firms following the imposition of capital controls in 2008-2009 consistent with an increase in the cost of capital. Conditioning on firm-characteristics such as firm size and export status, the data suggest that large firms and the largest exporting firms are less affected by the controls. Firms that are more dependent on external finance are however more adversely affected by the controls. The evidence is consistent with the hypothesis that capital controls increase market uncertainty and reduce the availability of external finance, which in turn lowers investment at the firm-level.
Capital Controls or Real Exchange Rate Policy?
Gianluca Benigno
(London School of Economics)
Huigang Chen
(MarketShare Partners)
Christopher Otrok
(University of Missouri)
Alessandro Rebucci
(Johns Hopkins University)
Eric R. Young
(University of Virginia)
[View Abstract]
[Download Preview] In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy tool kit (so called macroprudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, this paper shows that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls, as it can achieve unconstrained allocation.
On the Desirability of Capital Controls
Jonathan Heathcote
(Federal Reserve Bank of Minneapolis)
Fabrizio Perri
(University of Minnesota)
[View Abstract]
[Download Preview] In a standard two country international macro model we as whether imposing restrictions
on international non-contingent borrowing and lending is
ever desirable. The answer is yes. Imposing capital controls is unilaterally
desirable when restricting bond trade
generates a sufficiently favorable change in the expected interest rates and/or terms
of trade. Imposing capital controls can be welfare improving for both
countries for calibrations in which changes in equilibrium terms of trade
movements induced by the controls improve insurance against country specific
shocks.
Reserve Requirement and Optimal Chinese Stabilization Policy
Chun Chang
(Shanghai Jiao Tong University)
Zheng Liu
(Federal Reserve Bank of San Francisco)
Mark M. Spiegel
(Federal Reserve Bank of San Francisco)
Jingyi Zhang
(Shanghai Jiao Tong University)
[View Abstract]
[Download Preview] China's central bank frequently uses reserve requirements as an additional policy instrument. We argue that the use of reserve requirements can be effective and desirable as a second-best policy for macroeconomic stabilization given the distortions in China's existing financial system. In China, state-owned enterprises (SOEs) enjoy superior access to bank loans relative to private firms, who rely more heavily on the shadow banking sector for financing. Regulatory restrictions such as reserve requirements have different impacts on these alternative forms of finances. Commercial banks are subject to reserve requirements, and their depositors enjoy implicit government guarantees. Neither of these features hold for the shadow banks. We build a two-sector DSGE model that incorporates these characteristics. Given that the SOE sector is less productive on average than the POE sector, adjusting reserve requirements in this environment involves a tradeoff between efficiency and risk: Higher required reserve ratios raise the relative funding costs for SOE firms and reallocates resources from the SOE sector to the private sector, raising aggregate productivity. However, a higher level of required reserves also raises the incidence of costly firm failures. We examine the implications of changes in reserve requirements for the steady-state equilibrium, for stabilization of business cycle fluctuations, and also for transition dynamics in the case of a permanent increase in SOE productivity.
Discussants:
Nicolas Magud
(International Monetary Fund)
Michael B. Devereux
(University of British Columbia)
Martin Uribe
(Columbia University)
Kinda Hachem
(University of Chicago)
Jan 04, 2016 8:00 am, Hilton Union Square, Continental – Parlor 3
American Economic Association
Child and Maternal Health
(I1, J1)
Presiding:
Olga Yakusheva
(University of Michigan-Ann Arbor)
Investment in Health Across the Lifecycle: From the Womb to the Grave
Gabriella Conti
(University College London)
Titus J. Galama
(University of Southern California)
James J. Heckman
(University of Chicago)
[View Abstract]
[Download Preview] We present an overlapping generations model of early-life parental investment and later-life own investment in health. The parent optimizes her own consumption, education, leisure time, timing of child birth, time devoted to work, own and child health, and the duration of her own longevity, subject to the constraints she faces in terms of the initial own and child’s health and skill endowments, the resources at her disposition, the own and child environments, and the nature and efficiency of the own and child health-capital production processes. The model captures important relationships between parental characteristics, economic circumstances, childhood endowments, biology, and the child's health. Investment in the child's health endowment and saving for the child's inheritance provide two distinct means by which the parent can improve the future wellbeing of her child. Parental investments and savings are larger if additional resources enable the child to extend her life, and smaller otherwise. The model is able to reproduce the early emergence and widening of health disparities across the life cycle, and the accelerated aging experienced by those born in poverty.
Identifying the Effect of Cesarean Delivery on Maternal Postpartum Weight and Subsequent Fertility
Olga Yakusheva
(University of Michigan-Ann Arbor)
Kandice A. Kapinos
(RAND Corporation)
Marianne Weiss
(Marquette University)
[View Abstract]
Cesarean delivery accounts for nearly one-third of all births in the U.S. and contributes to an additional $38 billion in healthcare costs each year. Although Cesarean delivery has a long record of improving maternal and neonatal mortality and morbidity, increased utilization over time has yielded public health concerns and calls for reductions. Studies have linked Cesarean delivery to increased maternal postpartum weight and decreased subsequent fertility, which may have significant implications for the obesity epidemic and population-level fertility rates. Previous literature, however, typically does not address selection biases stemming from correlations between pre-pregnancy weight and health and Cesarean delivery. In this study, we rely on fetal malpresentation as a largely exogenous factor that explains Cesarean delivery but is uncorrelated with pre-pregnancy weight or health, using hospital administrative data (including vital records fields) from the state of WI from 2006 to 2013. In comparing mothers who deliver via Cesarean due to fetal malpresentation to mothers who deliver vaginally, we find no evidence that Cesarean delivery leads to greater maternal postpartum weight retention. Instead, we find that Cesarean mothers weigh about ¾ of a pound more at the start of their second pregnancy relative to their vaginal delivery counterparts. However, we find a negative effect of Cesarean delivery on subsequent fertility, with an 11.4 percent reduction in the likelihood of subsequent childbearing following Cesarean delivery, relative to vaginal births. These findings inform prenatal counseling policies to improve the decision-making process between the woman and her clinician, especially in low-risk pregnancies where vaginal delivery might be an option.
DOES FAMILY PLANNING INCREASE CHILDREN’S OPPORTUNITIES? EVIDENCE FROM THE WAR ON POVERTY AND THE EARLY YEARS OF TITLE X
Martha J. Bailey
(University of Michigan)
Olga Malkova
(University of Kentucky)
[View Abstract]
[Download Preview] This paper examines the relationship between parents’ access to family planning and their children’s economic resources. Using the county-level introduction of U.S. family planning programs between 1964 and 1973, we find that children born after family planning programs began had 2.5% higher household incomes. They were also 7% less likely to live in poverty and 11% less likely to live in households receiving public assistance. A bounding exercise shows the most extreme type of selection fails to explain these effects. This finding implies an important role for empowerment effects, including increases in mothers’ paid work and increased childbearing within marriage.
Paid Family Leave and Infant Health: Evidence From State Programs
Lindsey Bullinger
(Indiana University)
[View Abstract]
The United States is the only developed nation without paid parental leave. There are, however, four states – California, Rhode Island, Washington, and New Jersey – that do have laws providing paid family leave for employees who need time off to care for a new child. This paper evaluates the impacts of state-level paid family leave policies on infant mortality in the United States. I rely on both across-state and within-state variation under the presumption that employees residing in counties with lower levels of education and income are less likely to have access to paid leave through their employer, less likely to afford to take unpaid time off following the birth of a child, and thus more likely to benefit from the PFL programs. Using Vital Statistics Linked Births/Infant Death Certificate data from 2000-2012, preliminary results suggest state-level paid parental leave policies decreased infant mortality rates. The effects are stronger in counties with lower levels of education. The results of this study have important implications for the increasing dialogue surrounding family leave.
Discussants:
Peter Savelyev
(Vanderbilt University)
Kristine Brown
(RAND Corporation)
Lynn Karoly
(RAND Corporation)
Kandice A. Kapinos
(RAND Corporation)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 21
American Economic Association
Couples' Retirement and Social Security around the World
(J2, D1)
Presiding:
Arie Kapteyn
(University of Southern California-Los Angeles)
Couples' and Singles' Savings after Retirement
Eric French
(University College London)
Mariacristina De Nardi
(University College London and Federal Reserve Bank of Chicago)
John Bailey Jones
(University at Albany)
[View Abstract]
[Download Preview] We model the saving problem of retired couples and singles facing uncertain longevity and medical expenses in presence of means-tested social insurance. Households can save to self-insure against uncertain longevity and medical expenses, and to leave bequests. Individuals in a couple can be altruistic towards their spouse and other heirs and split bequests optimally. Single people can care about leaving bequests to children and others. Using AHEAD data, we first estimate the model and we then evaluate the relative importance of the various savings motives and the risk exposure of couples' vs. singles.
Interdependent Durations in Joint Retirement
Aureo de Paula
(University College London)
Bo Honore
(Princeton University)
[View Abstract]
[Download Preview] In this project we study joint retirement of couples. We characterize various empirical regularities and use a model for simultaneous duration variables developed in Honore and de Paula (2014). Whereas conventionally used duration models cannot account for joint retirement, our model admits joint retirement with positive probability, allows for simultaneity and nests the traditional proportional hazards model. In contrast to other statistical models for simultaneous durations, it is based on Nash bargaining and it is therefore interpretable in terms of economic behavior. We focus on the Survey on Health, Ageing and Retirement in Europe (SHARE) and the English Longitudinal Survey of Ageing (ELSA) and also provide a comparison with our estimates using US data (HRS)."
How Does Raising Women’s Full Retirement Age Affect Labor Supply, Income and Mortality
Rafael Lalive
(University of Lausanne)
Stefan Staubli
(University of Calgary)
[View Abstract]
Understanding why and when individuals retire is central to the current debate on pension reform. We study how women change their employment decisions in response to a Swiss reform that increased the full retirement age (FRA) twice, from 62 to 63 years, and from 63 years to 64 years, by date of birth. We find that raising the FRA strongly affects women's labor supply. A one year increase in the FRA delays labor market exit by 7.9 months and claiming of retirement benefits by 6.6 months. We neither find an effect on labor supply nor on benefit claiming of affected women's spouses. Mortality increases somewhat but the effect is not precisely estimated. Increasing the FRA has no statistically significant effect on the level of social security benefits but lowers social security wealth. Increasing the FRA by two years reduces the present discounted cost of a retiree by 10%.
Spousal Retirement and Other Non-Employment Outcomes
Elena Stancanelli
(Paris School of Economics)
[View Abstract]
[Download Preview] Because over 70 per cent of older individuals lives in a couple, it is relevant to investigate spouses’ retirement strategies. We study a French pension reform targeted at individuals born in 1934 and later years, and apply a sharp regression discontinuity framework. We use panel data on roughly fifty thousand French couples and estimate both local polynomial and parametric regression discontinuity models. We conclude that the reform encouraged spouses to retire later, as expected, but it also increased slightly the probability of being unemployed for the husband and a “housewife” for the wife. We also find a significant, though small, increase in the unemployment probability of women married to a man affected by the reform. There is little evidence of joint retirement of spouses, a finding which is confirmed also when instrumenting spousal retirement with legal retirement age. We show that joint retirement patterns are essentially driven by the age difference between spouses.
How Does Increasing the Early Retirement Age for Women Affect the Labor Supply of Women and Their Husbands?
Jonathan Cribb
(Institute for Fiscal Studies)
Carl Emmerson
(Institute for Fiscal Studies)
Gemma Tetlow
(Institute for Fiscal Studies)
[View Abstract]
[Download Preview] Using a difference-in-differences methodology, we estimate the impact of increasing the early retirement age for women on the labor force participation of their husbands. We exploit a recent increase of the early retirement age from 60 to 61 for women (with no change for men) in the UK to identify the effect of later retirement among women on the labor force participation of their husbands. Our results suggest that in response to the reform employment rates of married women increased by 5.4 percentage points at age 60, while the employment rate of their husbands rose by 4.2 percentage points. We also find that the proportion of couples where both partners work rose by 5.4 percentage points – higher than expected if partners’ labor supply were substitutes for one another or were independent decisions. Our results therefore provide evidence of joint retirement caused by complementarities of leisure within couples.
Discussants:
Wilbert van der Klaauw
(Federal Reserve Bank of New York)
Edward Vytlacil
(Yale University)
Nicole Maestas
(Harvard University)
David Card
(University of California-Berkeley)
Yingying Dong
(University of California-Irvine)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 13
American Economic Association
Credit, Frictions, and the Macroeconomy
(E2)
Presiding:
Andrew Jalil
(Occidental College)
Payments, Credit and Asset Prices
Monika Piazzesi
(Stanford University)
Martin Schneider
(Stanford University)
[View Abstract]
This paper studies a monetary economy with two layers of transactions. In enduser transactions, households and institutional investors pay for goods and securities with deposits issued by banks. Endusers’ payment instructions generate interbank transactions where banks pay with reserves or interbank credit. The model links the payments system and securities markets so that beliefs about asset payoffs matter for the money supply and the price level, and monetary policy matters for real asset values.
The Transmission of Monetary Policy through Bank Lending: The Floating Rate Channel
Filippo Ippolito
(Universitat Pompeu Fabra)
Ander Perez
(Universitat Pompeu Fabra and Boston University)
Ali Ozdagli
(Federal Reserve Bank of Boston)
[View Abstract]
[Download Preview] We find that outstanding bank loans are vital for the transmission of monetary policy because, unlike other debt, most bank loans have floating rates that are mechanically tied to monetary policy rates. This novel floating rate channel is potentially as important as the widely studied bank lending channel through new loans. Firms that use more bank debt and do not hedge it display a stronger sensitivity of their stock price, profitability, cash holdings, and inventory investment to monetary policy. The effect is more powerful for financially constrained firms, consistent with the idea that changes to floating rates induced by monetary policy have an impact on the liquidity of these firms. Moreover, this effect disappears when policy rates hit the zero lower bound, revealing a new limitation of unconventional monetary policy.
Debt Constraints and Employment
Virgiliu Midrigan
(New York University)
Elena Pastorino
(University of Minnesota)
Patrick J. Kehoe
(University of Minnesota)
[View Abstract]
In the Great Recession, 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: the surplus from a match is thus 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 the 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.
Risk Sharing Between Households and Financial Institutions in Credit Downturns
Dilyana Dimova
(International Monetary Fund)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper develops a chained mortgage contracts model where both homeowner consumers and the financial institutions that securitize their mortgage loan are credit-constrained. The presence of financial frictions in both the consumer and the financial sectors brings the model closer to real financial markets and demonstrates the role of risk sharing between leveraged borrowers. Highly leveraged banks act as financial intermediaries in the mortgage contract so when their indebtedness worsens, they transfer some of the downturn to indebted consumers who have no financial recourse outside of the chained loan contracts. This consequence is observed both after easing borrowing conditions both for consumers and for financial institutions, but is especially evident following relaxed credit access for banks. After initially raising their leverage in response to the lax borrowing conditions, financial institutions repair their debt position relatively fast at the expense of consumers whose borrowing ability is squeezed although they are not the source of the disturbance. The result mirrors the recent subprime mortgage crisis characterized by a sharp but brief decline for banks and a protracted recovery for mortgaged households.
Macroprudential Policy in a Knightian Uncertainty Model with Credit-, Risk-, and Leverage Cycles
Eddie Gerba
(London School of Economics)
Dawid Zochowski
(European Central Bank)
[View Abstract]
[Download Preview] We attempt to explain two stylized facts of the Great Recession, namely the build-up of high leverage in the household sector in the boom phase, deep busts and protracted recovery as rare systemic events. We extend Boz and Mendoza (2014) by explicitly modeling the credit markets and modifying the learning to an adaptive set-up. We find that in such a set-up, the build-up of leverage and the collateral price cycles take longer than in other DSGE models with financial frictions. The boom-bust cycles occur as rare events, with two systemic crises per century. The model also replicates asymmetric distributions of key macroeconomic and financial variables, with high skewness and fat tails. In addition, we show that a simple LTV-cap regulation is effective in smoothing the leverage cycles by limiting household borrowing in upturns, both via quantity (higher equity participation requirement) and price (lower collateral value) effects, as well as providing a well defined anchor for the agents in their learning process.
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 23 & 24
American Economic Association
Crowdfunding Innovation
(L1, G2)
Presiding:
David Zvilichovsky
(Tel Aviv University)
Are the Life and Death of an Early Stage Venture Indeed in the Power of the Tongue? Lessons from Online Crowdfunding Pitches
Dan Marom
(Hebrew University)
Orly Sade
(Hebrew University)
[View Abstract]
While presenting an initiative to potential investors, the entrepreneur can choose the extent to which she presents herself, versus presenting the idea. We investigate this decision and its effect on the success of the fundraising on a leading crowdfunding platform (Kickstarter). We employ a text mining quantification method validated by experiments and robustness tests. Our dataset was collected using custom software and includes over 20,000 online business pitches and their results. We find that in Kickstarter fundraising, entrepreneurs' descriptions matter - projects (especially art related) that frequently mentioned the entrepreneurs’ name enjoyed higher rates of success, controlling for relevant variables.
Are Syndicates the Killer App of Equity Crowdfunding?
Christian Catalini
(Massachusetts Institute of Technology)
Ajay Agrawal
(University of Toronto)
Avi Goldfarb
(University of Toronto)
[View Abstract]
[Download Preview] Information asymmetry presents a challenge to equity crowdfunding just as in other markets for equity capital. Investors are less likely to finance startups when it is difficult to assess quality. We argue that syndicates reduce market failures caused by information asymmetry by shifting the focal investment activities of the crowd from startups to lead investors. Syndicates align incentives of issuers, lead and follow on investors by providing incentives for lead investors to conduct due diligence, monitor progress, and exploit their reputation. We report preliminary evidence that foreshadows a meaningful role for syndicates in the allocation of capital to early-stage ventures.
(Crowd)funding Innovation
Praveen Kumar
(University of Houston)
Nisan Langberg
(Tel Aviv University and University of Houston)
David Zvilichovsky
(Tel Aviv University)
[View Abstract]
[Download Preview] Financing through crowdfunding is growing rapidly, especially for start-ups. Investment financing via crowdfunding is integrated with the real side of the firm as future consumers may potentially provide all or part of the required resources. Some crowdfunding platforms allow for contracts where the monopolist commits to execute the project only if a funding target is met. Consumers therefore must consider whether they are pivotal in the successful financing and initiation of production. We find that an optimal crowdfunding contract, which specifies a pre-sale price and a funding target, may serve as a price discrimination mechanism by forcing pivotal consumers to pay a premium above the expected future spot price. Thus, even in the absence of financing constraints, the monopolist benefits from funding her investment via the crowdfunding platform. Moreover pre-sale crowdfunding increases expected production and total welfare when the marginal c ost of p roduction is low, as in high-technology firms. When entrepreneurs are financially constrained, and their projects are fundable via pre-sale crowdfunding, higher external financing costs increase total surplus as long as production takes place. This indicates that reducing the cost of capital, a common policy instrument used for spurring innovation, may unintentionally reduce welfare. Finally, equity crowdfunding can result in over-priced equity valuation, in contrast to the equity underpricing in IPOs.
Discussants:
Roy Zuckerman
(Tel Aviv University)
Jan 04, 2016 8:00 am, Hilton Union Square, Imperial B
American Economic Association
Do Capital Flows Need to be Tamed?
(F3, F4)
Presiding:
Jonathan D. Ostry
(International Monetary Fund)
Are Capital Inflows Expansionary or Contractionary? What Role for FX Intervention and Capital Controls?
Olivier J. Blanchard
(Peterson Institute for International Economics)
Jonathan D. Ostry
(International Monetary Fund)
Atish R. Ghosh
(International Monetary Fund)
Marcos Chamon
(International Monetary Fund)
[View Abstract]
[Download Preview] The workhorse model of international macro (the Mundell-Fleming model) predicts that capital inflows, by leading to a real appreciation, will be contractionary. The policy literature tends to emphasize that inflows lead to an expansion of demand and often to overheating if the economy is near full employment. This paper will explore theoretically some channels—particularly credit easing—in which inflows, notwithstanding the appreciation they generate, can nevertheless be expansionary. It also explores theoretically and empirically the effects of inflows on output and credit; as well as the effects of sterilized intervention intended to undo some of these effects. In a final part, the paper will explore more generally the role of different tools for managing capital flow volatility, and the comparative advantages of capital controls/prudential regulations as well as foreign exchange market intervention.
Government Balance Sheet and Capital Flow Management
Olivier Jeanne
(Johns Hopkins University)
[View Abstract]
[Download Preview] In the real world emerging markets resort to countercyclical sterilized reserve accumulation in order to smooth the impact of the boom-bust cycle on their economies. We analyze the case for such a policy using a dynamic optimization model of a small open economy with a tradable good and a nontradable good. Foreign investors demand a premium for lending to domestic borrowers and this premium fluctuates over time. The government can smooth the impact of fluctuations of the premium on the domestic interest rate by adjusting the net supply of domestic bonds through open market operations. We characterize the optimal policy and compare it to the data using a calibrated version of the model.
Crashes
Atish R. Ghosh
(International Monetary Fund)
Jonathan D. Ostry
(International Monetary Fund)
Mahvash S. Qureshi
(International Monetary Fund)
[View Abstract]
[Download Preview] The global financial crisis (GFC), as well as the more recent taper tantrum, has served as rude reminders of the dangers associated with large capital inflows and subsequent sudden stops in emerging market economies (EMEs). But perhaps more importantly, it has reaffirmed the importance of domestic macroeconomic and financial conditions in determining the impact of global shocks on these economies: while most EMEs experienced a surge in capital inflows in the runup to the GFC, not all of them experienced a financial crisis when global economic winds shifted. But which factors are important in determining the post-surge outcome? Our analysis based on a sample of 53 EMEs over 1980-2014 suggests that changes in global conditions (notably, US interest rates, global risk aversion and commodity prices) have an important bearing on how surge episodes end, but countries that allow the buildup of macroeconomic imbalances and financial vulnerabilities—credit expansion, currency overvaluation, and economic overheating—and that receive most of their flows in the form of debt are also significantly more likely to end surge episodes with a crash. By contrast, those with higher stocks of foreign exchange reserves and a larger share of inflows in the form of foreign direct investment are significantly less likely to experience a financial crisis. Moreover, exchange rate flexibility can help the economy to avoid sharp output declines.
Global Cycles: Capital Flows, Commodities, and Sovereign Defaults, 1815-2015
Carmen M. Reinhart
(Harvard University)
Vincent Reinhart
(American Enterprise Institute)
Christoph Trebesch
(University of Munich)
[View Abstract]
[Download Preview] Capital flow and commodity cycles have long been connected with economic crises. Sparse historical data, however, has made it difficult to connect their timing. We date turning points in global capital flows and commodity prices across two centuries and provide estimates from alternative data sources. We then document a strong overlap between the ebb and flow of financial capital, the commodity price super-cycle, and sovereign defaults since 1815. The results have implications for today, as many emerging markets are facing a double bust in capital inflows and commodity prices, making them vulnerable to crises.
Discussants:
Charles Engel
(University of Wisconsin-Madison)
Anton Korinek
(Johns Hopkins University)
Stijn Claessens
(Federal Reserve Board)
Sergio Schmukler
(World Bank)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 22
American Economic Association
Economic Development and Culture
(O1, Z1)
Presiding:
Paola Giuliano
(University of California-Los Angeles and NBER)
The Geographical Origins of the Tower of Babel: The Economic Causes and the Consequences of Linguistic Structure
Oded Galor
(Brown University and NBER)
Omer Ozak
(Southern Methodist University)
Assaf Sarid
(Brown University)
[View Abstract]
[Download Preview] This research explores the economic causes and consequences of linguistic structures. It advances the hypothesis and establishes empirically that variations in pre-industrial agro-climatic characteristics that were conducive to higher return to agricultural investment, and thus forward-looking behavior, are at the root of existing variations in the presence of the future tense across languages. Moreover, the research suggests that while the presence of the future tense has been largely a reflection of the coding of past human experience, and in particular the extent of long-term orientation in society, it had an independent effect on forward-looking behavior and thus on economic outcomes such as education and savings.
Ancestral Characteristics of Modern Populations
Paola Giuliano
(University of California-Los Angeles and NBER)
Nathan Nunn
(Harvard University and NBER)
[View Abstract]
We construct a database with global coverage that provides measures of the characteristics of the ancestors of the world’s populations. We provide average measures of cultural traits at the country, district and grid-cell levels. We also provide the average characteristics in formats that can be easily linked to existing datasets like the World Values Surveys
Why Work More? The Impact of Taxes and Culture of Leisure on Labor Supply
Naci Mocan
(Louisiana State University and NBER)
Luiza Pogorelova
(Louisiana State University)
[View Abstract]
[Download Preview] We use micro data from European Social Survey that include information on labor force participation and hours worked of second-generation immigrants who reside in 26 European countries. These individuals are born in Europe, and they have been exposed to institutional, legal and labor market structures of their countries, including the tax rates. The fathers of these individuals are first-generation immigrants and we identify 81 different countries they migrated from. We construct measures of “taste for leisure” in the country of origin of each immigrant father. We use two different tax measures (average and marginal) for each country and control for individual characteristics such age, education, marital status, size of the city and ethnic minority status. We also control for a set of attributes of the country of residence and country of origin. Thus, we are able to identify the impact of taxes on labor supply (both at the extensive and intensive margin), holding constant observable attributes of individuals, various attributes of the country in which they live, and attributes of their father’s country of origin, including the taste for leisure in that country of origin. Similarly, we can identify the impact of culture of leisure on labor supply, holding constant personal characteristics, and country attributes, including taxes. The results show that for women, both taxes and culture of leisure impact participation and hours worked. For men, taxes influence labor supply both at the intensive and the extensive margin, but culture of leisure has no impact.
It’s Raining Men! Hallelujah?
Pauline Grosjean
(University of New South Wales)
Rose Khattar
(University of New South Wales)
[View Abstract]
[Download Preview] We document the implications of missing women in the short and long run. We exploit a natural historical experiment, which sent large numbers of male convicts and far fewer female convicts to Australia in the 18th and 19th century. In more male-biased areas, women historically married more and were less likely to work. Today, in areas that were more male-biased historically, people have more conservative attitudes towards women working, women are less likely to have high-ranking occupations, and women earn a lower wage income. We document the role of vertical cultural transmission and of marriage homogamy in sustaining cultural persistence.
Discussants:
Jessica Pan
(Singapore National University)
Assaf Sarid
(Brown University)
Alessandra Fogli
(Bocconi University)
Luigi Guiso
(Einaudi Institute for Economics and Finance)
Jan 04, 2016 8:00 am, Hilton Union Square, Continental Ballroom 4
American Economic Association
Gender at Work: Evidence from Experimental Economics
(C9, J7)
Presiding:
Catherine Eckel
(Texas A&M University)
Knowing When to Ask: The Cost of Leaning In
Christine Exley
(Stanford University)
Muriel Niederle
(Stanford University)
Lise Vesterlund
(University of Pittsburgh)
[View Abstract]
A recent literature has focused on gender differences in asking for higher salaries as a substantial culprit of gender differences in wages. In this paper we provide an experiment where workers, after learning their contribution to the joint firm-worker profit, receive a random wage offer which is on average lower than the workers' contribution. Workers then decide whether to accept this wage offer, or whether they want to enter a negotiation with the firm. We find that women are significantly less likely to enter negotiations than men, even though women who enter negotiations have significantly positive returns from doing so. This may lead to the expected conclusion and the recommendation that women don't ask and should ask more often. In the laboratory, we can assess the counter-factual: what would happen if all women were forced to negotiate? We find that the additional women who now enter negotiations have significant negative returns from asking. Women were positively selecting into asking: those that were good at it, did so already. Therefore, when workers know what they bring to the table, this study highlights the costs of leaning in.
A University-Wide Field Experiment on Gender Differences in Job Entry Decisions
Anya Samek
(University of Southern California)
[View Abstract]
[Download Preview] The gender difference in competitiveness has been cited as an important factor driving the gender gap in labor market outcomes. Using a natural field experiment with 35,000 university students, I explore the impact of compensation scheme on willingness to apply for a job. I find that competitive compensation schemes disproportionately deter women from applying, which cannot be explained by differences in risk preferences alone. I also vary whether the job is introduced as helping a non-profit, which increases application rates, suggesting a role for social preferences in application decisions. Finally, I observe a correlation between competitiveness preferences and career choice.
Born to Lead? Gender Differences in Incentive Provision and Its Evaluation
Alexandra van Geen
(Erasmus University)
Olga Shurchkov
(Wellesley College)
[View Abstract]
[Download Preview] Provision of appropriate incentives is an important attribute of leadership, yet little is known about the mechanisms behind selection and perception of different types of incentivization methods. This study uses a laboratory experiment to characterize the ways in which leaders assign incentives in order to encourage costly effort from workers. This study also yields insights into the effect of the leader’s gender on the choice of incentives, the impact of incentives on worker productivity, and subsequent evaluation of this choice by third‐party observers. Specifically, in the first part of the experiment, we test whether gender and other individual characteristics explain the likelihood of selecting positive (“carrot”) or negative (“stick”) types of incentive schemes. Furthermore, we estimate the extent to which incentive schemes and the gender of the leader affect worker productivity. In the second part of the experiment we reveal the choices of the leaders to third party evaluators who rate the leader’s competency and vote on whether or not to apply the given leader’s choices to their own payoffs. By varying the information about the leader’s gender we are able to identify the effect gender may have on the perception of the selected incentivization methods. We hypothesize that women make use of different incentive methods, that these methods will affect workers differently depending on the gender of the leader, and that women leaders will be less likely to receive a positive evaluation. Furthermore, we hypothesize women leaders choosing negative incentives may be underrated relative to men choosing the same incentives, as well as relative to the women choosing positive incentives.
Gender Differences in Negotiation by Communication Method
Adam Greenberg
(University of California-San Diego)
Ragan Petrie
(George Mason University)
[View Abstract]
Women occupy few of the top positions in business, government and academics and have average earnings that are a fraction of men’s. Positions that pay well tend to require negotiation skills to get the job and to perform well on the job. On average, studies have found that women are less likely to enter a negotiation than men, and when they do negotiate, they obtain worse outcomes than men in a variety of settings. Most of these results are based on face-to-face negotiations in hypothetical or low-payoff consequence environments. With the myriad of acceptable forms of communication available (e.g., online written messages, text chat, phone calls, video, face to face), it is unclear if differences in negotiation outcomes will remain when gender cues and expectations are mitigated or eliminated when environments are less socially rich. We use economic experiments and systematically vary the communication mode (i.e., anonymous written message, written message with photos, audio, and video) to examine gender differences in outcomes when individuals must negotiation to realize payoffs. Our results show that when gender is known, women earn less than men from the negotiation, but when gender cues are eliminated, women’s outcomes are identical to men’s. These results suggest that it may not be that women do not like to enter negotiations per se but they do not like to do so when gender is salient.
Stress and the gender difference in willingness to compete
Thomas Buser
(University of Amsterdam)
Anna Dreber Almenberg
(Stockholm School of Economics)
Johanna Mollerstrom
(George Mason University)
[View Abstract]
[Download Preview] [Download PowerPoint] Women are often less willing than men to compete, even in tasks where there is no gender gap in performance. Also, many people experience competitive contexts as stressful and previous research has documented that men and women sometimes react differently to acute stressors. We use two laboratory experiments to investigate whether factors related to stress can help explain the gender gap in competitiveness. Experiment 1 studies whether stress responses (measured with salivary cortisol and through self-assessment) to taking part in a mandatory competition predict individual willingness to participate in a voluntary competition. We find that while the mandatory competition does increase stress levels, there is no gender difference in this reaction. Cortisol response does not predict willingness to compete for men but is positively and significantly correlated with choosing to enter the voluntary competition for women. In Experiment 2 we exogenously induce physiological stress using the cold-pressor task. We find no causal effect of stress on competitiveness for the sample as a whole and only tentative evidence of a positive effect for women. In summary, even though there are some gender differences in the relation between stress responses and the decision to enter a competition or not, these cannot explain the general gender gap in willingness to compete that is generally found in the literature and which we replicate.
Discussants:
Christine Exley
(Stanford University)
Anat Bracha
(Federal Reserve Bank of Boston)
Katherine Coffman
(Ohio State University)
Alexandra van Geen
(Erasmus University)
Jan 04, 2016 8:00 am, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Human Capital and Higher Education
(I1, J1)
Presiding:
Joshua D. Angrist
(Massachusetts Institute of Technology)
College Selectivity and Labor Market Outcomes: Evidence from the Texas Ten Percent Plan
Jeffrey Denning
(University of Texas-Austin)
Jesse Rothstein
(University of California-Berkeley)
[View Abstract]
The effect of college selectivity on graduates' long-run outcomes is at the center of several literatures. The literature on college access presumes that the effect is positive, and that policy should aim to move (qualified) disadvantaged students into more selective schools. But the literature on potential mismatch effects of affirmative action presumes the opposite, that students will thrive when their preparedness resembles that of their classmates. Unfortunately, credible evidence about the effect of selectivity is quite thin. We use variation in college selectivity induced by the Texas Ten Percent Plan, together with matched data tracking students from high school through to the labor market, to identify the causal effect of attending a flagship state university on adult employment outcomes. The Ten Percent Plan meant that many students were admitted to the University of Texas at Austin (UT) from high schools that previously sent few graduates. These students were less qualified than the typical UT matriculant on observable dimensions. If mismatch effects are important, they would have done less well than in the pre-policy regime, where weak students from "feeder" schools would have done better; positive selectivity effects imply the opposite. We use a differences-in-differences design to distinguish these hypotheses.
College on the Intensive Margin: Liquidity Constraints, Student Employment and the Return to Education
Joseph Altonji
(Yale University)
Craig Palsson
(Yale University)
Seth Zimmerman
(University of Chicago)
[View Abstract]
The vast education and earnings literature emphasizes heterogeneity in “the return” to college. But “the return” is not a fixed person-specific parameter. It is influenced by choices over major and study effort. Many factors influence these choices. In this paper, we examine the role of liquidity constraints.
Why would liquidity constraints affect the return? College students must cover not only educational expenses but also living costs and other financial obligations while in school. As a result, many students hold jobs, and must balance study time against time in the labor market. The amount of time a student can spend on course work influences performance. Furthermore, some fields, such as engineering, have more prerequisites and require more credits than others. Given constraints on time and energy, this sets up a potential tradeoff between student earnings and human capital accumulation. A student’s choices will depend on liquidity constraints.
In this paper, we provide theory and evidence on the effects of financial need on student employment, college major, grades, and earnings. On the theory side, we use a series of simple models to show that under reasonable assumptions students who are under more financial pressure while in college will work more in the labor market, study less, take less demanding majors, get lower grades conditional on the major chosen, take longer to complete school, and earn less. The empirical analysis uses rich administrative data on Florida high school students who attended in-state public colleges and universities, which includes transcript information, financial aid information, and quarterly earnings during and after college. We use the data to study the connections among financial need, market work while in school, credit hours per semester, time to degree, grades, and field of study.<br />
Affirmative Action and Racial Segregation
Peter Hinrichs
(Federal Reserve Bank of Cleveland)
[View Abstract]
[Download Preview] A number of states have recently prohibited the use of affirmative action in admissions to public universities. A growing body of research suggests that these affirmative action bans reduce minority enrollment at selective colleges while leaving overall minority college enrollment rates unchanged. The effects of the bans on segregation within and across colleges are theoretically ambiguous and have not yet been directly estimated.
This paper uses variation in the timing of affirmative action bans across states to estimate their effects on racial segregation, as measured by exposure and dissimilarity indexes. The results suggest that affirmative action bans can actually reduce racial segregation across colleges. The reason is that there is a U-shaped relationship between measures of college quality and the share of the student body who are members of underrepresented minority groups. Affirmative action bans (such as the one that went into effect in California in 1998) have in some cases flattened out this U shape, thereby contributing to a decline in measured segregation. This finding is notable because the Supreme Court has ruled that affirmative action is constitutional on the grounds that there are educational benefits to racial diversity, despite the fact that an increase in diversity at one university may come at the expense of a decrease in diversity at another university and possibly even an overall increase in segregation across universities.
Equilibrium Grade Inflation with Implications for Female Interest in STEM Majors
Thomas Ahn
(University of Kentucky)
Peter Arcidiacono
(Duke University)
Amy Hopson
(Duke University)
James R. Thomas
(Duke University)
[View Abstract]
[Download Preview] We estimate an equilibrium model of grading policies where professors set both an intercept and a returns to studying and ability. Professors value enrollment, learning, and student study time and set their policies taking into the account the policies of the other professors. Students respond to grading policies in their selection of courses and how much to study conditional on enrolling. Men and women are allowed to have different preferences over course types, the benefits associated with higher grades, and the cost of exerting more effort. Two decompositions are performed. First, we separate out how much of the differences in grading policies across fields is driven by differences in demand for courses in those fields and how much is due to differences in professor preferences across fields. Second, we separate out differences in female/male course taking across fields is driven by i) differences in cognitive skills, ii) differences in the valuation of grades, iii) differences in the cost of studying, and iv) differences in field preferences. We then use the structural parameters to evaluate restrictions on grading policies. Restrictions on grading policies that equalize grade distributions across classes result in higher (lower) grades in science (nonscience) fields but more (less) work being required. As women value grades more than men and find studying less costly, this restriction on grading policies results in more women pursuing the sciences and more men pursuing the nonsciences.
Discussants:
Jeffrey Smith
(University of Michigan)
Lesley Turner
(University of Maryland)
Danny Yagan
(University of California-Berkeley)
Chao Fu
(University of Wisconsin)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 25
American Economic Association
Humanities and the Teaching of Economics
(A2)
Presiding:
Jeffrey Wagner
(Rochester Institute of Technology)
Economics of Writing Detective Fiction
Kenneth Elzinga
(University of Virginia)
[View Abstract]
[Download Preview] This paper explores the basic economics of writing mystery fiction; it shows the minor role that economists have played in the genre of mystery fiction; and it explains how mystery fiction nonetheless can be used to teach the subject of economics.
“Sing Us a Song, You’re the Economist”: The Many Uses of Music and Poetry in the Principles Classroom
Clair Smith
(St. John Fisher College)
[View Abstract]
Music is an important part of life for many college students, and the incorporation of music in the classroom provides a way to teach and illustrate economic concepts that makes learning fun and relevant. This presentation includes proven methods from great instructors as well as original ideas of the author, forming a compendium of effective ways to utilize the power of music to capture student attention and convey economic concepts.
One successful method of teaching economics through music is to play the music before class begins, ideally with the lyrics and economic content or commentary appearing on the screen simultaneously. This introduces economic concepts and focuses student attention in the minutes leading up to the start of class without sacrificing actual classroom time.
Use of music lyrics during class lecture or discussion can provide creative examples of economic principles and evidence of the universal presence and relevance of economics.
Cognizant of the opportunity cost of minutes spent playing entire songs, the author has experimented with the use of very short clips embedded into classroom presentations. This utilizes the power of the music to make the concept relevant with minimal time cost. These short clips provide a kind of mental “hook” on which students can attach understanding of specific economic principles.
Student projects that include the identification and explication of economic concepts in music of the student’s choice empowers students to find and explain economics where they may never have thought about it before. This project can be implemented as a written paper or a video presentation.
Others have asked students to create a music video that essentially parodies an existing song using original lyrics that utilize and explain economics ideas. This has proven to be an especially enjoyable and worthwhile experience for students.
The A, B, Cs of Teaching Economics: Advertising, Bi-Metalism, & Choices
Cynthia Bansak
(St. Lawrence University)
Karen Gibson
(St. Lawrence University)
[View Abstract]
[Download Preview] For many our first endeavor into the world of business is the lemonade stand at the end of the driveway and the first key decision is what to charge for a glass of lemonade. A nickel, a dime, or a dollar? The price will make or break the business -- charge too much and no one will buy your lemonade; charge too little and you will not have enough. Our business education starts at a much earlier age. Children’s literature is ripe with economic metaphors and references to business. Farmer Boy teaches children about sustainability, while The Lorax forces us to consider how business activity interacts with environmental concerns. In this paper, we discuss our team-teaching of a first year program course that combined an introduction to children’s literature with the study of core economic concepts. Specifically we focus on three course projects: a workshop on the use of marketing in Charlotte’s Web; an analysis of The Wonderful Wizard of Oz as an allegory for the bi-metalism debate of the 1890s; and a group data analysis exercise culminating in a visual depiction of the possible choices a character faced on the basis of several economic factors in Lyddie.
Humanities as Technology in Teaching the Principles of Economics
Jeffrey Wagner
(Rochester Institute of Technology)
[View Abstract]
[Download Preview] [Download PowerPoint] As we know, technology is the process we choose for transforming a set of quantitative and qualitative factors of production into one or more outcomes. In teaching economics, we most often describe this as a process of transforming inputs such as student and teacher effort, textbooks, and Powerpoint slides into student learning outcomes. The purpose of this paper is to consider the promise of humanities as technology in the teaching of the principles of economics. Three examples of employing humanities as technology are discussed. First, instructors might design examination questions that give students the opportunity to prepare responses in the form of one-act plays that are situated in the context of the work students would most wish to engage upon graduation, and that mimic the job interviews for which they are preparing. Second, we might ask students to prepare term papers in which they discover principles of economics in poetry or paintings. Third, instructors might feature philosophical tracts such as Plato’s Republic or David Hume’s An Enquiry Concerning Human Understanding as platforms for discussing a number of economic principles. These “technologies” arguably make learning economics more interesting and more permanent for students than would otherwise be the case. Such technologies could make teaching economics more interesting for faculty, as they help make teaching a course that one may teach a number of times over the years nevertheless different each term. And the technologies enable economies of scope, which is valuable since we have such a short time to both teach the economic principles and to help impart a compelling general/liberal education.
Discussants:
Lawrence Oliver
(Texas A&M University)
Deirdre McCloskey
(University of Illinois-Chicago)
Shannon Chamberlain
(University of California-Berkeley)
Jonathan Wight
(University of Richmond)
Jan 04, 2016 8:00 am, Hilton Union Square, Plaza A
American Economic Association
International Trade and Trade Policy: In Memory of Robert M. Stern
(F1) (Panel Discussion)
Panel Moderator:
Alan Deardorff
(University of Michigan)
Edward E. Leamer
(University of California-Los Angeles)
Empirical Study of Trade
Keith E. Maskus
(University of Colorado)
Empirical Study of Trade
Peter Morrow
(University of Toronto)
Modeling of Trade and Trade Policy
David Richardson
(Syracuse University)
Social Questions and International Trade
Robert W. Staiger
(Dartmouth College)
Design and Functioning of Trade Policies and Institutions
Jan 04, 2016 8:00 am, Hilton Union Square, Continental – Parlor 1
American Economic Association
Labor Related Issues: An International Perspective
(G3, J5)
Presiding:
Mara Faccio
(Purdue University)
The Political Connections of Firms and Worker Welfare
Raymond Fisman
(Boston University)
Yongxiang Wang
(University of Southern California)
[View Abstract]
There is a large literature linking firm structure to performance measures such as growth and profitability. We discuss and analyze its implications for a firm’s workers. The relationship is theoretically ambiguous: decentralized organization may empower local managers to improve worker conditions (potentially to the firm’s benefit), while centralization may allow for better adherence to labor regulation. We examine this relationship in the context of worker safety in China, where we document a strong negative relationship between a measure of local management autonomy and worker fatalities.
Business Groups and Internal Markets for Human Capital
Mara Faccio
(Purdue University)
William O'Brien
(Purdue University)
[View Abstract]
[Download Preview] We document that group affiliated firms display less pronounced fluctuations in employment than unaffiliated firms following changes in the business cycle. These results cannot be traced back to differences in the sensitivity of profitability, sales or asset growth to changes in the business cycle. They are instead consistent with the presence of internal labor markets. In particular, the results are more pronounced in countries in which labor mobility is facilitated by less stringent labor regulations. In these countries, workers appear to move from less profitable to more profitable group affiliated firms. The results are robust to a battery of endogeneity tests. Importantly, the evidence indicates a new “bright side” of group affiliation: less job uncertainty.
Does the Political Power of Non-Financial Stakeholders Affect Firm Values? Evidence from Labor Unions
Jared Stanfield
(University of New South Wales)
Robert Tumarkin
(University of New South Wales)
[View Abstract]
[Download Preview] While corporate political connections are known to enhance firm values, we demonstrate that union political activity can have the opposite effect. We examine the consequences of a recent state law in Australia that restricts union political activity, but does not change collective bargaining
rights. In the wake of this law, the values of affected unionized firms significantly increase and, consistent with this market reaction, these firms are subsequently able to negotiate more favorable labor contracts than their unionized peers in other states. The evidence strongly suggests that
unions use political activism to extract rents from corporations and benefit their members.
Insurance Between Firms: The Role of Internal Labor Markets
Giacinta Cestone
(City University London)
Chiara Fumagalli
(Universita Bocconi)
Francis Kramarz
(Crest, ENSAE and CEPR)
Giovanni Pica
(Universita di Milano)
[View Abstract]
[Download Preview] We provide evidence that French business groups rely on Internal Labor Markets (ILMs) to respond to shocks calling for labor adjustments that are costly to perform in frictional external labor markets. ILM activity is higher in more diversified groups, where affiliated firms are more likely to be subject to unrelated shocks. Adverse shocks leading to closures and mass layoffs in affiliated firms trigger ILM activity, boosting the proportion of separating workers redeployed to group-affiliated partners as opposed to external labor market partners. This effect is stronger when the shock hits a firm subject to more stringent employment protection regulation, and thus higher firing costs. We also find that ILMs operate differently for different occupations: adverse shocks trigger most markedly the ILM for blue collars, for whom firing costs and union pressure are large, while the ILM for high-skill occupations is the most active in "normal times". Finally, we find that upon closure events the ILM reallocates displaced employees more intensely to groups units that are more efficient and enjoy better growth opportunities, and less intensely to highly levered and financially distressed units. Overall, our evidence supports the claim that Internal Labor Markets emerge as a co-insurance mechanism across group-affiliated firms, providing job stability to groups' employees as a by-product.
Discussants:
David Parsley
(Vanderbilt University)
Geoffrey Tate
(University of North Carolina)
Kate Holland
(Purdue University)
William O'Brien
(Purdue University)
Jan 04, 2016 8:00 am, Hilton Union Square, Continental Parlors 7 & 8
American Economic Association
Macroeconomic Effects of Fiscal Policy Changes
(E6, C8)
Presiding:
Dmitriy Sergeyev
(Bocconi University)
Are Government Spending Multipliers State Dependent? Evidence from Canadian Historical Data
Valerie A. Ramey
(University of California-San Diego and NBER)
Sarah Zubairy
(Texas A&M University)
[View Abstract]
[Download Preview] This paper investigates whether government spending multipliers differ according to the amount of slack in the economy. We shed light on this question by analyzing new quarterly historical data covering multiple large wars and deep recessions in Canada. We find evidence of higher multipliers during periods of slack. This is driven by GDP rising faster than government purchases in the high unemployment state.
Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan
Wataru Miyamoto
(Bank of Canada)
Thuy Lan Nguyen
(Santa Clara University)
Dmitriy Sergeyev
(Bocconi University and IGIER)
[View Abstract]
[Download Preview] Using a rich data set on government spending forecasts, we estimate the effects of unexpected
government spending both when the nominal interest rate is near zero lower bound (ZLB) and
outside of the ZLB period in Japan. The output multiplier is 1.5 on impact in the ZLB period,
while it is 0.7 outside of the ZLB period. We estimate that the government spending shocks
increase both private consumption and investment during the ZLB period but crowd them out
in the normal period. The unemployment rate decreases in the ZLB period, while it does not
respond significantly during the normal period. We argue that these results are not driven by
the amount of slack in the economy. We estimate a positive but mild inflation response in both
periods. A calibrated standard New Keynesian model with a fundamental-driven ZLB period
can match our empirical findings.
The Output Effects of Fiscal Adjustment Plans: Disaggregating Taxes and Spending
Alberto Alesina
(Harvard University, IGIER, and CEPR)
Omar Barbiero
(Harvard University)
Carlo Favero
(Bocconi University, IGIER, and CEPR)
Francesco Giavazzi
(Bocconi University, IGIER, and CEPR)
Matteo Paradisi
(Harvard University)
[View Abstract]
[Download Preview] The papers shows that the effects of a shift in fiscal policy on the economy should be estimated recognizing that fiscal policy is not implemented through isolated "shocks", rather through multi-year plans. Such plans, that typically extend over a three-year horizon, contain unanticipated shifts in fiscal variables and announcements of future shifts, and both changes in revenues and spending. All such elements are correlated to one another, so that it would be incorrect to make inference about "fiscal multipliers" assuming they are orthogonal to one another. The paper shows how multipliers can be estimated within a plan. As an application, the paper will also provide results on:
a. (For a set of 14 OECD countries over a 30-year period) on the disaggregated effects of shifts in fiscal variables, distinguishing between direct and indirect taxation and between transfers and government consumption and investment;
b. An analysis of the "fiscal austerity" plans implemented by a number of countries over 2010-13.
Effects of Fiscal Shocks in a Globalized World
Alan J. Auerbach
(University of California-Berkeley and NBER)
Yuriy Gorodnichenko
(University of California-Berkeley and NBER)
[View Abstract]
[Download Preview] While theoretical models consistently predict that government
spending shocks should lead to appreciation of the domestic currency,
empirical studies have been stubbornly finding depreciation. Using daily
data on U.S. defense spending (announced and actual payments), we
document that the dollar immediately and strongly appreciates after
announcements about future government spending. In contrast, actual
payments lead to no discernible effect on the exchange rate. We examine
responses of other variables at the daily frequency and explore how the
responses of the exchange rate to fiscal shocks vary over the business
cycle as well as at the zero lower bound and in normal times.
Discussants:
Ethan Ilzetzki
(London School of Economics)
Johannes Wieland
(University of California-San Diego)
Steven Pennings
(World Bank)
Wataru Miyamoto
(Bank of Canada)
Jan 04, 2016 8:00 am, Hilton Union Square, Imperial A
American Economic Association
Private Data
(C8)
Presiding:
John Abowd
(Cornell University)
International Data on Firm Management and Organization
Nicholas Bloom
(Stanford University)
Raffaella Sadun
(Harvard University)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] We discuss new survey data quantifying management and organizational practices in firms. We draw on lessons that we have learned in conducting multiple international surveys based on "Open" ended questions (e.g. World Management Survey) and "Closed" questions (e.g. Management and Organizational Practices Survey). There are many challenges in collecting the data and obtaining accurate responses, but this has now been successfully done across 35 countries. There is a trade-off between accuracy of response and cost per survey.
Private Markets, Public Research
Josh Lerner
(Harvard University)
Leslie Jeng
(Private Capital Research Institute)
[View Abstract]
[Download Preview] Private markets are becoming an increasingly important way of financing rapidly growing and mature firms, and private investors are reputed to have far-reaching economic impacts. These important markets, however, are uniquely difficult to study. This paper explores these challenges, as well as the ways they can be overcome, using the experiences of the Private Capital Research Institute as a case
Search Engine Data
Hal Varian
(Google)
[View Abstract]
[Download Preview] Search engine data offers a way to measure aspects of consumer behavior in real time, offering potentially valuable signals of current economic activity. In addition such data can be used in cross-section studies using geographic units such as states and cities. This paper outlines some examples, as well as problems and pitfalls. (I have uploaded a long version of this paper; the 4-page published version will only include the Google Correlate examples.)
Modernizing Federal Economic Statistics
Ron Jarmin
(U.S. Census Bureau)
William Bostic
(U.S. Census Bureau)
[View Abstract]
[Download Preview] We are experiencing an explosion in the amount of information related to economic activity and most of this information resides within private sector organizations. Unlike government statistical agencies that provide data about the economy for public benefit, private sector organizations appropriately use the data at their disposal for private benefit. The focus of our discussion here is how to leverage these rich private and public sector data sources to improve the quality of economic data available to the public. In particular, we discuss how more timely automated collection of survey and non-survey data can enrich current statistical programs, make possible new official data products and reduce respondent burden.
Jan 04, 2016 8:00 am, Hilton Union Square, Golden Gate 8
American Economic Association
Public Economics: Health Behavior and Outcomes
(H8, I1)
Presiding:
Janet M. Currie
(Princeton University)
The Impact of Scheduling Birth Early on Infant Health
Cristina Borra
(University of Seville)
Libertad Gonzalez
(Universitat Pompeu Fabra)
Almudena Sevilla
(Queen Mary University of London)
[View Abstract]
[Download Preview] An increasing number of births are scheduled early for non-medical reasons in many countries in the belief that 37 weeks in the womb are enough. We provide new, credible causal evidence on the infant health consequences of scheduling birth early for non-medical reasons. We take advantage of quasi-experimental variation driven by an exogenous policy change in Spain. In May 2010, it was announced that an existing, generous universal child benefit would stop being paid for babies born in January 2011, thus providing pregnant women with a January due date with an economic incentive to schedule births earlier. After estimating that about 2,000 births, about 6% of all January births, were shifted back to December in order to qualify for the benefit, we evaluate the health effects of early delivery for the affected babies using high-quality administrative data from birth certificates and hospital records for children born in Spain from 2000 to 2012. Our identification strategy relies on comparing the health outcomes of all babies born close to the New Year of 2010-11, to those born on the same dates in the surrounding years, using October and November as “control months." We find that affected babies (those delivered early due to the benefit cancellation) were born more than 250 grams (8 percent) smaller on average as a result, and suffered a 20 percentage-point increase in hospitalizations due to respiratory disease during the second and third months of life. We are the first to provide credible causal evidence on the effect of scheduling birth for non-medical reasons on health outcomes beyond birth. Our results also shed some light onto the mechanisms behind the strong associations between weight at birth and a range of short and long-term outcomes documented in literature, linking them to a lower maturation of these babies at birth.
Air Pollution and Pro-Cyclical Mortality: Causal Evidence from Thermal Inversions
Paulina Oliva
(University of California-Santa Barbara)
Daniel Hicks
(University of Oklahoma)
Patrick Marsh
(NOAA/NWS Storm Prediction Center)
Pending
Strategic Self Ignorance
Linda Thunström
(University of Wyoming)
Jonas Nordstrom
(Lund University)
Jason Shogren
(University of Wyoming)
Mariah Ehmke
(University of Wyoming)
Klaas van't Veld
(University of Wyoming)
[View Abstract]
[Download Preview] We examine if strategic self-ignorance — deliberate use of ignorance about risks as an excuse to overengage in risky behavior — negates the effects of public provision of risk information. In an experiment on Copenhagen adults, we allow subjects to choose whether to learn the calorie content of a meal before consuming it, and measure their subsequent calorie intake. We find strong evidence of strategic self-ignorance. Almost 46 percent of subjects willfully ignored calorie information, and self-selected ignorance meant they consumed significantly more than if provided the information. The high calorie consumption of subjects who chose to ignore information raised the average calorie consumption of all subjects (i.e. over both self-ignorant and self-informed) to the extent that calorie information provision was highly inefficient at reducing risky consumption. On average, our subjects who were presented with the option to learn/ignore information consumed the same number of calories as if they were provided no information.
Health Effects of Transportation Policy: Quito's ‘Pico y Placa’ Program
Yiseon Yoo
(Korea Institute for Industrial Economics and Trade (KIET))
[View Abstract]
A number of health studies discuss and find a significant association between air pollution and negative health outcomes. The driving restrictions program in Quito has decreased air pollution levels. The effect has diminished, but it continues to induce reductions in pollution levels well after its introduction in May 2010. Using hospital discharge data, this study examines the health effects of driving restrictions program in Quito. The effects on the hospitalization rates of the populations most sensitive to air pollution are examined. Count data analysis that accounts for overdispersion in hospitalization reveals that some health benefits have accrued after the imposition of the driving restrictions: there has been a reduction in the elderly's cardiovascular hospitalization rate. The estimated effect is equivalent to a decrease in the total hospital admissions of the elderly by 1.3%
Discussants:
Emily Oster
(Brown University)
Garth Heutel
(Georgia State University)
Michael Lovenheim
(Cornell University)
Janet M. Currie
(Princeton University)
Jan 04, 2016 8:00 am, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
The Long View: What Does History Teach Us About Whether and How Inequality Matters, and What We Should Do About It?
(N3, O4) (Panel Discussion)
Panel Moderator:
Elisabeth Jacobs
(Washington Center for Equitable Growth)
Philippe Aghion
(Harvard University)
Inequality, Innovation, and Growth
Joseph Ferrie
(Northwestern University)
Long-view Perspective on the Inequality-Mobility Relationship
Branko Milanovic
(City University of New York)
Global History of Inequality and Growth
Suresh Naidu
(Columbia University)
Inequality, Political Institutions, and Growth
Ben Soskis
(George Mason University)
Historical Perspective on Philanthropic Interventions to Mitigate Inequality
Jan 04, 2016 8:00 am, Hilton Union Square, Golden Gate 5
American Economic Association
Topics in Banking and Shadow Banks
(G2)
Presiding:
Gary Richardson
(University of California-Irvine)
Shadow Banking and Asset Pricing
Jinji Hao
(Washington University-St. Louis)
[View Abstract]
[Download Preview] A shadow banking system featuring collateral constraints is studied to investigate the joint determination of haircut and interest rate, as well as its interaction with collateral asset pricing. The banks with limited commitment serve the households' need for consumption smoothing by taking deposits with a risky asset used as collateral and pursue the maximal leverage returns. In a collateral equilibrium as in Geanakoplos (1997, 2003), agents' marginal rates of substitution are equalized only in non-default states, only the deposit contract with the highest liquidity value per unit of collateral is traded, and the risky asset price is boosted such that banks earn zero profit. Relative to the traditional banking with full commitment, banks are better off if they are endowed with the collateral asset while households are strictly worse off. I also find (i) higher households' risky asset endowment leads to a higher asset price because a stronger saving motive creates a scarcity of collateral, while higher banks' collateral endowment has the opposite effects; (ii) collateral use exhibits a diminishing return to scale in the amount of borrowing supported; (iii) for the quality of collateral, the higher asset price resulting from an upside improvement simply leads to a higher haircut with the interest rate unchanged since lenders do not care about upside risk; on the contrary, for lenders with a high risk aversion, a downside improvement of quality decreases the asset price because it alleviates the tension of imperfect risk sharing and, therefore, reduces the collateral value, but everything goes in opposite directions for a low risk aversion.
Banking and Shadow Banking
Ji Huang
(Princeton University)
[View Abstract]
[Download Preview] Does stringent financial regulation always secure financial stability? No, not when shadow banking plays a role. This paper incorporates shadow banking modeled as off-balance-sheet financing in a standard continuous-time macro-finance model. In this model, regular banks pursue regulatory arbitrage by extending their businesses outside the regulatory perimeter via shadow banking. The absence of regulatory authorities in the shadow banking sector creates an enforcement problem. We show that the enforcement problem gives rise to an endogenous constraint on leverage for shadow banking. Shadow banking adds to financial instability because tightening market discipline in economic downturns forces shadow banks to sell assets at fire-sale prices to regular banks. Overall, financial instability as a function of financial regulation is U-shaped rather than monotonically decreasing as conventional wisdom predicts. This paper proposes a framework that can comprehensively evaluate the impact of different regulatory regimes on both the regulated and unregulated banking sectors.
Phasing Out the GSEs
Vadim Elenev
(New York University)
Tim Landvoigt
(University of Texas-Austin)
Stijn Van Nieuwerburgh
(New York University )
[View Abstract]
[Download Preview] We develop a new model of the mortgage market where both borrowers and lenders can default. Risk tolerant savers (risk takers) act as intermediaries between risk averse depositors and impatient borrowers. The government plays a crucial role by providing both mortgage guarantees and deposit insurance. Underpriced government mortgage guarantees lead to risky mortgage origination and excessive financial sector leverage. Mortgage crises frequently turn into financial crises and government bailouts due to the fragility of the intermediaries' balance sheets. Increasing the price of the mortgage guarantee crowds in the private sector, reduces financial fragility, leads to less and safer mortgage lending, lowers house prices, and raises mortgage and risk-free interest rates. Due to a more robust financial sector, consumption smoothing improves and all agents in the economy are strictly better off. The welfare gains are particularly large for the risk takers so that the private market solution increases wealth inequality.
Interbank Counterparty Risk and Recovery Rates in Credit Default Swaps
Hong kee Sul
(Indiana University)
[View Abstract]
[Download Preview] In this paper, I measure the interbank counterparty risk embedded in bank credit default swap (CDS) contracts. When a bank writes a CDS contract on the default of another bank, the buyer of that contract is faced with the risk of joint default by both banks. Using a unique feature of CDS data, I present a new approach for valuing CDS spreads that enables identification of the joint and conditional default probabilities, allowing for time variant recovery rates. I use the term structure of CDS spreads and option implied default probabilities to estimate time-variant joint default probabilities and time-variant recovery rates. In comparison to this approach, estimating interbank counterparty risk from CDS spreads assuming a fixed recovery rate underestimates joint default probability when the market is in distress. I apply the joint estimation method to measure interbank counterparty risk of CDS dealers from 2007 to 2010 and find that the fixed recovery rate model underestimates expected counterparty risk by approximately 21% when the market is in distress. In addition, I show that a bank’s vulnerability to systemic risk, defined as the average conditional default probability of a bank conditional on default of its counterparties, is correlated with existing measure of systemic risk.
Network-Motivated Lending Decisions
Yoshiaki Ogura
(Waseda University)
Ryo Okui
(VU University Amsterdam and Kyoto University)
Yukiko Umeno Saito
(Research Institute of Economy, Trade, and Industry)
[View Abstract]
[Download Preview] We theoretically and empirically demonstrate that monopolistic or collusive banks will keep lending to a loss-making firm at an interest rate lower than the prime rate if the firm is located in an influential position in an inter-firm supply network. An influential firm generates a positive externality, and its exit damages the sales in the supply network. To internalize this externality, the banks may forbear on debt collection and/or bail out such influential firms when the cost to support the loss-making influential company can be recouped by imposing high interest on less influential companies. The analytical model shows that such forbearance can improve welfare. Our empirical study, performed using a unique dataset containing information about inter-firm transactions, provides evidence for such network-motivated lending decisions. In particular, this effect is more clearly observed at less credit-worthy firms whose main bank is a regional bank. Notably, we observe that such banks are often dominant lenders in the local loan market, and most of their clientele do not have direct access to the stock and bond market.
Jan 04, 2016 8:00 am, Hilton Union Square, Continental – Parlor 2
American Economic Association
Unconventional Monetary Policies, Asset Prices and Transmission Mechanisms
(E5, G1)
Presiding:
Athanasios Orphanides
(Massachusetts Institute of Technology)
ECB Policies Involving Government Bond Purchases: Impact and Channels
Arvind Krishnamurthy
(Stanford University)
Annette Vissing-Jorgensen
(University of California-Berkeley)
Stefan Nagel
(University of Michigan)
[View Abstract]
[Download Preview] We evaluate the effects of three ECB policies (the Securities Markets Programme, the Outright Monetary Transactions, and the Long-Term Refinancing Operations) on government bond yields. We use an event-study approach and yields on euro-denominated sovereign bonds, dollar-denominated sovereign bonds, corporate bonds, and corporate CDS rates to understand the channels through which policies reduced sovereign bond yields. Focusing on Italy, Spain and Portugal, a default risk premium and a segmentation channel were the dominant policy channels. A redenomination risk premium channel also contributed for Spain and Portugal. Stock price increases in distressed and core countries suggest that these policies also had beneficial macro-spillovers.
Redenomination Risk
Roberto A. De Santis
(European Central Bank)
[View Abstract]
[Download Preview] On 24 July 2012, the sovereign yield spreads of Italian and Spanish sovereign bonds vis-à-vis the Bund reached 500-650 basis points. The same spreads had been about 200 basis points lower only few months earlier in March 2012. On 26 July 2012, Mario Draghi, President of the European Central Bank (ECB), in a speech at an investment conference in London said that a "convertibility risk" explained this phenomenon, preventing the smooth functioning of the ECB's monetary policy across national borders inside the euro area and acknowledging that financial markets were pricing the risk of break-up. Therefore, he pledged to do "whatever it takes" to protect the euro area from collapse.
Can we measure currency redenomination risk, that is the compensation demanded by market participants for the risk that a euro asset is being redenominated into a devalued legacy currency?
We propose a time-varying, country-specific market perception of intra-euro area redenomination risk measure, defined as the quanto CDS of a member country relative to the quanto CDS of a benchmark member country. Focusing on Italy, Spain and France and using Germany as benchmark, the proposed measure of currency redenomination risk reached a peak for both Italy and Spain just before the speech by President Draghi on 26 July 2012. Thereafter, it declined and since the end of 2012 it has remained contained. We then show that the redenomination risk shocks, defined as the unexplained component of the market perception of redenomination risk orthogonal to exchange rate, global, regional and liquidity risks, significantly affect sovereign yield spreads, with Italy and Spain being the countries most adversely affected, followed by France. Finally, foreign redenomination risk shocks spillover and above local redenomination risk shocks, corroborating the fact that this risk is systemic.
What Does Anticipated Monetary Policy Do?
Stefania D'Amico
(Federal Reserve Bank of Chicago)
Thomas King
(Federal Reserve Bank of Chicago)
[View Abstract]
[Download Preview] Forward rate guidance, which has been used with increasing regularity by monetary policymakers, relies on the manipulation of expectations of future short-term interest rates. We identify shocks to these expectations at short and long horizons since the early 1980s and examine their effects on contemporaneous macroeconomic outcomes. Our identification uses sign restrictions on survey forecasts incorporated in a structural VAR model to isolate expected deviations from the monetary-policy rule. We find that expectations of future policy easing that materialize over the subsequent four quarters---similar to those generated by credible forward guidance---have immediate and persistent stimulative effects on output, inflation, and employment. The effects are larger than those produced by an identical shift in the policy path that is not anticipated. Our results are broadly consistent with the mechanism underlying forward guidance in New Keynesian models, but they suggest that those models overstate the persistence of the inflation response. Further, we find that changes in short-rate expectations farther in the future have weaker macroeconomic effects, the opposite of what most New Keynesian models predict.
Unconventional Monetary Policy and International Risk Premia
John H. Rogers
(Federal Reserve Board)
Chiara Scotti
(Federal Reserve Board)
Jonathan H. Wright
(Johns Hopkins University)
[View Abstract]
[Download Preview] We assess the relationship between monetary policy, foreign exchange risk pre-mia and term premia at the zero lower bound. We construct carry trade port-folios using daily data from two dozen foreign countries and find that they are significantly related to contemporaneous U.S. monetary policy surprises. We then estimate a structural VAR including U.S. and foreign interest rates and ex-change rates, and identify monetary policy shocks through a method that uses these surprises as the crucial “external instrument” that achieves identification without having to use implausible short-run restrictions. This allows us to measure effects of policy shocks on expectations, and hence risk premia. U.S. monetary policy easing shocks lower domestic and foreign bond risk premia, lead to dollar depreciation and lower foreign exchange risk premia.
Discussants:
Frank Smets
(European Central Bank)
Arvind Krishnamurthy
(Stanford University)
Eric T. Swanson
(University of California-Irvine)
Jens Christensen
(Federal Reserve Bank of San Francisco)
Jan 04, 2016 8:00 am, Marriott Marquis, Nob Hill A & B
American Finance Association
Advances in International Finance
(G1)
Presiding:
Matteo Maggiori
(Harvard University)
The Carry Trade and Uncovered Interest Parity when Markets are Incomplete
Jack Favilukis
(University of British Columbia)
Lorenzo Garlappi
(University of British Columbia)
[View Abstract]
We propose a new model to explain the failure of UIP and the profitability of the carry trade and to link these two phenomena to the Balassa-Samuelson effect and the Backus-Smith puzzle. The key features of our model are market incompleteness and partial risk sharing through tradable goods. In the model, carry trade profits are due to two independent channels. First, a purely nominal channel, which works even in complete markets, makes the carry trade risky due to (endogenously) counter-cyclical inflation. Second, a real channel, which, due to imperfect risk sharing, makes the carry trade risky exactly when risk sharing is needed most. The model is consistent with several empirical facts. In particular: (i) real and nominal currency appreciations are positively related to domestic output and consumption growth, (ii) carry trade profits are positively related to output and consumption growth, but negatively to inflation in the target (high interest rate) country, (iii) ex-ante, target countries are smaller and have higher expected inflation volatility, but there do not appear to be systematic differences between high and low interest rate countries in loadings on world output growth, in expected output growth, or in output volatility. Leading existing models give opposite predictions.
Currency Risk Factors in a Recursive Multi-Country Economy
Riccardo Colacito
(University of North Carolina)
Mariano Croce
(University of North Carolina)
Federico Gavazzoni
(INSEAD)
Robert Ready
(University of Rochester)
[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.
Macro Uncertainty and Currency Premia
Pasquale Della Corte
(Imperial College London)
Aleksejs Krecetovs
(Imperial College London)
[View Abstract]
[Download Preview] This paper studies empirically the relation between macro uncertainty shocks and the cross-section of currency excess returns. We measure uncertainty over macro variables such as current account, inflation rate, short-term interest rate, real economic growth and foreign exchange rate using the cross-sectional dispersion of market participants' expectations from two international surveys of economic forecasts. We find evidence that investment currencies deliver low returns whereas funding currencies offer a hedge when current account uncertainty is unexpectedly high. In contrast, uncertainty over other macro indicators displays no significant relation with the cross-section of currency excess returns. Our results are consistent with a recent theory of exchange rate determination based on capital flows in imperfect financial markets.
Nominal Exchange Rate Stationarity and Long-Term Bond Returns
Hanno Lustig
(Stanford University)
Andreas Stathopoulos
(University of Washington)
Adrien Verdelhan
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] When markets are complete, exchange rates correspond to the ratio of domestic and foreign pricing kernels. When the martingale components of the pricing kernels are the same across countries and exchange rates are stationary, long-term bond returns, once converted in the same currency, should be the same across countries. In the data, we do not find significant differences in long-term government bond risk premia in dollars across G10 countries. Moreover, in 60% of our rolling windows, we cannot reject that realized foreign and domestic long-term bond returns in dollars are the same, as if nominal exchange rates were stationary in levels, contrary to the academic consensus.
Discussants:
Stefano Giglio
(University of Chicago)
Pablo Ottonello
(University of Michigan)
Stavros Panageas
(University of Chicago)
Paolo Cavallino
(New York University)
Jan 04, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Behavioral Finance
(G1)
Presiding:
Christopher Parsons
(University of California-San Diego)
Identity, Overconfidence, and Investment Decisions
Francesco D'Acunto
(University of California-Berkeley)
[View Abstract]
Why are men more risk tolerant than women, and why do they invest more than women? I test whether social identity helps explain this heterogeneity. I manipulate identity in a controlled environment by priming its salience to subjects. I interpret the priming of male identity as making salient the most representative types associated with men, which increases the subjective beliefs of experiencing good outcomes in risky environments. Men whose identity is primed take on more risk, and invest more often and more money than controls. Inducing overconfidence similarly makes men invest more. As for the channels, I verify that the primes increase subjects' beliefs of experiencing good outcomes. Moreover, the effects are stronger for older cohorts of subjects, consistent with the fact that gender identity stereotypes become less stark over time.
A Natural Experiment in Portfolio Management
Neal Stoughton
(Vienna University of Economics and Business)
Stephan Kranner
(Vienna University of Economics and Business)
Josef Zechner
(Vienna University of Economics and Business)
[View Abstract]
[Download Preview] The Portfolio Management Program (PMP) in Vienna Austria has been in existence for more than ten years. This paper analyzes the ten year performance (2004-2014) of the three competing funds with the objective of using this controlled setting to test two behavioral theories of funds management. We test both the tournament effect and the disposition effect, as well as looking at a selection of demographic variables. Consistent with tournament theory, the funds behave as predicted with trailing funds shifting into idiosyncratic risks that leading funds cannot mimic. The paper also documents a definitive reverse disposition effect, whereby losing assets are more likely to be sold than winning assets. We identify a group size effect where larger managerial teams are more cautious and have lower risk adjusted returns. These results show that managerial behavior in the partly controlled setting of academic guidance can vary greatly from what has been found with retail investors.
The Term Structure of Equity Returns: Risk or Mispricing?
Michael Weber
(University of Chicago )
[View Abstract]
[Download Preview] The term structure of equity returns is downward-sloping: stocks with high cash-flow duration earn 1.10% per month lower returns than short-duration stocks in the cross section. I create a measure of cash-flow duration at the firm level using balance-sheet data to show this novel fact. The difference in returns is three times larger after periods of high investor sentiment than it is following low-sentiment periods. Factor models can explain only 50% of the return differential between high- and low-duration stocks. I use institutional ownership as a proxy for short-sale constraints, and find the negative cross-sectional relationship between cash-flow duration and returns is only contained within short-sale constrained stocks. This set of facts holds for small and large stocks, as well as for value and growth stocks.
The Fetal Origins Hypothesis in Finance: Prenatal Environment and Investor Behavior
Henrik Cronqvist
(University of Miami )
Alessandro Previtero
(University of Texas-Austin)
Stephan Siegel
(University of Washington)
Roderick White
(University of Western Ontario)
[View Abstract]
[Download Preview] We find that differences in individuals' prenatal environment explain heterogeneity in financial
decisions later in life. An exogenous increase in exposure to prenatal testosterone is associated
with the masculinization of financial behavior, specifically with elevated risk-taking and trading in adulthood. We also examine birth weight. Those with higher birth weight are more likely to participate in the stock market, while those with lower birth weight tend to prefer portfolios with higher volatility and skewness, consistent with compensatory behavior. Our results contribute to the understanding of how the prenatal environment shapes an individual's behavior in financial markets later in life.
Discussants:
Yuval Rottenstreich
(University of California-San Diego)
John Beshears
(Harvard University)
Malcolm Baker
(Harvard Business School )
Richard Townsend
(Dartmouth College)
Jan 04, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Culture, Ethics and Finance
(G3)
Presiding:
Paola Sapienza
(Northwestern University)
Crime, Punishment and the Halo Effect of Corporate Social Responsibility
Harrison Hong
(Princeton University)
Inessa Liskovich
(Univ of Texas-Austin)
[View Abstract]
[Download Preview] Using enforcements of the Foreign Corrupt Practices Act, we find that prosecutors are more lenient toward socially responsible firms. A one standard deviation increase in corporate social responsibility (CSR) is associated with 5 million dollars less in fines, or 25% lower than the mean. Yet, CSR is not a mitigating factor in sentencing guidelines. It is also uncorrelated with bribe attributes, which should entirely determine sanctions following Becker (1974). Consistent with the halo effect from psychology, this prosecutorial bias is larger for firms that are more widely recognized by the general public; and more responsible firms also receive less negative prosecutorial press releases and experience better subsequent stock returns.
Women on Corporate Boards: Good or Bad?
Thomas Schmid
(University of Hong Kong)
Daniel Urban
(Technische Universität München)
[View Abstract]
[Download Preview] Prior literature shows that mandatory gender quotas are detrimental to firm value. However, little is known about causal effects of voluntarily appointed women. A large board dataset covering 53 countries and about 500,000 people enables us to identify exogenous retirements of board members due to death or illness. Long and short-run event studies yield evidence for a positive valuation effect of women. This is confirmed in panel regressions for the entire dataset. This positive impact is not driven by women per se, but a glass ceiling effect due to more rigorous selection. Thus, firms can benefit from a corporate culture that fosters the promotion of women.
Swimming Upstream: Struggling Firms in Corrupt Cities
Christopher Parsons
(University California-San Diego)
Johan Sulaeman
(National University of Singapore)
Sheridan Titman
(University of Texas-Austin)
[View Abstract]
[Download Preview] We find that a corrupt local environment amplifies the effects of financial distress. Following regional spikes in financial misconduct, credit becomes both more difficult and expensive to obtain for nearby borrowers -- even those not implicated themselves. This is particularly harmful for cash-constrained firms, which cut investment more sharply and lay off more workers during industry downturns. We also find that local waves of financial misconduct are a risk factor for bankruptcy.
Discussants:
Enrichetta Ravina
(Columbia University)
Margarita Tsoutsoura
(University of Chicago)
Brian Melzer
(Northwestern University)
Jan 04, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Investment Policy, Risk Taking and Hedging
(G3)
Presiding:
Kelly Shue
(University of Chicago)
The Real Effects of Credit Ratings: The Sovereign Ceiling Channel
Heitor Almeida
(University of Illinois-Urbana-Champai)
Igor Cunha
(Nova School of Business and Economics)
Miguel Ferreira
(Nova School of Business and Economics)
Felipe Restrepo
(Western University)
[View Abstract]
[Download Preview] We show that sovereign debt impairments can have a significant impact on financial markets and real economies through a credit ratings channel. Specifically, we find that firms reduce their investment
and reliance on credit markets due to a rising cost of debt capital following a sovereign rating downgrade. We identify these effects by exploiting exogenous variation on corporate ratings due to rating agencies' sovereign ceiling policies that require firms' ratings to remain at or below the sovereign rating of their country of domicile.
Owners' Portfolio Diversification and Firm Investment: Evidence from Public and Private Firms
Evgeny Lyandres
(Boston University)
Maria-Teresa Marchica
(University of Manchester)
Roni Michaely
(Cornell University)
Roberto Mura
(University of Manchester)
[View Abstract]
[Download Preview] We demonstrate theoretically and empirically that firms' capital investment depends on portfolio diversification of their controlling owners. The effect of owners' portfolio diversification on firms' investment strategies depends crucially on firms? financial constraints. Owners' diversification has a positive impact on capital investment of relatively unconstrained firms and a negative impact on constrained firms' investment. A quasi-natural experiment and instrumental variables estimation suggest that this result is not driven by potential endogeneity of diversification. A matched-sample analysis, selection model, and alternative measures of financial constraints show that our findings are not driven by the endogeneity of our proxy for financial constraints.
Does Hedging Affect Firm Value? Evidence from a Natural Experiment
Erik Gilje
(University of Pennsylvania)
Jerome Taillard
(Babson College)
[View Abstract]
[Download Preview] We study the channels through which financial hedging affects firm value. To mitigate endogeneity concerns, we use a natural experiment in which Canadian light oil producers experience a relative loss in their ability to hedge compared to U.S. oil producers. The shock is caused by the unexpected breakdown in the correlation of Canadian light oil prices with the West Texas Intermediate (WTI) benchmark prices used in hedging contracts. Using a difference-in-differences framework we compare Canadian (treatment) versus U.S. (control) light oil producers. After the hedging shock, we find that treatment firms reduce investment, sell assets, and have lower valuations. Our findings are driven by firms with ex ante high leverage. Overall, our results provide evidence that hedging affects firm value by alleviating financial distress costs and underinvestment.
The Source of Information in Prices and Investment-Price Sensitivity
Alex Edmans
(London Business School)
Sudarshan Jayaraman
(University of Rochester)
[View Abstract]
[Download Preview] This paper shows that real decisions depend not only on the total amount of information in
prices, but the source of this information – a manager learns from prices when they contain
information not possessed by him. We use the staggered enforcement of insider trading laws
across 26 countries as a shock to the source of information that leaves total information
unchanged, since enforcement reduces (increases) managers’ (outsiders’) contribution to the
stock price. Enforcement increases investment-Q sensitivity, but does not increase the
sensitivity of investment to non-price measures of investment opportunities. This increase is
stronger in emerging markets, where total price informativeness is unaffected by enforcement
(Fernandes and Ferreira (2009)), and in industries with high concentration and high sales
volatility, where the scope for managerial learning is greater (Allen (1993)). These findings
suggest that extant measures of price efficiency should be rethought when evaluating real
efficiency.
Discussants:
Bo Becker
(Stockholm School of Economics)
Gordon Phillips
(Dartmouth College)
Hayong Yun
(Michigan State University)
Marcin Kacperczyk
(Imperial College London)
Jan 04, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Limits to Arbitrage
(G1)
Presiding:
Dimitris Papanikolaou
(Northwestern University)
Days to Cover and Stock Returns
Harrison Hong
(Princeton University)
Weikai Li
( Hong Kong University of Science and Technology)
Sophie Ni
(Hong Kong University of Science and Technology)
Jose Scheinkman
(Columbia University)
[View Abstract]
[Download Preview] A crowded trade problem emerges when speculators' positions are large relative to the liquidity of the asset, thereby making exit difficult. We study this problem, which has been a point of concern in the Dodd Frank Financial Reforms regarding systemic risk, through the lens of short-selling. We show in a simple model that days to cover (DTC), the ratio of short interest to trading volume, measures the costliness of exiting crowded trades. We find that arbitrageurs are worried about the crowding problem as short-sellers avoid illiquid stocks and require a significant premium to enter into such positions. A strategy shorting high DTC stocks and buying low DTC stocks generates a 1.2% monthly return. We show that there is a comparably large days-to-cover effect on the long positions of levered hedge funds.
Leveraged Speculators and Asset Prices
Wenxi Jiang
(Yale University)
[View Abstract]
[Download Preview] I test the hypothesis that the use of leverage by market speculators can increase the likelihood and magnitude of a crash in asset prices. Using a novel leverage measure derived from public filings, I find that stocks held by highly-levered hedge funds subsequently have more negatively skewed returns than stocks held by less highly-levered funds. This finding extends to the aggregate U.S. market index and is economically significant. I relate this effect to financial distress and find evidence that highly-levered funds are more likely to fire sell long positions when experiencing adverse economic events, including negative fundamental shocks to the assets they hold and funding liquidity shocks.
A Theory of Operational Risk
Suleyman Basak
(London Business School)
Andrea M. Buffa
(Boston University)
[View Abstract]
[Download Preview] We study the dynamic decision making of a financial institution in the presence of a novel implementation friction that gives rise to operational risk. We distinguish between internal and external operational risks depending on whether the institution has control over them. Internal operational risk naturally arises in the context of model risk, as the institution exposes itself to operational errors whenever it updates and improves its investment model. In this case, it is no longer optimal to implement the best model available, thus leaving scope for endogenous deviation from it, and hence model sophistication. We show that the optimal exposure to operational risk may well become decreasing in the level of internal operational risk, which in turn makes the exposure to market risk less volatile. We uncover that financial constraints interact with operational risk, whether internal or external, and prompt the institution to always adopt a more sophisticated model. While such constraints are always detrimental when operational risk is internal, they may be beneficial, despite inducing an excessive level of sophistication, when it is external.
Discussants:
Karl Diether
(Dartmouth College)
Nina Boyarchenko
(Federal Reserve Bank of New York)
Konstantin Milbradt
(Northwestern University)
Jan 04, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Regulatory Behavior and Design
(G2)
Presiding:
Amit Seru
(University of Chicago)
Funding and Incentives of Regulators: Evidence from Banking
Roni Kisin
(Washington University-St. Louis)
Asaf Manela
(Washington University-St. Louis)
[View Abstract]
[Download Preview] Regulation is often funded with fees paid by regulated firms, potentially creating incentive problems. We use this feature to study the incentives of regulators and their ability to affect firm behavior. Theoretically, we show that firms that pay higher fees may face more lenient regulation, when leniency increases regulatory budgets in the short term. Our identification approach uses multiple kinks in fee schedules of federal bank regulators as a source of exogenous variation. Using a novel dataset on fees and regulatory actions, we find that firms that pay higher fees face more lenient regulation, which leads to a buildup of risk. Higher fee-paying banks are allowed higher leverage and asset risk, and in the longer term have more loan defaults and a higher likelihood of regulatory actions, which tend to follow banking crises.
The Strategic Under-Reporting of Bank Risk
Taylor Begley
(London Business School)
Amiyatosh Purnanandam
(University of Michigan)
Kuncheng (K.C.) Zheng
(Northeastern University)
[View Abstract]
[Download Preview] We show that banks significantly under-report the risk in their trading book when<br />
they have lower equity capital. A decrease in a bank's equity capital results in substan-<br />
tially more frequent violations of its self-reported risk levels in the following quarter.<br />
These results are consistent with the view that banks under-report their risks to lower<br />
their current regulatory capital requirements at the expense of potentially higher future<br />
capital requirements that follow if the under-reporting is detected. The under-reporting<br />
is especially high during the critical periods of high systemic risk and for banks with<br />
larger trading operations. Our results provide evidence that the current regulations<br />
give reporting incentives that make the self-reported risk measures least informative<br />
precisely when they matter the most.
Deregulation, Competition and the Race to the Bottom
Marco Di Maggio
(Columbia University)
Amir Kermani
(University of California-Berkeley)
Sanket Korgaonkar
(University of California-Berkeley)
[View Abstract]
[Download Preview] We take advantage of the pre-emption of national banks from state anti-predatory lending laws as a quasi-experiment to study the effect of deregulation and its interaction with competition on the supply of complex mortgages (interest only, negative amortization, and teaser mortgages). We first show that following the pre-emption ruling, national banks significantly increased their origination of loans with prepayment penalties and negative amortization features, relative to non-OCC regulated lenders, and lenders in states without anti-predatory lending laws. This increase in the supply of complex mortgages is significantly more pronounced for banks that poorly performed in the previous quarters. Further, we highlight a competition channel: first, a higher degree of competition induce OCC lenders to originate more riskier loans; second, in counties where OCC regulated lenders had larger market share prior to the pre-emption, even non-OCC lenders responded by increasing the presence of predatory terms to the extent permitted by the state anti-predatory lending laws. Overall, our evidence is suggestive that the deregulation of credit markets ignited a "race to the bottom" among distressed financial institutions, working through the competition between lenders.
Supervisory Incentives in a Banking Union
Robert Marquez
(University of California-Davis)
Elena Carletti
(European University Institute)
Giovanni Dell'Ariccia
(International Monetary Fund)
[View Abstract]
[Download Preview] We explore the behavior of supervisors in a hub-and-spokes regime: one in which a supranational agency
has legal power over all decisions regarding banks, but has to rely on local
supervisors to collect the information necessary to act. This institutional
design entails a principal-agent problem between the central and local
supervisors to the extent that their objective functions differ. Information
collection will be inferior\ to what would happen in a model with fully
independent local supervisors or one where the centralized agency directly
collects information. The reason is that local agents will, in some states of
the world, prefer to remain ignorant rather than to potentially learn
information that would lead the central supervisor to decisions that are
against the local agents' interests. This, in turn, may lead to poorer ex ante
incentives for regulated banks.
Discussants:
David Lucca
(Federal Reserve Bank of New York)
Philipp Schnabl
(New York University)
Sumit Agarwal
(National University of Singapore)
Uday Rajan
(University of Michigan)
Jan 04, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
Security and Market Mechanism Design
(G1)
Presiding:
Tomasz Piskorski
(Columbia University)
Benchmarks in Search Markets
Darrell Duffie
(Stanford University)
Piotr Dworczak
(Stanford University)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We characterize the price-transparency role of benchmarks in over-the-counter markets. A benchmark can, under conditions, raise total social surplus by increasing the volume of beneficial trade, facilitating more efficient trade matching between dealers and customers, and reducing total search costs. Although the improvement in market transparency caused by benchmarks lowers dealer profit margins on each trade, dealers may introduce a benchmark in order to encourage greater market participation by investors. Low-cost dealers may introduce a benchmark in order to increase their market share through reducing entry by high-cost dealers, a further source of efficiency gain.
Optimal Margins and Equilibrium Prices
Bruno Biais
(Université de Toulouse 1 Capitole)
Florian Heider
(European Central Bank)
Marie Hoerova
(European Central Bank)
[View Abstract]
[Download Preview] We study the interaction between contracting and equilibrium pricing when risk averse hedgers purchase insurance from risk-neutral investors subject to moral hazard. Moral hazard limits risk-sharing. In the individually optimal contract, margins are called (after bad news) to improve risk-sharing. But margin calls depress the price of investors’ assets, affecting other investors negatively. Because of this fire-sale externality, there is too much use of margins in the market equilibrium compared to the utilitarian optimum. Moreover, equilibrium multiplicity can arise: In a pessimistic equilibrium, hedgers who fear low prices request high margins to obtain more insurance. Large margin calls trigger large price drops, confirming initial pessimistic expectations. Finally, moral hazard generates endogenous market incompleteness, raises risk premia, and induces contagion between asset classes.
The Causal Impact of Market Fragmentation on Liquidity
Peter Haslag
(Washington University-St. Louis)
Matthew Ringgenberg
(Washington University-St. Louis)
[View Abstract]
We use the staggered implementation of regulation NMS and an instrumental variables analysis to establish the causal impact of market fragmentation. Theoretically, more exchange competition should lead to reduced transaction costs, however it may also lead to negative network externalities which reduce market quality. We document evidence of both effects, however our results show that fragmentation has a differential impact on large and small stocks. For large stocks, the former effect dominates and market quality, as measured by bid-ask spreads and price efficiency, is generally better. For small stocks, we find that negative network externalities dominate and liquidity and price efficiency are worse. Moreover, we find that higher fragmentation is associated with more uncertainty in liquidity which leads to changes in trading behavior. Overall, our results help reconcile conflicting findings in the literature and shed new light on the forces relating market fragmentation, trading behavior, and asset prices.
Welfare Costs of Informed Trade
Lawrence Glosten
(Columbia University)
Talis Putnins
(University of Technology-Sydney)
[View Abstract]
[Download Preview] We examine the welfare costs of informed trade in a new Glosten-Milgrom type model with elastic uninformed trade. Welfare losses occur when uninformed agents choose not to trade because their idiosyncratic valuation lies within the bid-ask spread. Informed trade causes wider spreads initially, but narrower spreads later because information is reflected in prices faster. For sufficiently long lived information, the benefits of narrow spreads later outweigh the wider initial spreads such that the average spread and total welfare loss are mainly decreasing in the amount of informed trade. For short-lived information, this tradeoff does not materialize and spreads and welfare losses are increasing in informed trade. Our findings suggest that regulation of information and informed trade should consider the horizon of private information.
Discussants:
Marzena Rostek
(University of Wisconsin-Madison)
William Fuchs
(University of California-Berkeley)
Emiliano Pagnotta
(Imperial College London)
Brett Green
(University of California-Berkeley)
Jan 04, 2016 8:00 am, Marriott Marquis, Nob Hill C & D
American Finance Association
Variance and Crash Risk Pricing
(G1)
Presiding:
Itamar Drechsler
(New York University)
Do Rare Events Explain CDX Tranche Spreads?
Sang Byung Seo
(University of Pennsylvania)
Jessica Wachter
(University of Pennsylvania)
[View Abstract]
[Download Preview] We investigate whether a model with a time-varying probability of economic disaster can explain the pricing of collateralized debt obligations, both prior to and during the 2008-2009 financial crisis. In particular, we examine the pricing of tranches on the CDX, an index of credit default swaps on large investment-grade firms. CDX senior tranches are essentially deep out-of-the money put options because they do not incur any losses until a large number of previously stable firms default. As such, CDX senior tranches provide critical information about how the market assesses the risk of rare disasters. We find that the model consistently matches the level and time series patterns of different asset classes including stocks, equity options, and CDX senior tranches, demonstrating the importance of beliefs about rare disasters even in periods of relatively high valuation.
Does Variance Risk Have Two Prices?
Laurent Barras
(McGill University)
Aytek Malkhozov
(Bank for International Settlements)
[View Abstract]
[Download Preview] We formally compare the conditional Variance Risk Premia (VRPs) in the equity and option markets. Both VRPs follow common patterns and respond similarly to changes in volatility and economic conditions. However, we reject the null hypothesis that they are identical and find that their difference is strongly related to measures of the financial standing of intermediaries. These results shed new light on the information content of the option VRP, suggest the presence of market frictions between the two markets, and are consistent with the key role played by intermediaries in setting option prices.
Good Jumps, Bad Jumps, and Conditional Equity Premium
Hui Guo
(University of Cincinnati)
Kent Wang
(Xiamen University)
Hao Zhou
(Tsinghua University)
[View Abstract]
[Download Preview] We uncover significant effects of jump risk on conditional equity premium. Realized volatility due to negative or “bad” (positive or “good”) jumps in stock market prices predicts a rising (falling) near-term equity premium. The forecasting power of signed jump risk measures remains statistically significant even when we control for variance risk premium that Drechsler and Yaron (2011) attribute to jump risk. Our novel empirical findings are broadly consistent with an extended Drechsler and Yaron model that also allows stochastic volatility of volatility to affect variance risk premium and conditional equity premium as in Bollerslev, Tauchen, and Zhou (2009).
Good and Bad Variance Premia and Expected Returns
Mete Kilic
(University of Pennsylvania)
Ivan Shaliastovich
(University of Pennsylvania)
[View Abstract]
[Download Preview] We measure “good” and “bad” variance premia that capture risk compensations for the
realized variation in positive and negative market returns, respectively. The two variance
premium components jointly predict excess returns over the next 1 and 2 years with statisti-
cally significant negative (positive) coefficients on the good (bad) component. The R2s reach
about 10% for aggregate equity and portfolio returns and about 20% for corporate bond
returns. We show that an asset pricing model that features distinct time variation in posi-
tive and negative shocks to fundamentals can explain the good and bad variance premium
evidence in the data.
Discussants:
Juan M. Londono
(Federal Reserve Board)
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
Mete Kilic
(University of Pennsylvania)
Alan Moreira
(Yale University)
Jan 04, 2016 8:00 am, Parc 55, Mission I
American Real Estate & Urban Economic Association
Land Values and Housing Production
(R3, R1)
Presiding:
Morris Davis
(Rutgers University)
The Distribution of Urban Land Values: Evidence from Market Transactions
David Albouy
(University of Illinois)
Gabriel Ehrlich
(Congressional Budget Office)
Andrew Haughwout
(Federal Reserve Bank of New York)
[View Abstract]
We analyze land values from market transactions across the United States. Across space, land values are distributed widely and almost log-normally. The strongest predictor of value per acre is lot size, followed by location, and then time. Urban and agricultural land markets appear unified after accounting for fixed conversion costs. The relationship between peak metropolitan land values and populations, agricultural values, and arcs of urban expansion is roughly consistent with monocentric-city predictions and within-metro estimates of the rent gradient. Our estimates suggest land receives 7 percent of income and the cost elasticity of urban population is 3 percent of income.
What's Manhattan Worth? A Land Value Index from 1950 to 2014
Jason Barr
(Rutgers University)
Sayali Kulkarni
(Rutgers University)
Fred Smith
(Davidson College)
[View Abstract]
[Download Preview] Using vacant land sales, we construct a land values index for Manhattan from 1950 to 2014. We
find three major cycles (1950 to 1977, 1977 to 1993, and 1993 to 2009), with land values reaching their nadir in 1977, just after the city’s fiscal crisis. Overall, we find the average annual real growth rate to be 5.5%. Since 1993, land prices have risen quite dramatically, and much faster than population or employment growth, at an average annual rate of 15.8%, suggesting
that barriers to entry in real estate development are causing prices to rise faster than other
measures of local well-being. Further, we estimate the entire amount of developable land on
Manhattan in 2014 was worth approximately $1.47 trillion. This would suggest an average
annual return of about 6.4% since the island was first inhabited by Dutch settlers in 1626
The Static City? Amsterdam 1832-2008
David Geltner
(Massachusetts Institute of Technology)
Piet Eichholtz
(Maastricht University)
Thies Lindenthal
(University of Cambridge)
[View Abstract]
[Download Preview] Inner city redevelopment frequently involves the combination of lots, but the existing literature analyzes redevelopment on a single-lot basis only. The key contribution of our paper is that it explicitly investigates the structural and social determinants of multilot developments. We show that the additional coordination and transactions costs resulting from joint lot development influence the exercise of the redevelopment option.
We first estimate a logit model that aims to predict joint lot redevelopment, based on structural characteristics of dwellings and social characteristics of their owners, using Amsterdam housing information for 1832, 1860 and 2015. In all, we have a complete set of structural and household characteristics for the universe of dwellings in Amsterdam in these years.
Our model can explain 59 percent of redevelopment activity between 1832 and 1860, with a significant influence of the social factors beside the structural ones. Moreover, using only information from 1832, the model explains up to 27 percent of the redevelopment activity for the subsequent 183 years.
A subsequent spatial hedonic pricing model estimates marginal prices for the structural characteristics associated with the real option to jointly redevelop.
The Production Function for Housing: Evidence from France
Gilles Duranton
(University of Pennsylvania)
Pierre-Philippe Combes
(Aix-Marseille School of Economics)
Laurent Gobillon
(INED)
[View Abstract]
We propose a new non-parametric approach to estimate the production function for housing using information about land prices and expenditure on non-land inputs. Our estimation treats output as a latent variable and relies on the variation in land prices across locations for parcels of similar sizes. We implement our methodology on recently-built single-family homes in France. We find that the production function for housing is well approximated by a Cobb-Douglas function. After correcting for differences in user costs between land and non-land inputs, we obtain a share of land of 20% in the production of housing and strong evidence of constant returns. Consistent with this, we also estimate an elasticity of substitution between land and non-land inputs very close to unity.
Discussants:
Stephen Oliner
(American Enterprise Institute)
Anna Scherbina
(University of California-Davis)
William D. Larson
(Federal Housing Finance Agency)
Gabriel Ehrlich
(Congressional Budget Office)
Jan 04, 2016 8:00 am, Parc 55, Mission II & III
American Real Estate & Urban Economic Association
Local Governments and the Housing Market
(R1, H7)
Presiding:
William Hoyt
(University of Kentucky)
Why Do Big Cities Redistribute Income Out of Own Source Revenue?
Janet Kohlhase
(University of Houston)
D. Andrew Austin
(Congressional Research Service)
Stephanie Botello
(Employstats)
Steven Craig
(University of Houston)
[View Abstract]
[Download Preview] Our paper attempts to explain why large cities in the U.S. spend about 11% of their current budget on low income assistance, despite economists’ prescriptions that such behavior is extremely inefficient. We posit that urban governments act “as if” they are altruistic in this dimension, and large cities have access to greater land rents than suburbs. To test this idea, we examine central city budgetary responses to suburban fiscal changes by comparing basic expenditures to income redistribution expenditures. Using a panel sample of the 47 largest cities in the U.S. over 18 years, we estimate using instrumental variable (IV) models, the determinants of large city expenditures, revenues and taxes as a function of suburban choices. We find that large cities tend to match the changes in suburban taxes and base expenditures, however large cities respond in the opposite direction to changes in suburban transfer payments. These responses appear to be sensitive to the number of competing suburbs. We interpret our findings as being consistent with rent extraction, but where the political process results in redistributive expenditures
Childhood Housing and Adult Earnings: A Between-Siblings Analysis of Housing Vouchers and Public Housing
Henry Pollakowski
(Harvard University)
Fredrik Andersson
(Office of the Comptroller of the Currency)
John Haltiwanger
(University of Maryland)
Mark J. Kutzbach
(U.S. Census Bureau)
Giordano Palloni
(University of Maryland)
[View Abstract]
[Download Preview] [Download PowerPoint] To date, research on the long-term effects of childhood participation in voucher-assisted and public housing has been limited by the lack of appropriate data and suitable identification strategies. We create a new, national-level longitudinal data set on housing assistance and labor market earnings to explore how children’s housing affects their later earnings. While naïve estimates suggest there are substantial negative long-term consequences to childhood participation in voucher-assisted and public housing, these relationships appear to be driven largely by negative selection into housing assistance programs. To mitigate this source of bias, we employ household fixed-effects specifications that use only within-household (across-sibling) variation for identification. Compared to naïve specifications, household fixed-effects estimates are more positive for all demographic groups and, for some groups, positive and statistically significant. Black non-Hispanic females, in particular, benefit from time spent in both voucher-assisted and public housing. Exploiting the between sibling variation accounts for unobserved time-invariant family attributes that may influence outcomes but does not address time varying within household factors that may be at work. We use a number of strategies to address these issues and find our results are results are largely robust to these concerns.
What Matters More for Economic Development, the Amount of Funding or the Number of Projects Funded? Evidence from the Community Development Financial Investment Fund
Amanda Ross
(West Virginia University)
Kaitlyn Harger
(Florida Gulf Coast University)
Heather Stephens
(West Virginia University)
[View Abstract]
[Download Preview] In this paper, we look at the effect of the New Markets Tax Credit (NMTC) and the Community Development Financial Institutions (CDFI) programs on new business activity. Since previous research has found that entrepreneurial activity is positively associated with job growth in the United States, one way governments can attract entrepreneurs is to provide incentives to new businesses that locate in economically distressed communities. However, there is a debate over how to allocate these funds: give small amounts of funding to numerous projects or give larger amounts of funding to a few projects. Using individual establishment data from the National Establishment Time Series (NETS) database for California, and data on which census tracts received funding through the CDFI and NMTC programs, we consider the impact of these two programs on attracting new businesses. We find that in the tracts that are close to the programs’ plausibly exogenous eligibility thresholds, higher levels of funding through the NMTC program are associated with increases in the number of new establishments that locate in the area, while the number of projects funded has no effect. We do not find evidence of a significant effect of the CDFI program on where new businesses locate. The amounts of funding through the CDFI program are relatively small, though many projects were funded through this program. Thus, our findings suggest that it is the amount of funding allocated to these areas that has the strongest effect on development, more so than the number of projects funded.
Jobless Capital? The Role of Capital Subsidies
Carlianne Patrick
(Georgia State University)
[View Abstract]
[Download Preview] Using tax abatements, financial incentives, and public investments to attract (or retain) firms is the primary economic development tool for many local governments. Often local job creation policies focus on increasing capital through grants, low interest financing, and other economic development incentives. Theory predicts that capital subsidies induce firm behaviors that limit their job creation effects. This paper employs the Incentives Environment Index, constructed from state constitutional provisions that limit and structure the ability of state and local governmental entities to aid private enterprises, and five year county panels to test theoretical predictions on county capital expenditure and input mixes as well as industry establishment shares. The results indicate increasing capital subsidy tools is associated with capital-labor substitution, decreased employment density, and changes in local industry mix. Results are robust to alternative empirical specifications and measures of capital subsidy availability.
Discussants:
Dennis Epple
(Carnegie Mellon University)
Brian Jacob
(University of Michigan)
David R. Agrawal
(University of Kentucky)
William Hoyt
(University of Kentucky)
Jan 04, 2016 8:00 am, Parc 55, Powell I
American Real Estate & Urban Economic Association
Spatial Mismatch
(J6, R2)
Presiding:
Michael Eriksen
(University of Cincinnati)
Have Distressed Neighborhoods Recovered? Evidence from the Neighborhood Stabilization Program
Jenny Schuetz
(Federal Reserve Board )
Alvaro Cortes
(ABT Associates Inc.)
Jonathan Spader
(ABT Associates Inc.)
[View Abstract]
[Download Preview] During the 2007-2009 housing crisis, concentrations of foreclosed and vacant properties created severe blight in many cities and neighborhoods. The federal Neighborhood Stabilization Program (NSP) was established to help mitigate distress in hard-hit areas by funding the rehabilitation or demolition of troubled properties. This paper analyzes housing market changes in areas that received investments during the second round of NSP funding, focusing on seven large urban counties. Grantees used NSP to invest in census tracts with high rates of distressed and vacancy properties, and tracts that had previously received other housing subsidies. The median NSP tract received quite sparse investment, relative to the overall housing stock and the initial levels of distress. Analysis of housing market outcomes indicates the recovery has been uneven across counties and neighborhoods. In a few counties, there is some evidence that NSP2 activity is correlated with improved housing outcomes.
Neighborhood Affluence or Long Commutes: Using a Correspondence Experiment to Test Why Employers Discriminate Against Applicants from Poor Neighborhoods
David Cameron Phillips
(Hope College)
[View Abstract]
[Download Preview] I use a correspondence study of the low-wage labor market in Washington, DC to test whether employers discriminate against applicants who live further from the job location. I find that fictional résumés randomly assigned to have addresses far from the job location receive 14% fewer callbacks than nearby addresses that are on average 2.6 miles closer. This effect is economically large; the measured distance penalty in callback rates equals 40% of the penalty experienced by applicants with stereotypically black names. On the other hand, evidence that employers respond to neighborhood affluence is mixed. The results have two main implications. First, previously documented discrimination against applicants from less affluent neighborhoods can mostly be accounted for by the fact that poor neighborhoods tend to be far from jobs. Second, the results provide evidence for one mechanism by which housing market outcomes may affect urban poverty and labor markets. Employer discrimination by commute distance will reduce economic prospects of everyone in a neighborhood, potentially contributing to concentrated poverty in locations far from jobs.
Regulating Vacancies Away? The Paradoxical Effects of Mismatch in the Housing Market
Christian Hilber
(London School of Economics)
Paul Cheshire
(London School of Economics)
Hans Koster
(VU University Amsterdam)
[View Abstract]
Policy makers use the existence of empty houses as an argument for being more restrictive in their planning policies. So higher vacancy rates tend to trigger tighter restrictions on the supply of land. Such tighter restrictions lead to higher prices and, because of the incentives this creates for occupying housing, to lower housing vacancies (‘opportunity cost effect’). There is, however, a second effect ignored by planners: more restrictive planning policies impede the matching process in housing markets so leading to higher vacancies (‘mismatch effect’). Which of these two forces dominates is an empirical question. This is our focus here. Addressing potential reverse causation and other endogeneity concerns, we use a unique panel data set on land use regulation for 350 Local Authorities in England from 1981 to 2011. Our results show that tighter local planning constraints increase local housing vacancy rates, indicating that the mismatch effect dominates. A one standard deviation increase in local regulatory restrictiveness causes the average local vacancy rate to increase by about 0.9 percentage points (23 percent). The same increase in local restrictiveness also causes an 8.5 percent rise in average commuting distances. The results are economically meaningful and show that the existence of vacant houses is no reason for being more restrictive in allocating land for housing. They also underline the interdependence of local housing and labour markets.
Discussants:
Matthew Freedman
(Drexel University)
Zach Hawley
(Texas Christian University)
Yannis Ioannides
(Tufts University)
Alvin Murphy
(Arizona State University)
Jan 04, 2016 8:00 am, Parc 55, Market Street
Association for Comparative Economic Studies
European Integration at a Crossroads
(F4, G3)
Presiding:
Iikka Korhonen
(Bank of Finland)
Economic Growth and Deep Integration: A Counterfactual Analysis for Europe
Nauro F. Campos
(Brunel University London, ETH-Zurich and IZA-Bonn)
Fabrizio Coricelli
(Paris School of Economics and CEPR-London)
Luigi Moretti
(University of Padova)
[View Abstract]
What are the payoffs from membership in the European Union (EU)? How do these change across countries and over time? This paper addresses these questions by constructing econometric counterfactuals for 17 countries that joined the EU over four decades (in 1973, 1980s, 1995 and 2004 enlargements). The estimated growth and productivity effects from EU membership are large, significant and almost unanimously positive (they are negative only for Greece). Although they vary substantially both across countries and over time, we calculate that without deep (i.e., economic and political) integration, per capita incomes would have been, on average, approximately 12 percent lower.
Labor Market Reforms and Current Account Imbalances: Beggar-Thy-Neighbor Policies in a Currency Union?
Timo Baas
(University of Duisburg-Essen)
Ansgar Belke
(University of Duisburg-Essen and Institute for the Study of Labor (IZA))
[View Abstract]
[Download Preview] Member countries of the Economic and Monetary Union (EMU) initiated wide-ranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbor policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyze the impact of labor market reforms on the transmission of macroeconomic shocks in both, non-reforming and reforming countries. By analyzing the impact of reforms on foreign debt, we contribute to the debate on whether labor market reforms increase or reduce current account imbalances.
Shareholder Rights and Engagement at European AGMs
Luc Renneboog
(Tilburg University)
Peter G. Szilagyi
(Central European University-Budapest and University of Cambridge)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper examines shareholder voice at company general meetings in Europe. Using management and shareholder proposals submitted in 17 countries, we investigate whether dissent against management is affected by meeting, proposal and firm characteristics, as well as the various regulatory provisions that have been argued to affect meeting access and participation. We find that while shareholder engagement at European meetings remains limited, it tends to be well-placed. Shareholders are most likely to act on anti-takeover devices and executive compensation, and submit their own proposals against large and poorly performing firms. Critically, we show that national regulation plays a major role in galvanizing shareholders, lending strong support to the European Commission’s Shareholder Rights Directive, and the broader pro-shareholder regulatory trend that has emerged post-crisis worldwide. At the same time, we find that shareholders use their voice more at the firm level when concerned about the institutional environment at the country level, and the quality of minority investor protection in particular. We conclude that shareholder engagement at company general meetings is a part of good governance, and regulators should go beyond minimum standards pro-actively to support shareholder rights.
What Does the European Market for Corporate Control Indicate about EU Expansion?
Killian J. McCarthy
(University of Groningen)
Wilfred Dolfsma
(Loughborough University, London)
[View Abstract]
Europe has changed dramatically in the last two decades as a result of large policy initiatives such as the introduction of the Euro, EU expansion and the fall of the Berlin Wall. These changes create a natural environment for experiments in the effects of policy and the functioning of markets. We consider the effect of these changes on the European market for corporate control. This is not only a large market, but it is sensitive to policy and likely to react strongly to change. We test this proposition using a sample of 263,570 mergers and acquisitions, announced and completed in the period 1985-2014. Some of our findings are in line with our expectations. E.g., we find that: the Fall of the Wall dramatically increased the number of deals done in the region: there were 4,194 more deals done after 1991 than had been predicted before the fall of the wall. Most of these acquisitions were by Western European acquirers looking for Eastern targets. We find that joining the Eurozone increases the number of deals to and from the joining country, and that the expansion of the Eurozone has lead Eurozone acquirers to prefer Eurozone targets over non-Eurozone targets. The Eurozone has led to more integration. Some of our other findings are unexpected. Joining the EU, and the Single market negatively impacts the number of cross-border acquisitions both into, and out of, the joining country. We suggest that there may be greater arbitrage opportunities those outside of the EU / Single market, than for those inside the EU / Single Market.
Discussants:
Ansgar Belke
(University of Duisburg-Essen and Institute for the Study of Labor (IZA))
Nauro F. Campos
(Brunel University London, ETH-Zurich and IZA-Bonn)
Wilfred Dolfsma
(Loughborough University)
Peter G. Szilagyi
(Central European University-Budapest and University of Cambridge)
Jan 04, 2016 8:00 am, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Inside Development and Banking Institutions
(B5, E6)
Presiding:
James M. Cypher
(Universidad Autónoma de Zacatecas-Mexico)
The Rise of the Randomistas: The World Bank, Experimentation, and the African Development Agenda
Howard Stein
(University of Michigan)
Kevin Donovan
(University of Michigan)
[View Abstract]
In the past two decades, the World Bank and others have widely adopted the use of randomized control trials (RCTs)in their work. The paper examines the adoption of RCTs in the Bank as a lens for examining the operational culture and institutional dynamics of the Bank.
The Limits of the New Institutional Economics Approach to African Development
Geoffrey Schneider
(Bucknell University)
Berhanu Nega
(Bucknell University)
[View Abstract]
[Download Preview] This paper engages in a systematic critique of the New Institutional Economics analysis of sub-Saharan African economic development that has become dominant in recent decades. It also offers an alternative, Original Institutionalist Economics interpretation, drawing on the work of Polanyi, Myrdal, and other OIE economists.
Celso Furtado: Culture and Creativity Matter
Jair do Amaral Filho
(Universidade Federal do Ceará-UFC)
Deborah BL Farias
(University of British Columbia)
[View Abstract]
[Download Preview] [Download PowerPoint] This article deals with the relationship between development, creativity, and culture. It is based upon the works of Celso Furtado, Brazilian economist, member of ECLAC’s first generation of scholars along with Raul Prebisch, and notable intellectual of sub-development and development in Brazil and Latin America. For the author, economic development is an endogenous social process, which leads to human ingenuity and creativity. However, Furtado argues that creativity does not occur haphazardly. It is conditioned by cultural structures which can be manifested in two forms: material (means) or immaterial (ends). The former orients creativity to serve material accumulation and consumption; the latter towards individuals’ existential way of life. Furtado’s central claim is that in the “industrial civilization”, values such as rationality and efficiency end up submitting human creativity to the production process.<br />
Kicking Away the Ladder Too: Inside Central Banks
Matías Vernengo
(Bucknell University)
[View Abstract]
The different roles of central banks are ultimately related to various development projects and ways to integrate into the global economy. In advanced countries central banks were used for the promotion of national development, then they 'kicked the ladder' to preclude peripheral countries to use the same instruments and development policies.
Inside Shadow Banking in China: Credit Driven Growth versus Financial Stability
Yan Liang
(Willamette University)
[View Abstract]
Shadow banking has grown rapidly in China since 2007. Shadow banking has been playing an increasing role in supplying credit. This paper investigates the development of the shadow banking sector, assesses its effects on credit expansion on China and its implication for China’s credit-driven growth as well as financial stability.
Discussants:
Bret Anderson
(University of Rhode Island)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 5 & 6
Association of Environmental & Resource Economists
Pollution, Regulation, and Technical Change
(Q5, Q4)
Presiding:
Shanjun Li
(Cornell University)
Leakage from Environmental Regulation: Evidence from Smog Check and Used Vehicle Trade
Arthur van Benthem
(University of Pennsylvania)
Joseph S. Shapiro
(Yale University)
[View Abstract]
We analyze a central question in environmental economics: How does imposing regulation in some
regions but not others affect the location of economic activity? And what does any movement of
economic activity imply for the welfare consequences of spatially differentiated regulation? We
investigate these questions in an important and understudied setting, passenger transportation. We analyze
how “smog check” inspection and maintenance programs affect both the trade of dirty vehicles from
regulated to unregulated counties and scrap decisions.
We use a natural experiment that gives rise to a fuzzy regression discontinuity design which exploits
features of the 1990 Clean Air Act Amendments. We use this discontinuity to estimate the effect of
failing a smog check on trade, scrap, and emissions damages.
We have collected a dataset containing hundreds of millions of vehicle emissions inspections results for
the majority of the 30 U.S. states that have available test records. We combine these records with
extensive data on used vehicle registrations to track where a vehicle is registered at different points in
time. Such intranational trade data are a powerful and new tool to understand the consequences of
incomplete regulation. The data will allow us to assess whether or not emissions leakage is an
economically meaningful concern in vehicle markets, and if the marginal costs of pollution differ between
locations where economic activity began and the locations where environmental regulation caused the
activity to move.
This question is relevant for research and for policy—for example, whether only city centers or also
outlying suburbs should be regulated. This analysis is also relevant to fiscal federalism questions about
the optimal level of jurisdiction for policy.
Do Smog Checks Affect Smog? Emissions Inspections, Station Quality and Local Air Pollution
Ryan Sandler
(Federal Trade Commission)
Nicholas J. Sanders
(Cornell University)
[View Abstract]
[Download Preview] Personal automobile emissions are a major source of urban air pollution. Many U.S. states control emissions through mandated vehicle inspections and repairs. But there is little empirical evidence directly linking mandated inspections, maintenance, and local air pollution levels. Using individual-level data from 1998--2012 from California's inspection program, we estimate the contemporaneous effect of inspections on local air quality by exploiting day-to-day, within-county variation in the number of vehicles nominally repaired and recertified after failing an initial inspection. Additional re-inspections of pre-1985 model year vehicles reduce local carbon monoxide, nitrogen oxide, and particulate matter levels, while re-inspections of newer vehicles with more modern engine technology have no economically significant effect on air pollution. This suggests emissions inspections become less effective at reducing local air pollution as more high-polluting vehicles from the 1970s and 1980s leave the road. We also estimate the importance of station quality, using a metric devised for California's new STAR certification program. We show re-inspections of older vehicles conducted by low quality inspection stations do not change air pollution, while inspections at high quality stations have a moderate effect on pollution concentrations. We find little effect on ambient ozone levels, regardless of station quality or vehicle age.
Path Dependence in U.S. Coal-Fired Electricity
Kyle C. Meng
(University of California-Santa Barbara)
[View Abstract]
Understanding the dynamics of coal-fired electricity is crucial for the design of policies that reduce its social costs (Chay and Greenstone, 2003, 2005; Barreca, Clay and Tarr, 2014). This paper examines the role of path dependence - the ongoing effects of obsolete past determinants - on the development of coal-fired electricity capacity in the U.S. midwest over the 20th century. I exploit spatial and temporal variation in county-level coal prices driven by the opening of deep coal mines following the introduction of mechanized mining. For a given county, I find that distance to a shallow coal mine that became obsolete after mechanization has an increasing effect on relative coal-fired capacity up to six decades after initial
obsolescence. The sign and duration of this effect cannot be explained alone by the durability and fixed costs associated with previously built coal-fired capacity. By the 1990s, path dependence explains 60% of total coal-fired capacity over sample counties. Analysis of electricity generating efficiency suggests path dependence may be occurring through coal-specific technological change (Schumpeter, 1942; Schmookler, 1966; David, 1985; Aghion and Howitt, 1992; Arthur, 1994). I expand on Acemoglu et al. (2012a)'s model of directed technical change to link my reduced-form estimates with a formal definition of technology-driven path dependence and a structural parameter which dictates policy design. The implied parameter
value suggests that a future permanent transition away from coal could be induced by a temporary policy intervention towards improving non-coal electricity productivity. I discuss implications for the current U.S. transition towards natural gas-fired electricity.
What's in the Secret Sauce? An Evaluation of the Toxicity of Hydraulic Fracturing Injectants
Charles F. Mason
(University of Wyoming)
Timothy Fitzgerald
(Montana State University)
[View Abstract]
[Download Preview] In the past decade, innovations in hydraulic fracturing and horizontal drilling
have fueled a boom in the production of natural gas from geological formations that
were previously unprofitable. Impacts on U.S. natural gas markets, generating important benefits
to consumers and producers alike. This transformation also has great potential to curtail the use
of coal in power generation, and thereby lower greenhouse gas emissions. But the rapid deployment
of fracking has been accompanied by concerns about negative externalities, including impacts to air
and water associated with the chemicals used as injectants during the fracking process, or in the
disposal of waste water; these concerns underscore the recently released federal rules governing
fracking. One important element of these new rules is the stipulation that firms report the injec-
tants used in the frack job. To shed light on the importance of such a disclosure rule, we combine
data from wells drilled in two significant gas fields (the Pinedale Anticline and the Jonah Field,
in Wyoming) with disclosure data concerning chemicals and materials injected into fracked wells
from FracFocus. We discuss information on the role played by these injectants, their toxicity, and
issues linked to “produced water,” which flows back from the well after the deposit is fracked.
Importantly, there is a correlation between the number of toxic ingredients used in a frack job
and the number of ingredients whose identity is withheld because of alleged “trade secrets.” We
also discuss the relation between toxicity of injectants, tendency to use the trade secrets
shield, and identity of service company who undertook the frack job, which has implications for the
impact on social net benefits of the recently reported merger between Baker
Hughes and Halliburton – two of these service companies.
Discussants:
Antonio M. Bento
(Cornell University)
Mark Jacobsen
(University of California-San Diego)
W. Walker Hanlon
(University of California-Los Angeles)
Alan Krupnick
(Resources for the Future)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 20
Econometric Society
Advances in Matching Theory
(A1)
Presiding:
Alessandro Pavan
(Northwestern University)
Matching Plans for Agents with Vertically and Horizontally Differentiated Preferences
Alessandro Pavan
(Northwestern University)
[View Abstract]
[Download Preview] We develop a location model of price discrimination in many-to-many matching markets in which agents’ preferences are both vertically and horizontally differentiated. The optimal plans induce negative assortative matching at the margin: at any given location, agents with a low value for interacting with agents from the opposite side (the vertical dimension) are included in the matching sets of only those agents from the opposite side whose value for matching is sufficiently high (cross-subsidization). The thresholds for inclusion naturally respect the agents’ mutual attractiveness and joint locations. The analysis has implications for the design of cable TV packages, business-to-business platforms, and advertising.
Full Substitutability in Trading Networks
Scott Duke Kominers
(Harvard University)
John Hatfield
(University of Texas at Austin)
Alexandru Nichifor
(University of St Andrews)
Michael Ostrovsky
(Stanford University)
Alexander Westkamp
(Maastricht University)
[View Abstract]
Various forms of substitutability are essential for establishing the existence of equilibria and other useful properties in diverse settings such as matching, auctions, and exchange economies with indivisible goods. We extend earlier models' canonical definitions of substitutability to a setting in which an agent can be both a buyer in some transactions and a seller in others, and show that all these definitions are equivalent. We introduce a new class of substitutable preferences called "intermediary with production capacity." We then prove that substitutability is preserved under economically important transformations such as trade endowments, mergers, and limited liability. We also show that substitutability corresponds to submodularity of the indirect utility function, the single improvement property, and a no complementarities condition. Finally, we show that substitutability implies the monotonicity conditions known as the Laws of Aggregate Supply and Demand.
Matching with Externalities
Marek Pycia
(University of California-Los Angeles)
Bumin Yenmez
(Carnegie Mellon University)
[View Abstract]
[Download Preview] We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to allow for externalities, we establish that stable matchings exist when agent choices satisfy substitutability. In addition, we show that the standard insights of matching theory, like the existence of side-optimal stable matchings and the rural hospitals theorem, remain valid despite the presence of externalities even though the standard fixed-point techniques do not apply. Furthermore, we establish novel comparative statics on externalities.
A Note on Stability in One-to-One, Multi-Period Matching Markets
Maciej Kotowski
(Harvard University)
[View Abstract]
[Download Preview] We introduce a new stability concept for multi-period matching markets. Robust prescient stability asserts that agents exhibit foresight concerning how a market can develop in the future, but they retain ambiguity concerning how the market will develop. We show that a robustly presciently stable matching exists for any configuration of agents’ preferences.
Stability Concepts in Matching Under Distributional Constraints
Fuhito Kojima
(Stanford University)
[View Abstract]
Many real matching markets are subject to distributional constraints. To guide market designers faced with constraints, we propose new stability concepts. A matching is strongly stable if satisfying blocking pairs inevitably violates a constraint. We show that a strongly stable matching may not exist, and that existence is guaranteed if and only if all distributional constraints are trivial. To overcome this difficulty, we propose a more permissive concept, weak stability. We demonstrate a weakly stable matching always exists, implies efficiency, and is characterized by standard normative axioms. These results are obtained in a more general environment than in existing studies, accommodating a wide variety of applications.
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 19
Econometric Society
Geographic Variation in Health Care Markets
(A1)
Presiding:
Matthew Gentzkow
(Stanford University)
Underuse, Overuse, Comparative Advantage, and Expertise in Health Care
Amitabh Chandra
(Harvard University)
Douglas Staiger
(Dartmouth College)
[View Abstract]
Not for circulation; slides posted here: http://www.yjs.fi/en/files/2014/06/Esitys_Chandra.pdf
Physician Beliefs and Patient Preferences
David Cutler
(Harvard University)
Jonathan Skinner
(Dartmough College)
Ariel Dora Stern
(Harvard Business School)
David Wennberg
(Dartmouth College)
[View Abstract]
[Download Preview] There is considerable controversy about the causes of regional variations in healthcare expenditures. We use vignettes from patient and physician surveys, linked to Medicare expenditures at the level of the Hospital Referral Region, to test whether patient demand-side factors, or physician supply-side factors, explains regional variations in Medicare spending. We find patient demand is relatively unimportant in explaining variations. Physician organizational factors (such as peer effects) matter, but the single most important factor is physician beliefs about treatment: 36 percent of end-of-life spending, and 17 percent of U.S. health care spending, are associated with physician beliefs unsupported by clinical evidence.
Understanding Geographic Variation in Mortality
Amy Finkelstein
(Massachusetts Institute of Technology)
Matthew Gentzkow
(Stanford University)
Heidi Williams
(Massachusetts Institute of Technology)
[View Abstract]
Mortality outcomes differ dramatically across geographic areas within the US. In this paper,
we investigate the sources of this variation, using administrative data from the US Medicare
program to follow individuals as they move across areas. Our preliminary results relate
differences across destination locations to the average health care utilization of patients in each
destination. We show that moves to higher-spending destinations are associated with lower
post-move mortality.
Discussants:
Christopher Walters
(University of California-Berkeley)
David Meltzer
(University of Chicago)
Nathaniel Hendren
(Harvard University and NBER)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 14
Econometric Society
Internal Trade and Economic Integration
(A1)
Presiding:
Stephen J. Redding
(Princeton University)
Volatility, Insurance and the Gains from Trade
Treb Allen
(Northwestern University)
David Atkin
(UCLA)
[View Abstract]
By reducing the negative correlation between local prices and productivity shocks, trade liberalization changes the volatility of returns. In the context of agriculture in developing countries—where production is risky, producers are risk averse, and insurance markets are incomplete—this change in volatility may have large welfare effects. In this paper, we empirically, analytically, and quantitatively explore the second moment effects of trade. Using forty years of agricultural micro-data from India, we show empirically that trade increased farmer's revenue volatility, causing farmers to shift production toward crops with higher mean and lower variance yields. We then incorporate producers’ optimal allocation of resources across risky production technologies into a general equilibrium trade model to show analytically two counter-intuitive results: (1) risk aversion can amplify the gains from trade (and, insurance can reduce the gains); and (2) when trade is costly, offering farmers insurance can make them worse off. Finally, we structurally estimate the model—recovering farmers' unobserved risk-return preferences from the gradient of the mean-variance frontier at their observed crop choice—to quantify the second moment welfare effects of trade. We find that the welfare costs of volatility are about one tenth the size of the first moment gains from trade. Counterfactuals show that the gains from trade would have been 10 percent smaller if farmers had had access to perfect insurance, and furthermore access to perfect insurance itself would make most farmers worse off.
Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India
Jose Asturias
(Georgetown University)
Manuel Garcia-Santana
(UPF)
Roberto Ramos
(Bank of Spain)
[View Abstract]
[Download Preview] What are the economic channels through which transportation infrastructure affect income? We study this question using a model of internal trade in which states trade with each other. In contrast to the previous literature, we do so in a framework that incorporates pro-competitive gains: changes in transportation costs affect the distribution of markups by changing the level of competition that firms face. We apply this model to the case of the Golden Quadrilateral (GQ), a large road infrastructure project in India. We discipline the parameters of the model using micro level manufacturing and geospatial data. We find that: i) the project generates large aggregate gains, ii) both standard and pro-competitive gains are quantitatively relevant.
The Costs of Market Disintegration: Evidence from the India-Pakistan Border
David Donaldson
(Stanford University)
[View Abstract]
What are the consequences for economic welfare of a disintegration of regional markets? We consider a particularly stark example of such regional disintegration - the partition of British India in 1947. Prior to 1947 British India was a free trade zone, but after the partition of the subcontinent into Pakistan and India in 1947, previously rich trading ties were severed almost immediately. For example, trade flows between the Indian region of Punjab and the neighboring Pakistani region of Punjab were extremely high (approximately 80 percent of these regions’ external trade) prior to partition, and then essentially zero thereafter. Using data on inter-regional trade flows within British India before and after partition we estimate the extent to which regions (such as Indian Punjab) that lost important trade partners due to partition were able to substitute towards alternative trading partners (such as, in the case of Indian Punjab, the rest of India, or the world other than Pakistan). We then use these estimates and the trade data to measure the impact of partition on the living standards of each region of British India. Our results imply that the adjustment of trade flows to substitute regions was swift and significant, so the welfare consequences of trade disintegration due to partition were relatively small.
A Quantitative Framework for Evaluating the Impact of Urban Transport Improvements
Stephen J. Redding
(Princeton University)
Gabriel M. Ahlfeldt
(London School of Economics)
Daniel M. Sturm
(London School of Economics)
[View Abstract]
[Download Preview] Transport infrastructure investments are among the largest items on government budgets and their effects on the spatial organization of economic activity are central to a host of public policy issues. Existing approaches to the evaluation of these investments typically involve quasi-experimental reduced-form regressions, partial equilibrium cost-benefit analyses or mechanical input-output relationships combined with assumptions about the evolution of macroeconomic variables. In contrast, we develop a quantitative general equilibrium framework for the evaluation of transport infrastructure improvements. Our framework is sufficiently rich as to capture first-order features of the data, such as many locations that differ in characteristics and observed transport networks. Yet our framework remains parsimonious and tractable enough to permit transparent model-based counterfactuals. We illustrate the applicability of our approach with an analysis of the U5 underground line in Berlin that is currently under construction.
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 3 & 4
Econometric Society
Macro and Financial Econometrics
(A1)
Presiding:
Andrew Patton
(Duke University)
Inflation Expectations, Uncertainty, and Risk Premium in an Arbitrage-Free Model of Bond Yields and Inflation Derivatives
Bin Wei
(Federal Reserve Bank of Atlanta)
Nikolay Gospodinov
(Federal Reserve Bank of Atlanta)
[View Abstract]
In this paper we develop an affine term structure model that incorporates information from the markets for Treasuries, inflation protected securities (TIPS), inflation, and inflation options. Based on no-arbitrage restrictions, we estimate the model using the extended Kalman filter method. One novel feature of our model is the introduction and identification of stochastic inflation uncertainty. We show that inflation uncertainty is an important driver of TIPS yields. Furthermore, investors demand large risk premiums for inflation risks, due to both stochastic levels and uncertainty of inflation. The model provides a valuable platform for conducting policy experiments such as estimation of probability of a particular inflation scenario.
Macroeconomic Uncertainty Through the Lens of Professional Forecasters
Rodrigo Sekkel
(Bank of Canada)
Soojin Jo
(Bank of Canada)
[View Abstract]
[Download Preview] We analyze the evolution of macroeconomic uncertainty in the U.S., based on the forecast errors of consensus survey forecasts of different economic indicators. Comprehensive information contained in the survey forecasts enables us to capture a real-time subjective measure of uncertainty in a simple framework. We jointly model and estimate macroeconomic (common) and indicator-specific uncertainties of four indicators, using a factor stochastic volatility model. Our macroeconomic uncertainty has three major spikes aligned with the 1973-75, 1980, and 2007-09 recessions, while other recessions were characterized by increases in indicator-specific uncertainties. We also demonstrate for the first time in the literature that the selection of data vintages affects the relative size of jumps in estimated uncertainty series substantially. Finally,our macroeconomic uncertainty has a persistent negative impact on real economic
activity, rather than producing "wait-and-see" dynamics.
Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity
Xuguang (Simon) Sheng
(American University)
Kajal Lahiri
(University at Albany: SUNY)
Huaming Peng
(University at Albany:SUNY)
[View Abstract]
[Download Preview] We have argued that from the standpoint of a policy maker, the uncertainty of using the average forecast is not the variance of the average, but rather the average of the variances of the individual forecasts that incorporate idiosyncratic risks. With a slight reformulation of the loss function and a standard factor decomposition of a panel of forecasts, we show that the uncertainty of the average forecast can be expressed as the disagreement among the forecasters plus the volatility of the common shock. Using new statistics to test for the homogeneity of idiosyncratic errors under the joint limits with both T and N approaching infinity simultaneously, we show that some previously used measures significantly underestimate the conceptually correct benchmark forecast uncertainty.
Time-Varying Systemic Risk: Evidence from a Dynamic Copula Model of CDS Spreads
Andrew Patton
(Duke University)
Dong Hwan Oh
(Federal Reserve Board)
[View Abstract]
[Download Preview] This paper proposes a new class of copula-based dynamic models for high dimension conditional distributions, facilitating the estimation of a wide variety of measures of systemic risk. Our proposed models draw on successful ideas from the literature on modeling high dimension covariance matrices and on recent work on models for general time-varying distributions. Our use of copula-based models enables the estimation of the joint model in stages, greatly reducing the computational burden. We use the proposed new models to study a collection of daily credit default swap (CDS) spreads on 100 U.S. firms over the period 2006 to 2012. We find that while the probability of distress for individual firms has greatly reduced since the financial crisis of 2008-09, the joint probability of distress (a measure of systemic risk) is substantially higher now than in the pre-crisis period.
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 15
Econometric Society
Startups, New Businesses, and Job Creation
(A1)
Presiding:
Gerald Carlino
(Federal Reserve Bank of Philadelphia)
Are Startups Special? Evidence from local labor markets.
Thorsten Drautzburg
(Federal Reserve Bank of Philadelphia)
Gerald Carlino
(Federal Reseve Bank of Philadelphia)
[View Abstract]
We investigate the dynamic response of local US labor markets to increased job creation by new businesses and compare the effects to overall labor demand shocks. To account for both dynamic and spatial dependence we employ a panel VAR that allows for varying degrees of spatial dependence. Following recent advances in the VAR literature we identify structural shocks using predictors based on historical industry structure and national industry-specific labor demand and job creation as instruments. We find that shocks to job creation by startups explain more than three times as much of the local variation in population growth than shocks to overall labor demand and about one third of the variation in wage growth. Taking account of the spatial dependence amplifies the effect of shocks on entry and exit rates by about 8% for the average location and by as much as 25-30% for spatially well-connected cities. However, these spillovers are less than 2% for population and wage growth.
Firm Age, Investment Opportunities and Job Creation
David Robinson
(Duke University)
Manuel Adelino
(Duke University's Fuqua School of Busine)
Song Ma
(Duke University)
[View Abstract]
New firms are an important source of job creation, but the underlying economic mechanisms responsible for this are not well understood. To explore one important mechanism, this paper focuses on employment creation that results from local demand shocks, and asks whether these new investment opportunities are seized more through the creation of new firms or through the expansion of existing firms. We find that new firm entry is responsible for the bulk of net employment creation in response to changing local economic conditions than growth by established firms. Moreover, their responsiveness is larger in areas with better access to small business finance. Although we focus on the non-tradable sector for identification, our results extend to the construction sector and the economy as a whole, indicating that the mechanisms we uncover are economically pervasive.
The Growth Potential of Startups over the Business Cycle: a cross-country analysis
Vincent Sterk
(University College London)
[View Abstract]
[Download Preview] This paper uses longitudinal micro data from Germany, the UK and the US covering almost the entire universe of private employers to document cross-country patterns in the behavior of startups over the business cycle. In line with results in Sedlacek and Sterk (2014) we find that (i) fluctuations in total startup employment are large and procylical, (ii) variations in employment across cohorts are very persistent, and (iii) much of the fluctuations in cohort-level employment is accounted for by the intensive margin (average firm size) rather than the extensive margin (number of firms), especially as cohorts age.
Demand-Driven Propagation: Evidence from the Financial Crisis
Ha Nguyen
(World Bank)
[View Abstract]
[Download Preview] We provide empirical evidence for the Keynesian demand-driven propagation: first rounds of job losses lead to additional rounds of job losses. To do so, we exploit the exogenous variations in the concentration of tradable sectors across U.S. counties. We find that counties with higher pre-crisis concentration of tradable industries experience stronger job losses in the non-tradable sector during the crisis. This is arguably because laid-off tradable workers cut their consumption, which hurts local non-tradable firms. This result is not driven by exposure to the construction sector, policy induced business uncertainty, or credit supply problem. In addition, the result is stronger when we focus on the concentration of hardest hit manufacturing industries.
Discussants:
Karel Mertens
(Cornell University)
Benjamin W. Pugsley
(Federal Reserve Bank of New York)
Francois Gourio
(Federal Reserve Bank of Chicago)
Jan 04, 2016 8:00 am, Marriott Marquis, Sierra B
Economic Science Association
Experiments on Bargaining: The Role of Risk, Deadlines and Reference Points
(C7, C9)
Presiding:
Kyle Hyndman
(Naveen Jindal School of Management and University of Texas-Dallas)
Is Earned Bargaining Power More Fully Exploited?
Nicholas Feltovich
(Monash University)
[View Abstract]
We investigate the impact of “earned” bargaining position using a lab experiment. Subjects bargain under complete information in either the Nash demand game or an unstructured bargaining game, with bargaining position varied via the disagreement outcome. We find that subjects are more responsive to changes in bargaining position when disagreement payoffs are earned through a real-effort task than when the task only determines entry to the bargaining stage (with disagreement payoffs randomly assigned), but more responsive in the latter case than when there is no task and subjects simply bargain with randomly assigned disagreement payoffs.
Bargaining Under Time Pressure
Emin Karagözoğlu
(Bilkent University)
Martin Georg Kocher
(University of Munich)
[View Abstract]
[Download Preview] We experimentally investigate the effect of time-pressure in a rich-context, unstructured bargaining game with competing reference points. In the experiment, there are two time-pressure treatments: low (10 minutes) and high (90 seconds) time-pressure. Our results show that average opening proposals, concessions, and agreed shares are identical across treatments. Nevertheless, time-pressure systematically influenced agreements. In particular, the likelihood of reaching the explicit (implicit) reference point outcome in agreements increased (decreased) with time-pressure. Moreover, the disagreement rates and the frequency of last-moment agreements significantly differed across treatments. Time-pressure influenced the effect of tension between first proposals on these bargaining outcomes.
Dynamic Unstructured Bargaining with Private Information and Deadlines: Theory and Experiment
Colin F. Camerer
(California Institute of Technology)
Gideon Nave
(California Institute of Technology)
Alec Smith
(University of Arizona and Compass Lexecon)
[View Abstract]
[Download Preview] We study dynamic unstructured bargaining with deadlines and one-sided private information, via theory and experiment. We predict the incidence of bargaining failures (“strikes”) and payoffs in each state by combining mechanism design and focal point approaches. Strikes are common in states with lower surpluses (“pies”) and strike incidence is decreasing in the pie size. Subjects reach equal splits when strikes are efficient, while payoffs are unbalanced in states where strikes are inefficient, with additional surplus accruing to the informed player. We employ a machine learning approach to explore the information content of bargaining process data.
Reference Points, Reputation and Strategies in a Dynamic Bargaining Environment with a Residual Claimant
Matthew Embrey
(University of Sussex)
Kyle Hyndman
(University of Texas-Dallas)
[View Abstract]
[Download Preview] We conduct an experiment of a two-period bilateral bargaining environment, where the payoff to one player is subject to ex-post risk, while the other player receives a fixed payment, effectively making the player exposed to risk a residual claimant. The ex-post risk not only provides substantive issues for bargaining parties to resolve in the experiment -- i.e. what is a fair compensation for the exposure to risk – it also results in the endogenous formation of reference points for the second period. We find support for “pay-back”. That is, not only are bargaining outcomes in the second period affected by the realization of the first-period pie, but it is also the case that agents not exposed to the risk are able to extract a great surplus following a high realization of the first-period pie.
Discussants:
Alistair Wilson
(University of Pittsburgh)
Matthew Embrey
(University of Sussex)
Chloe Tergiman
(Pennsylvania State University)
Timothy Salmon
(Southern Methodist University)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 16
History of Economics Society
Public Choice: Origins and Perspectives
(B3, H1)
Presiding:
Manuela Mosca
(University of Salento)
Political Realism and Models of the State. Antonio de Viti de Marco and the Origins of Public Choice
Manuela Mosca
(University of Salento)
Michele Giuranno
(University of Salento)
[View Abstract]
[Download Preview] It is well known that one of the features of Public Choice, political realism, in Italy is embedded in a time-honored tradition going back to Machiavelli, and perpetuated by G. Mosca and Pareto in their political and sociological writings. The scientific spirit, which in their era led to the foundation of various social disciplines, fostered the application of economic analysis to the political sphere. In this context the initiator of the pure theory of public finance, Antonio de Viti de Marco (1858-1943), formulated an economic model of the state, consisting of two types of constitutional extremes: the absolute state, and the democratic state. In this work, we ask how this model may be reconciled to G. Mosca and Pareto’s theory of the ruling class, which De Viti de Marco agreed with. Finally, we analyze the validity of this theoretical construction for the interpretation of collusion, rent seeking and “clientelism”, i.e. the redistribution of extracted rent, which takes place in the form of discretionary allocation of public jobs, public contracts and other corporative favours. What emerges provides reasons to reflect upon for further developments in Public Choice.
Wicksell, Pareto, and Public Choice
Marianne Johnson
(University of Wisconsin-Oshkosh)
[View Abstract]
[Download Preview] [Download PowerPoint] No individual in the history of public economics has been subject to more contentious discussion than Knut Wicksell – and perhaps no concept subjected to more diverse interpretation than Wicksell’s unanimity rule. The story begins in 1896 with the publication of Wicksell’s public finance treatise, Finanztheoretische Untersuchungen, and starts to take shape in 1906 [1971] with the publication of Pareto’s Manual of Political Economy. Contemporaries who had much in common, Wicksell and Pareto were unable to come to a meeting of the minds on a number of fundamental theoretical issues. The crux of the matter hinges on the relationship between Wicksell’s unanimity rule and Pareto optimality. What makes the Wicksell-Pareto discussion particularly interesting is the degree to which their ‘feud’ has continued in modern public economics, represented in the split between the public choice tradition of James Buchanan and Richard Musgrave’s triparate approach of allocation, distribution, and stabilization. This article examines Knut Wicksell’s one-sided debate with Vilfredo Pareto on issues in welfare economics and considers the trajectory of their economic ideas that led to an eventual convergence between Wicksellian unanimity and Pareto optimality in public choice.
The Origins of Public Choice and Virginia Political Economy: What might Arthur Lovejoy have Thought?
Richard E. Wagner
(George Mason University)
[View Abstract]
[Download Preview] Drawing inspiration from Ross Emmett’s (2006) imaginative construction of what Frank Knight might have thought about the Stigler-Becker formulation of Die Gustibus, I ask what Arthur Lovejoy (1936) might have thought about the origin of public choice. He would surely have denied that public choice denoted a “unit idea.” Public choice is a generic term, like Enlightenment, Romanticism, and similar terms that cover many different and often inconsistent ideas. In its generic form, public choice descends from the neoclassical focus on rational action applied to voting. While the scholars associated with Virginia political economy likewise displayed an interest in rationality and voting, their core ideas descended from the confluence between the classical tradition of political economy and the Italian tradition of public finance. The significance of origins resides in the orientation it provides for future scholarship. An analytical core drawn from a neoclassical theory of rationality and voting based on demonstrative reasoning reflects a different analytical vision than does a classical theory of creative action and societal organization based on plausible reasoning. This latter location of origin points toward an integrated treatment of the economic, political, and social aspects of the perennial problem of people living together in close geographical proximity where cooperation and antagonism are both always in play.
“Almost Wholly Negative”: The Ford Foundation’s Appraisal of the Virginia School
David M. Levy
(George Mason University)
Sandra J. Peart
(University of Richmond)
[View Abstract]
[Download Preview] In 1960 the Thomas Jefferson Center applied for a grant from the Ford Foundation. The Foundation turned down their proposal because of the Center’s purportedly unified “point of view.” This paper presents the correspondence and private discussions related to the incident.
Following the submission of their proposal, Buchanan, Nutter and then UVA President Shannon met with representatives of the Foundation, Tom Carroll and Kermit Gordon. Buchanan concluded that the “reaction of the Ford representatives must be considered to have been almost wholly negative.” The crux of the matter was the "single ‘point of view’," apparently an ideological perspective in line with Chicago-style economics. Buchanan attempted to dispel this conclusion, arguing that the program was “sufficiently broad” to “encompass wide and divergent points of view.” He was struck by Gordon’s statement that by contrast, “neither Yale nor Harvard” “reflect[ed] a point of view in their economics.” Coase was incensed by the allegation of ideological narrowness since, as he explained, he had close ties to the Fabian Society. Despite attempts to defend their proposal, the Ford officials turned down the application and the TJC never fully recovered.
Discussants:
John D. Singleton
(Duke University)
Edward Lopez
(Public Choice Society)
Roger Congleton
(West Virginia University and George Mason University)
Steven G. Medema
(University of Colorado-Denver)
Jan 04, 2016 8:00 am, Marriott Marquis, Sierra H
International Banking, Economics and Finance Association
Empirical Banking Research
(G2)
Presiding:
Kasper Roszbach
(Sveriges Riksbank)
The Elasticity of Retail Deposits in the U.K.: A Macroeconomic Investigation
Jeremy Chiu
(Bank of England)
John Hill
(Bank of England)
[View Abstract]
[Download Preview] This paper quantitatively studies the behaviour of household deposit funding at major banks in the United Kingdom. We estimate a panel of Bayesian vector autoregressive models on a unique dataset compiled by the Bank of England, and identify deposit demand and supply shocks, both to individual banks and in aggregate, using micro-founded sign restrictions. Based on the impulse responses, we estimate how much banks are required to increase their deposit rates by, in order to cover a deposit gap opened up following each type of funding shock. Subject to our modelling assumptions, banks generally find it costly to bid-up for deposits to cover a funding gap in the short-run. We compute dynamic rate-elasticities, and find that the rate elasticity of deposits is typically of the order of 0.3 - but this varies across banks and the types of shock these are conditional on. We also show evidence that banks are more vulnerable to deposit supply shocks. Historical decompositions show that the shock dynamics uncovered by the model can be used to explain historical data.
The Effect of Campaign Contributions on State Banking Regulation and Bank Expansion in the U.S.
Hector Perez Saiz
(Bank of Canada)
Aggey Semenov
(University of Ottawa)
[View Abstract]
This article provides an empirical evidence to the claim that influence by financial institutions distorts the policy formation process. We use a unique detailed database with state
campaign contributions made by banks in the U.S. from 1998 to 2010 to understand how these contributions influence regulation of the banking industry. We consider the procedure of approval of bank mergers by the state banking regulatory authority. Banks that are acquiring other banks in the near future tend to contribute more to candidates that play a key role in the oversight of the state banking regulator. Our results show a clear link between merger efficiency and regulation since poorly performed banks that fail or are acquired tend to contribute much less than acquirer banks. Interestingly, marginal banks that may raise more concerns among regulators in the approval process are more likely to contribute. All these results suggest a link between merger effciency and using campaign contributions to affect regulatory decisions.
Depositor Discipline and Bank Failures in Local Markets During the Financial Crisis
Martien Lamers
(University of Groningen)
[View Abstract]
[Download Preview] This paper investigates the impact of bank failures on the disciplining behavior of<br />
depositors during the recent financial crisis. Exploiting the regional dimension of the<br />
financial crisis in the United States and the failure of over 400 (mainly local) banks,<br />
I document increased discipline by depositors in local banking markets despite the<br />
existence of possible distortions such as deposit insurance schemes and bailouts. I<br />
find that the sensitivity of depositors to bank risk is stronger in markets that have<br />
witnessed failures, and this increase is long-lasting.
Did Bank Loan Customers Benefit from the TARP Program? The Effects of TARP on Loan Contract Terms
Allen Berger
(University of South Carolina)
Tanakorn Makaew
(University of South Carolina)
Raluca Roman
(University of South Carolina)
[View Abstract]
[Download Preview] We study the effects of the Troubled Asset Relief Program (TARP) on loan contract terms to
businesses borrowing from recipient banks. Using a difference-in-difference analysis, we find
that TARP led to more favorable terms to these borrowers in all five contract terms studied – loan
amounts, spreads, maturities, collateral, and covenants. This suggests recipient banks’ borrowers
benefited from TARP. These findings are statistically and economically significant, and are
robust to dealing with potential endogeneity issues and other checks. The contract term
improvements are concentrated primarily among safer borrowers, consistent with a decrease in
the exploitation of moral hazard incentives. Benefits extended to both relationship and nonrelationship
borrowers, and to term loan, revolver, and other loan borrowers. Results contribute
to the TARP benefits-costs debate, by adding to the list of benefits of the program.
Discussants:
Nada Mora
(Federal Reserve Bank of Richmond)
Rodney Ramcharan
(University of Southern California)
John C. Driscoll
(Federal Reserve Board)
Mitchell Berlin
(Federal Reserve Bank of Philadelphia)
Jan 04, 2016 8:00 am, Parc 55, Embarcadero
International Health Economics Association
Welfare Analysis When Choices Don’t Always Reveal Preferences: Applications to Health Policy
(I1)
Presiding:
Peter Zweifel
(University of Zurich)
Estimating the Heterogeneous Welfare Effects of Choice Architecture: An Application to the Medicare Prescription Drug Insurance Market
Jonathan Ketcham
(Arizona State University)
Nicolai Kuminoff
(Arizona State University)
Christopher A. Powers
(United States Department of Health and Human Services)
[View Abstract]
We develop a structural model for estimating the welfare effects of policies that al-ter the design of differentiated product markets when some consumers may be mis-informed about product characteristics. We use the model to analyze three pro-posals to simplify Medicare markets for prescription drug insurance: (1) reducing the number of plans, (2) providing personalized information, and (3) changing de-faults so consumers are reassigned to cheaper plans. First we combine national administrative and survey data to determine which consumers appear to make in-formed enrollment decisions. Then we analyze the welfare effects of each proposal, using the revealed preferences of informed consumers to proxy for the concealed preferences of misinformed consumers. Results suggest that the menu reduction would harm most consumers whereas personalized information and reassignment would benefit most consumers. Each policy produces large gains and losses for small groups of consumers, but no policy changes average consumer welfare by more than 19% of average expenditures.
Do Individuals Make Sensible Health Insurance Decisions? Evidence from a Menu with Dominated Options
Saurabh Bhargava
(Carnegie Mellon University)
George Loewenstein
(Carnegie Mellon University)
Justin Sydnor
(University of Wisconsin)
[View Abstract]
[Download Preview] The economic rationale for recent expansion in health plan choice presumes that individuals are able to sensibly choose from available options. We test this presumption by assessing the quality of over 50,000 health insurance decisions made by employees at a U.S. firm given the option to “build your own” plan from a menu of 48 plans of which a large share were financially dominated. The menu offers a unique litmus test for evaluating choice quality in that no set of standard risk preferences or beliefs regarding future health can rationalize enrollment into dominated plans. We find that a majority of employees chose dominated options, resulting in excess spending equivalent to an average of 42% of the annual plan premium. Employees fail to improve plan choice over time, and older workers, women, and low earners were disproportionately likely to make costly errors. A series of follow-up hypothetical choice experiments suggest that, while the complexity of search may have modestly contributed to poor choice, employees’ lack of understanding of basic health insurance concepts played a more fundamental role. We find that plan selection is ultimately consistent with a heuristic choice strategy whereby individuals sort into available plans based on self-assessed health risk rather than a careful financial comparison of plan options. Our results challenge the standard practice of inferring risk attitudes, and assessing welfare, from insurance choices, and raise doubts as to whether recent reforms that expand choice will deliver promised benefits.
Looking Ahead: Subjective Time Perception and Individual Time Discounting
Paul Dolan
(London School of Economics)
David Bradford
(University of Georgia)
Matteo Galizzi
(London School of Economics)
[View Abstract]
[Download Preview] [Download PowerPoint] Time discounting is at the heart of economic and health decision-making. We disentangle hyperbolic discounting from subjective time perception using experimental data from incentive-compatible tests to measure time preferences, and a set of experimental tasks to measure time perception. The two behavioral parameters may be related to two factors that affect how we look ahead to future events. The first is that some components of time preferences reflect hyperbolic discounting. The second factor is that non-constant discounting may also be a reflection of subjective time perception: if people’s perception of time follows a near logarithmic process (as all other physiological perceptions such as heat, sound, and light do) then all existing estimates of individual discounting will be mis-measured and incorrectly suggest “hyperbolic” discounting, even if discounting over subjective time is constant. To test these hypotheses, we first empirically estimate the two distinct behavioral parameters using data collected from participants to lab experiments. The results support the hypothesis that apparent non-constant discounting is largely a reflection of subjective time perception. We then look at the links between the estimated parameters and a set of variables associated to economic and health decision-making.
Mostly Harmless Regulation? Health Warnings, Electronic Cigarettes, and Consumer Welfare
Donald Kenkel
(Cornell University)
Michael Pesko
(Cornell University)
Hua Wang
(Cornell University)
[View Abstract]
Electronic cigarettes and other vaping devices provide users with a vapor that contains nicotine without the combustion-generated toxicants in tobacco smoke. Vaping is not harmless but poses much lower risks than smoking. Surveys consistently find that many consumers over-estimate the relative risks of vaping. Some evidence also suggests that vaping devices might be useful for smoking cessation. However, public health advocates are concerned that vaping might lead adolescents to initiate smoking and promote dual use among adult smokers. The FDA’s Center for Tobacco Products faces difficult tradeoffs to craft electronic-cigarette regulations that do more good than harm. This paper contributes new evidence on some of the key tradeoffs. We analyze stated preference data from an on-line discrete choice experiment where smokers make hypothetical choices between cigarettes, a nicotine-replacement product, and electronic cigarettes. The attributes of the electronic cigarette were varied experimentally and included price, health warnings, and the availability of multiple flavors. We use the data to estimate the parameters of a random utility-maximization model by mixed logit (random coefficients). We find that health warnings about electronic cigarettes reduce stated preferences for the products, although the average impact of an FDA-proposed warning is modest. In a partial equilibrium welfare analysis, our preliminary results imply that the FDA-proposed warning is equivalent to a $0.30 tax. At projected levels of national sales for 2015 this corresponds to a welfare loss of about $150 million. We estimate larger welfare losses when we extend the welfare analysis to include estimates of an unintended consequence of the regulation – substitution towards combustible cigarettes, which increases the internalities smokers impose on themselves.
Discussants:
Gautam Gowrisankaran
(University of Arizona)
Josh Schwartzstein
(Dartmouth College)
Tatiana Homonoff
(Cornell University)
Dhaval Dave
(Bentley College and NBER)
Jan 04, 2016 8:00 am, Hilton Union Square, Union Square 1 & 2
Korea-America Economic Association
Economic Growth and Development
(O1, O4)
Presiding:
Yongseok Shin
(Washington University-St. Louis and Federal Reserve Bank of St. Louis)
Contract Labor and Firm Dynamics in India
Chang-Tai Hsieh
(University of Chicago)
Marianne Bertrand
(University of Chicago)
Nick Tsivanidis
(University of Chicago)
[View Abstract]
How can we spur economic growth in developing countries with imperfect institutions? We explore South Korea's growth miracle and find a collusion of a powerful business class and a coherent state as a way of overcoming obstacles from imperfect institutions. Korean business groups tied to the government successfully expanded their businesses to tradable, heavy sectors, when Korea had imperfect institutions such as inefficient banking sector and weak legal system. To explore the role of business groups on growth miracle, we use panel data of establishments in the Korean manufacturing sector, where establishments are linked to firms, and firms to business groups. We analyze the data to explore the following questions: (1) was directed expansion of businesses to tradable, heavy sector efficient? (2) what is long-run consequences of business group-led economic growth after the economy builds strong institutions?
Human Capital Accumulation and Occupational Choice in the Process of Development
Marti Mestieri
(Northwestern University)
Johanna Schauer
(Toulouse School of Economics)
Robert Townsend
(Massachusetts Institute of Technology)
[View Abstract]
This paper investigates the role of human capital acquisition for growth and inequality. We construct an overlapping generations model of occupational choice in the presence of borrowing constraints that allows for (i) investment in human capital during youth (schooling) and (ii) entrepreneurial entry, exit, and investment decisions. The focus of our analysis is on the role of borrowing constraints in determining human capital and entrepreneurship. We analyze how different levels of financial development jointly determine human capital investments and the productive structure of the economy. Our model is consistent with observed correlations at the microeconomic level between wealth, education, talent and occupational choices. We find that economies that undergo financial reforms experience very protracted transitional dynamics.
Managing a Polarized Structural Change
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. Individuals differ in terms of managerial skill and efficiency units of labor, and decide whether to become a manager or a worker. Workers further sort themselves into tasks that differ in terms of how much of their skill can be utilized. We show that sector/skill-neutral routinization (defined as an exogenous TFP increase in the middle-ranking task/occupation) can explain (1) job and wage polarization; (2) changes in employment and wage differentials between managers and workers; and (3) structural change.
Selection, Risk and Urban-Rural Wage Gaps
David Lagakos
(University of California-San Diego)
Ahmed Mushfiq Mobarak
(Yale University)
Michael Waugh
(New York University)
[View Abstract]
To what extent do the large urban-rural wage gaps in developing countries reflect a misallocation of labor? We answer this questions using a dynamic model of internal migration that encompasses three potential explanations of rural-urban wage gaps: risk, migration costs and sorting by heterogenous workers. We discipline the model using new cross-sectional survey data on migration preferences and evidence from a migration experiment in Bangladesh. We then use the model to draw insights about the scope for aggregate productivity gains coming from a more efficient allocation of workers between rural and urban areas.
Natural Resources and Global Misallocation
Alexander Monge-Naranjo
(Federal Reserve Bank of St. Louis)
Juan M. Sanchez
(Federal Reserve Bank of St. Louis)
Raul Santaeulalia-Llopis
(Washington University-St. Louis)
[View Abstract]
We explore the efficiency in the allocation of physical capital and human capital across countries. The observed marginal products can differ across countries because of differences in technology and in distortions (i.e. differences in use of factors) across countries. To identify differences in technology, we propose a new data and a simple method to estimate output shares of natural resources, and thus adjust the estimated marginal products of physical and human capital. With a sample of 79 countries from 1970 to 2005, we find that the world has decidedly moved in the direction of efficiency in the allocation of physical capital, from global output losses around 7% in the 1970s to 2% by 2005. This trend is accounted for by domestic capital accumulation, as external flows have had little impact. There is also a large degree of heterogeneity in the net gains across countries. For example, we find larger gains for countries with more interventionist policies. With respect to human capital, we uncover much larger global losses from its misallocation. Indeed, contrary to physical capital, we find that the human capital allocation had worsened over time.
Jan 04, 2016 8:00 am, Parc 55, Davidson
Labor & Employment Relations Association
Down But Not Out: Global Perspectives on Labor Unions
(J5)
Presiding:
John Budd
(University of Minnesota)
Growing in the Niche: The State-sponsored Unionization, Union Leader and Diversity of Enterprise Unions in the Pearl River Delta of China
Wang Jie
(National University of Singapore)
[View Abstract]
[Download Preview] [Download PowerPoint] The existing research asserts that enterprise union is inherently weak due to its dependence on enterprise and state. This paper argues that this structure-centric explanation cannot explain the diversity of enterprise unions at firm level. The paper suggests that union efficacy is determined by enterprise’s perception of the state-sponsored unionization and union chairperson’s ability to make union work. When enterprises perceive the state-sponsored unionization as resources, enterprise unions led by capable union leaders are more likely to develop specialized union functions and engage in effective collective action for promoting employees’ economic interest. The paper is based on an 8-month fieldwork in the South China, the city of Shenzhen, where more than 50 interviews were conducted on enterprise unions, official union, labor NGOs, and workers.
When Bargaining Leads to Inequalities: Examination of Collective Labour Agreements in Canada
Melanie Laroche
(University of Montreal)
Patrice Jalette
(University of Montreal)
Frédéric Lauzon Duguay
(University of Montreal)
[View Abstract]
[Download Preview] Trade unions have historically represented a social force leading to stronger democratization
in workplaces, thus contributing to a greater balance of power in the employment
relationship. Union presence has thus been associated with reduced wage gaps and
strengthened industrial democracy (Freeman and Medoff, 1984; Freeman 2005). These
findings show that trade unions have aimed at and succeeded in reducing inequalities within
workplaces and, more broadly, in society (Frege and Kelly 2004; Freeman 2005). However,
the last few decades have been marked by profound upheavals leading to increased
inequalities even within nations (Hayter, 2012), in spite of union action in the public policy
area (Aidt and Tzannatos, 2002; Betcherman, 2013). Moreover, in unionized workplaces,
inequalities have emerged or widened. In Quebec, for example, employers have largely
succeeded in reducing the protections traditionally provided to regular employees, in
particular by introducing disparity in treatment clauses (Lauzon-Duguay, Jalette and Hallé
2010). Other disparities have also been observed between these workers and non-standard
workers regarding the various working conditions included in collective agreements (i.e.
wages, seniority, and employee benefits) (Laroche, 2012). Is this a warning that collective
bargaining is no longer able to effectively play its leading role? This paper aims to analyze
the various sources of inequality found in th lective agreements negotiated in unionized
workplaces in Quebec : it will describe the va s forms of disparity observed and identify
the main explanatory factors for these sources of disparity in unionized workplaces (sector,
company size, union affiliation, duration of the contract, etc.). Our analysis is based on data
provided by the Ministry of Labour of Quebec. A database was constructed with these data
deriving from all the collective agreements in force on December 31, 2012, in the private
sector (N=5291). Multivariate statistical analyses were conducted to determine the influence
of the different factors.
Strategy, Structure and Resourcing in UK Unions
Paul Willman
(London School of Economics)
Alex Bryson
(NIESR)
John Forth
(NIESR)
[View Abstract]
Membership decline and membership concentration have been consistent features of UK
unions for the last 25 years. In 2015, the size distribution of unions is highly skewed, with
a few very large unions accounting for the bulk of membership, but the continued survival
of small organisations. The union movement remains unified in the specific sense that the
bulk of union membership is in unions affiliated to a single apex organisation, the Trades
Union Congress. This paper looks at the strategy-structure relationship for this body of
membership. Specifically, it critically analyses the relationship between the mobilisation
strategy of the TUC and the distribution and use of resources within affiliated unions. The
paper uses two types of data; first interviews and documentary analysis using access to
the TUC and its affliates to establish the key developments in mobilisation strategy, and,
second, analysis of statutory AR21 returns to analyse revenues, expenditures and assets. It
focuses on the period 1980-2015. A key conclusion of the paper is that the two processes,
membership decline and membership concentration, are related in that the mechanisms
of concentration – mergers and amalgamations – divert resources away from attempts
to reverse membership decline. The reduction in influence and coverage of unions as
labour market institutions has some endogenous causes. The paper concludes with some
suggestions for change
Unionization and Employee Benefits in China's Workplaces
Mengjie Lu
(Peking University)
Dinghong Yi
(Renmin University of China)
[View Abstract]
This paper studies the effects of unionism on the acquisition of employee benefits in
China's urban labor market. Since the 1980s, the economic reform promoted the growth
of real labor market and labor relations in China. Changes of labor market institutions,
introduction of modern management strategies, and welfare legacy have significantly
relocated the distribution structure of benefits. On the one hand, employee benefits still
play an important role in compensation in state-owned workplaces; on the other hand,
near 40% of workers still could not be covered by any benefits. Based on this context,
this research focuses on different employee benefit levels in the Chinese urban labor
market. With the theoretical framework of supply-demand-institution, we analyze the causal
relationship between unionization, including both individual-level and enterprise-level,
and employees' benefit levels. Unlike existing studies mostly using enterprise-level data,
this research utilizes individual-level data like the Chinese General Social Survey and
the Matching Survey of Employers and Employees. This study attempts to address four
questions: 1) Could unionization of workplaces increase employers' provision of benefits?
2) Could unionization of workplaces enhance individual employees' benefits levels? 3) Will
an employee acquire more benefits if he/she joins the union? 4) How does unionization affect
employers' provision and employees' acquisition of benefits, and does the similar causal
relationship exists between unionization and ge level in the context of China’s labor
relations? Through estimation of baseline re sion models, hierarchical linear models, and
propensity score matching, we find that both the unionization of employees and workplaces
is able to enhance one's benefits level. Moreover, it is identified that this positive effect
comes from union’s promotion of workplace democratic participation rather than workers'
collective bargaining power or supervision of labor contract law enforcement. Finally, it is
found that unionization in China has no significant influence on one's wage level.
Discussants:
John Budd
(University of Minnesota)
Robert Flanagan
(Stanford University)
Jan 04, 2016 8:00 am, Parc 55, Balboa
Labor & Employment Relations Association
Skilled Worker Immigration and the H1B Program
(J6)
Presiding:
Katharine G. Abraham
(University of Maryland)
The Top H1B Employers: Characteristics of Their H1B Workers
Ron Hira
(Howard University)
[View Abstract]
The H-1B program is used by thousands of employers each year. While most employers<br /><br /><br />
sponsor one, or a handful, of foreign workers for an H-1B, a small number of employers<br /><br /><br />
sponsor large numbers of H-1Bs. These employers play an outsized role in the H-1B<br /><br /><br />
program, with the top 20 employers awarded more than half the share of H-1Bs each year.<br /><br /><br />
Using unpublished government data, this paper analyzes how these firms have used the<br /><br /><br />
program over the past five years. Worker characteristics such as educational level, field of<br /><br /><br />
study, wage, and occupation code will be analyzed as well as whether these firms sponsor<br /><br /><br />
their H-1B workers for permanent residence.
The Effect of High-Skilled Immigration on Patenting and Employment: Evidence from H1B Visa Lotteries
Kirk B. Doran
(University of Notre Dame)
Alexander Gelber
(University of California-Berkeley)
Adam Isen
(U.S. Department of the Treasury)
[View Abstract]
[Download Preview] We study the effect of a firm winning an additional H-1B visa on the firm’s patenting and<br />
employment outcomes. We compare firms randomly allocated H-1Bs in the Fiscal Year 2006<br />
and 2007 H-1B visa lotteries to other firms randomly not allocated H-1Bs in these lotteries.<br />
We use Department of Homeland Security administrative data on the winners and losers in<br />
these lotteries matched to administrative data on the universe of approved U.S. patents, and<br />
matched to IRS administrative data on the universe of U.S. firms. Winning an H-1B visa has<br />
an insignificant average effect on patenting within eight years of the beginning of the visa,<br />
with confidence intervals that always rule out moderate-sized effects and often rule out small<br />
ones. Employment estimates show that H-1Bs substantially crowd out employment of other<br />
workers.
The Impact of Skilled Foreign Workers on Firms: An Investigation of Publicly Traded U.S. Firms
Anna Mayda
(Georgetown University)
Anirban Ghosh
(Georgetown University)
Francesca Ortega
(Queens College)
[View Abstract]
Many U.S. businessmen are vocally in favor of an increase in the number of H-1B visas.
Is there systematic evidence that this would positively affect firms’ productivity, sales,
employment or profits? To address these questions we assemble a unique dataset that
matches all labor condition applications (LCAs) – the first step towards H-1B visas for skilled
foreign-born workers in the U.S. – with firm-level data on publicly traded U.S. firms (from
Compustat). Our identification is based on the sharp reduction in the annual H-1B cap that
took place in 2004, combined with information on the degree of dependency on H-1B visas
at the firm level as in Kerr and Lincoln (2010). The main result of this paper is that if the
cap on H-1B visas were relaxed, a subset of firms would experience gains in average labor
productivity, firm size, and profits. These are firms that conduct R&D and are heavy users
of H-1B workers – they belong to the top quintile among filers of LCAs. These empirical
findings are consistent with a heterogeneous firms model where innovation enhances
productivity and is subject to fixed costs.
The Economic Loss of not Employing Foreign-Born College Students
Giovanni Peri
(University of California-Davis)
Kevin Shih
(University of California-Davis)
Chad Sparber
(Colgate University)
[View Abstract]
[Download Preview] In this paper we evaluate the employment and wage loss to US states and metropolitan areas from not allowing employment of foreign students on F1 visas and from under-employing college-students who are undocumented. By combining administrative data on student visas and individual American Community Survey data for the cohort of college-attending students in each US state and metropolitan areas in the 2005-2009 period we propose a method to identify the subset of foreign-born college students on F1 visas. We then merge these data with employment data for the same cohort-location in 2010-2014 and we calculate, via a cross-sectional regression, the "transition probability" from college students into local employment for the F1 and the non-F1 foreigners in a state and city. We find strong evidence that F1 students are much less likely to move into employment in the local economy (state, city) relative to foreign students whose likely immigration status allows for work in the US. We then identify the college students in the same cohort who are likely undocumented and we estimate that their transition probability into local employment is lower by 20-30 percentage points vis-a-vis the documented foreign-born students. Some US states may have lost hundreds of million dollars in wage income because of the limited work possibility of F1 and of undocumented college students.
Discussants:
William Kerr
(Harvard Business School)
Jan 04, 2016 8:00 am, Hilton Union Square, Yosemite C
Middle East Economic Association
Comparative and Country Studies in MENA
(O5) (Poster Session)
Presiding:
Edward Sayre
(University of Southern Mississippi)
Egypt’s Twin Deficits: An Empirical Investigation
Azza M. Hedia
(Arab Academy for Science)
Gehan Saleh
(Arab Academy for Science)
Housing Costs and Divorce Rate in the MENA Countries
Hassan Gholipour Fereidouni
(Swinburne University of Technology)
[Download Preview] Innovation and Sustainable Enterprise Development: The Case of Algerian Enterprises
Mohammed El Amin Metaiche
(Preparatory School of Economics-Tlemcen)
Abderrezak Benhabib
(Preparatory School of Economics-Tlemcen)
Fatima Metaiche
(Preparatory School of Economics-Tlemcen)
Productivity Change of the Egyptian Banking Sector: A Two Stage Non-Parametric Approach
Ammar Jreisat
(Al Ain University of Science and Technology)
Hassan Hassan
(Al Ain University of Science and Technology)
[Download Preview] The determinants of success in Baccalaureate in Morocco : An analysis using spatial panel data
Amaghouss Jabrane
(Cadi Ayyad University)
Aomar Ibourk
(Cadi Ayyad University)
[Download Preview] The Impact of the Oil Prices on Public and Private Health Expenditures: Empirical Analysis on Middle East Countries
Fadime Irem Dogan
(Istanbul Kemerburgaz University)
Does Financial Repression Help Reduce the Budget Deficit? Evidence from Egypt
Sara Elezaby
(American University in Cairo)
[Download Preview] Competition Policies and MSMEs Growth in Developing Countries: Incentives or Barriers?
Samar Mahmoud Mohamed Abdelmageed
(British University in Egypt)
Investment Policies and Processes as Means to Restore Economic Vitality in Egypt and Tunisia
Karen Pfeifer
(Smith College)
Growth, Development and Conflicts: Evidence from the MENA region
Reham Rizk Kamel
(British University in Egypt)
Fida Karam
(University for Science and Technology-Kuwait)
Chahir Zaki
(Cairo University)
Housing and Output Growth in Turkey
Gizem Uzuner
(Eastern Mediterranean University)
Analysis of Fruit Price Dumping in the Iraqi Market, 2002-2010
Alaa Al-Tulaibawi
(Friedrich Alexander University of Erlangen-Nuremberg)
Foreign Exchange Market And Contagion Using Dynamic Garch Multivariate Conditional Correlation
Kamel Si Mohammed
(Ain Temouchent University)
Abderrezak Benhabib
(Tlemcen University)
Samir Maliki
(Tlemcen University)
Shooting the Goose that Lays the Golden Egg: The Case of UAE Employment Policy
A.H. Barnett
(Auburn University)
Michael Malcolm
(West Chester University of Pennsylvania)
Hugo Toledo
(American University of Sharjah)
[Download Preview] Economic Growth & Governance: A Panel Study on MENA Countries
Noha Emara
(Rutgers University)
I-Ming Chiu
(Rutgers University)
[Download Preview] Does the FTA with the Third Party Harm Disadvantaged Incumbents of the Customs Union? The Case of European Union, Turkey and Algeria
Nazire Nergiz Dincer
(TED University)
Ayca Tekin Koru
(TED University)
Pinar Yasar
(Turkey Ministry of Development)
Determinants of Conditional Convergence of the MENA Region towards the EURO Zone: The Institutional Effect
Ines Trojette
(University of Toulon)
The Causal Relationship between Inflation and Inflation Uncertainty in Egypt: Evidence from GARCH-M Modeling
Mesbah Fathy Sharaf
(University of Alberta)
Effects of Terrorism on Trade: General Equilibrium and Institutional Considerations
Javed Younas
(American University of Sharjah)
Subhayu Bandyopadhyay
(Federal Reserve Bank of St. Louis and IZA)
Todd Sandler
(University of Texas-Dallas)
The Decomposition of Regional Income Inequalities of Turkey
Ayse Aylin Bayar
(Istanbul Technical University)
[Download Preview] Jan 04, 2016 8:00 am, Marriott Marquis, Pacific J
National Association of Forensic Economics
Notable Labor Market Transitions for Forensic Economists
(J2, K1)
Presiding:
Ed Foster
(University of Minnesota)
Worklife Expectancy with Logit-Estimated Transition Probabilities
Gary Skoog
(Legal Econometrics, Inc.)
Kurt Krueger
(John Ward Economics)
Jim Ciecka
(DePaul University)
[View Abstract]
Worklife Expectancy with Logit-Estimated Transition Probabilities
Is Bridge Job Prevalence Overstated?
Kevin E. Cahill
(Boston College)
Michael D. Giandrea
(U.S. Bureau of Labor Statistics)
Joseph F. Quinn
(Boston College)
[View Abstract]
[Download Preview] Considerable prior research has shown that the majority of older Americans with career employment do not exit the labor force directly from that career job. Rather, most move first to another job late in life, before complete labor force withdrawal. These intermediate jobs have been labeled “bridge jobs”, since they are assumed to be a bridge to complete retirement. One criticism of this research is that bridge job activity may be overstated because the definition of a bridge job in the existing literature does not require a change in occupation. This paper investigates the extent to which bridge jobs involve a change in occupation or a switch to part-time status, both of which may signal the start of a retirement transition, as opposed to continued career employment, albeit with a different employer. We utilize the Health and Retirement Study (HRS), a nationally-representative longitudinal dataset of older Americans that began in 1992. When all transitions after the career job are included, the vast majority of the men and women either changed occupations, reduced hours to part time, or both. We conclude that, by and large, those who changed jobs later in life did in fact do so as part of a retirement transition. Ignoring these subtleties does result in an overestimate of bridge job activity, but only a modest one.
Has the Affordable Care Act Caused a Shift to Part-Time Work?
David Macpherson
(Trinity University)
William E. Even
(Miami University)
[View Abstract]
[Download Preview] Has the Affordable Care Act Caused a Shift to Part-Time Work?
Discussants:
Joseph I. Rosenberg
(Joseph I. Rosenberg, LLC)
Constantine M. Boukidis
(Vavoulis, Weiner & McNulty, LLC)
Victor Matheson
(College of the Holy Cross)
Jan 04, 2016 8:00 am, Hilton Union Square, Van Ness Room
National Economic Association
The Impacts and Intersections of Full Employment Policy on Race, Class and the Environment
(H5)
Presiding:
Mathew Forstater
(University of Missouri-Kansas City)
Poverty and Unemployment in Minority Communities: Causes, Consequences and Public Policy
Michael J. Murray
(Bemidji State University)
Mathew Forstater
(University of Missouri-Kansas City)
[View Abstract]
The article investigates the social causes and consequences of poverty and unemployment in minority communities in the U.S. Specifically, we investigate three related phenomena: 1) the disproportionate nature of unemployment and poverty in minority communities, with specific focus on African American, Hispanic, and Native American communities; 2) the relation between economic deprivation and income-generating crime; and 3) how the interacting and disproportionate effects of unemployment, poverty, and crime lead to heightened racial tensions within our communities. The paper also considers how a Job Guarantee program can reduce poverty and unemployment. The Job Guarantee seeks to benefit disadvantaged communities by providing the right to employment. Progressive policies like a Job Guarantee can aid in narrowing the opportunity gap and moving towards a reversal of the current trend of disenfranchisement.
Unemployment and Social Justice in the Long Term
Edward J. Nell
(New School)
[View Abstract]
Unemployment has always been a central issue in macro and micro. Unemployment means that human resources are being wasted, so the economy is not operating as well as it could. From a personal point of view it means that people are not contributing, not developing their talents (assuming that the jobs available would require talents!) and not feeling useful. Nor are they supporting their families. It means the economy is not growing as fast as it could, which means that technology and innovation are not developing as fast as they could. The ELR offers a remedy for these ills, no doubt imperfect but better than the usual policies. But we may be facing forms of unemployment that cannot be so readily offset - namely competition from robots and computer-driven systems. However, ELR programs could be adapted to develop new forms of work, and pay can be separated from work in the usual sense. But this will require a change in social norms, and in economic structure.
Market Structures, Macroeconomic Regimes and Income Distribution: The Role of Employment Guarantee Programs to Improve Equity
Daniel Kostzer
(World Bank)
[View Abstract]
Income distribution is defined by market structures and macroeconomic regimes in a recursive way. In this paper the analysis between market structures and macroeconomic regime will be shown in the distributional dimension, and will be outlined the way in which an employment guarantee can help to improve equity in ways less evident than the simple income transfer they generate, precisely affecting the economic structure in a positive and sustainable way.
Goal-Oriented Taxation: A Brief Discussion of the Living-Space Tax
Scott L.B. McConnell
(Eastern Oregon University)
[View Abstract]
Many Job Guarantee programs argue that the financing of the program is not a fundamental problem. The program’s funding depends upon a recognition that the government is able to spend the financial resources required to implement a job guarantee because there are no fundamental constraints to government spending, as in a gold-standard world. The value of the currency is not strictly determined by the scarcity of the money and there is not an operational constraint on the amount of money that can be issued. Rather, the value is driven by the fact that the issuer of the currency will accept the currency in payments to itself. One can always use the money of a sovereign nation to pay taxes, so the money will have value. Since establishing a strong taxation system is one of the ways that a government may “drive” the value of its currency, the scheme of taxation becomes of interest to this line of research. Various taxation schemes may be explored to determine a more “effective” tax base. Common taxes are income and sales taxes, where the production and consumption of goods is taxed. As the concern over both environmental waste and resource use become policy concerns, a carbon tax might be a useful tax to consider. These taxes are not necessary to “finance” government spending, but rather are a necessary means by which a significant portion of the population will demand the currency so that they may pay their taxes, driving the value of the currency.
The Job Guarantee: a Superior Buffer Stock Option for Government Price Stabilization
William Mitchell
(University of Newcastle)
[View Abstract]
Governments have two broad buffer stock options when it comes to price stabilization:
(a) Unemployment buffer stocks: Under a mainstream NAIRU regime (the current orthodoxy), inflation is controlled using tight monetary and fiscal policy, which leads to a buffer stock of unemployment. This is a very costly and unreliable target for policy makers to pursue as a means for inflation proofing.
(b) Employment buffer stocks: The government exploits the fiscal power embodied in a fiat-currency issuing national government to introduce full employment based on an employment buffer stock approach. The Job Guarantee (JG) model which is central to Modern Monetary Theory (MMT) is an example of an employment buffer stock policy approach.
In this paper, we juxtapose the two buffer stock options from the point of inflation control with a discussion of where they fit into the literature on the Phillips curve and consider the macroeconomic efficiency implications of each. The discussion will consider the implications for the fiscal position of the government arising from each option.
Discussants:
Alan Aja
(City University of New York-Brooklyn College)
Daniel Bustillo
(Columbia University)
William A. Darity, Jr.
(Duke University)
Darrick Hamilton
(New School)
Jan 04, 2016 8:00 am, Marriott Marquis, Sierra I
Society of Government Economists
Fiscal Issues and Public Economics
(H2, H3)
Presiding:
Steve Payson
(U.S. Department of the Interior)
An Alternative Framework for Measuring the Progressivity of Federal Taxes and Transfers
Ed Harris
(Congressional Budget Office)
Kevin Perese
(Congressional Budget Office)
Joshua Shakin
(Congressional Budget Office)
[View Abstract]
[Download Preview] [Download PowerPoint] Government transfers and federal taxes significantly affect the distribution of resources available to U.S. households. But conclusions about how redistributive the tax and transfer system are depend on the framework used to analyze them, especially the income measure used to rank households.
Traditionally, distributional analyses of taxes have used a broad measure of income—one that includes income from transfers—as the basis for ranking households and measuring average tax rates across the income distribution. That framework, however, is less suitable for measuring the distributional effects of income received from government transfers. As refundable credits such as the EITC and the Affordable Care Act’s health insurance subsidies continue to blur the line between taxes and transfers, an income measure that includes transfers may no longer be the most appropriate metric to measure the progressivity of the tax system. Furthermore, to ascertain how both government transfers and federal taxes affect household well-being across the income spectrum, it is necessary to consider an alternate framework for comprehensive distributional analyses.
This paper presents a new framework to analyze the combined effects of government transfers and federal taxes on the distribution of household income. It also explores how alternative distributional presentations change conclusions about the progressivity of the tax and transfer system compared with the widely-cited framework currently used by the Congressional Budget Office in its distributional analyses.
Choice Architecture versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market
Xiaoling Lim Ang
(Edgeworth Economics)
Alexei Alexandrov
(Consumer Financial Protection Bureau)
[View Abstract]
[Download Preview] We show that changes in choice architecture have a large effect on student loan decisions while we do not find significant effects of sizeable interest rate changes. We evaluate the effect of two polices implemented in 2010 by the U.S. Department of Education: (1) the requirement that all applicants for private student loans fill out a Self-Certification Form, which includes various disclosures about federal aid, and (2) the prohibition of presenting a private student loan as a default option on a financial aid offer without disclosure of the relationship between the school and the creditor. Using difference-and-difference and matching techniques on a proprietary dataset of private student loan originations from the Consumer Financial Protection Bureau and survey and administrative data from the Department of Education, we show that these changes decreased private student loan originations by 33\% at public four-year institutions, 18\% at private not-for-profit four year institutions, and 55\% at four year for-profit institutions. In contrast, we find no consumer response when analyzing 60 basis point decrease in the price of federal Parental PLUS loans at some schools, using same datasets and similar estimation techniques.
Family Labor Supply and the Timing of Cash Transfers: Evidence from the Earned Income Tax Credit
Tzu-Ting Yang
(Academia Sinica)
[View Abstract]
[Download Preview] This paper provides new evidence on how families adjust their labor supply in response to the receipt of an anticipated cash transfer. In particular, I exploit the unique disbursement timing and benefit rules of the Earned Income Tax Credit (EITC) to assess the effect of the receipt of a cash transfer on the timing of family labor supply. My results show that income seasonality caused by EITC receipt leads to changes in the intra-year labor supply patterns of married women. On average, receiving a $1,000 EITC payment significantly reduces the proportion of married women who work, by 1.6 percentage points, in the month in which the EITC is received. The income elasticity of labor supply for married women based on this estimate is around -0.06. In contrast, the receipt of the EITC does not affect the timing of the labor supply of married men and single women. The subgroup analysis suggests families might reduce the labor supply of secondary earners in response to receiving an anticipated EITC payment. In addition, My results suggest that the presence of liquidity constraints and myopia could be important reasons for my findings.
When is Capital Taxed Under a VAT?: The Hidden Effects of Exemption
Alexander Yuskavage
(U.S. Department of the Treasury)
Edith Brashares
(U.S. Department of the Treasury)
Gerald Silverstein
(U.S. Department of the Treasury)
[View Abstract]
A common view of the Value-Added Tax (VAT) is that capital bears an effective tax rate of zero because the tax on investment is typically immediately refunded. However, most VAT designs include sectors and classes of exempted goods and services, where tax is not paid on their sale but taxes are <br />
still paid on inputs to production. Because exemption makes it impossible for some businesses to fully recover the VAT paid on their investment, this can lead to an embedded tax on capital.<br />
<br />
While theoretical work such as Emran and Stiglitz (2005) and Keen (2008) have focused on how a VAT could impose embedded taxes on informal sectors, we extend their insights to these exempted formal sector firms. Using a nationally representative sample of US tax returns, we construct a microsimulation model of a theoretical US value-added tax. We show that common types of exemptions can lead to significant embedded taxes for exempted firms. We then simulate the likely response to these embedded taxes and show the differential impact it would have among various industries and return types.<br />
Discussants:
Gregory Bruich
(Harvard University)
Wenhua Di
(Federal Reserve Bank of Dallas)
Kati Fitzpatrick
(Seattle University)
Jon Pogach
(U.S. Federal Deposit Insurance Corporation)
Jan 04, 2016 8:00 am, Hilton Union Square, Plaza B
Society of Policy Modeling/American Economic Association
Are Emerging Markets Facing Growth Stagnation?
(F4, F4)
Presiding:
Dominick Salvatore
(Fordham University)
Globalization of Labor Markets and Growth in India and Other Emerging Economies
Kaushik Basu
(World Bank)
[View Abstract]
One of the most important developments in the world economy is the globalization of the labor market, in particular, the ability to work for a faraway company or customers, without having to apply for immigration and without having to travel. This is the unseen driver behind a lot that is happening around the world--economic and political--and changing the global landscape. In this paper I will explore the implication of this underlying change for the growth prospects of and challenges for emerging economies, with special focus on the Indian economy. It is arguable that the marked increase in India's growth rate that occurred from the mid 1990s was largely because of the ability of the country to take advantage of the globalization of the labor market. What must a developing of nation do to seize the opportunity that this creates? How long will this opportunity last? The globalization of labor will also give rise to some new challenges. Which are the developing countries most likely to be able to tackle these challenges and grow? These are the questions that will be examined and answered, at least partially, in this paper.
The Outlook for Emerging Economies
Dale Jorgenson
(Harvard University)
[View Abstract]
The world economy is gradually recovering from the financial and economic crisis that originated in the United States in 2007-2009. A vigorous debate has emerged over the possibility that the world will be facing “secular stagnation”. To assess the validity of this view I will present new projections of world economic growth over the next decade. The overall framework is provided the neo-classical theory of economic growth. Trends in productivity provide the link to technology. Labor inputs provide a link to well-established demographic projections. Capital inputs are determined endogenously by saving and investment behavior. While growth in emerging economies, especially China and India, has recently slowed considerably, these economies are growing much more rapidly than the world economy and are becoming steadily more important. As a consequence, the accelerated growth of the world economy will continue over the next decade and the relative importance of China, India, and the United States will increase.
Will China Continue to Be the Engine of Growth in the World?
Justin Yifu Lin
(Peking University)
[View Abstract]
China was one of the fastest growing countries in the world and the major engine of global growth in the past decades. The deceleration of China’s growth since the first quarter of 2010 has caused a widespread concern in the global community about the sustainability of China’s growth in the coming years. In the presentation, I will analyze China’s growth potential, the conditions for China to exploit that potential and the possibility for China to maintain around 7 percent annual growth in the coming decade.
An Agenda for Sustainable and Inclusive Growth for Emerging Markets
Joseph Eugene Stiglitz
(Columbia University)
[View Abstract]
The presentation examines the relationship and influence between the double crisis and the rise of ‘greening’ as part of the solution. The aim is to understand what defines and distinguishes the proposals contained in twenty-four sources on the green economy (including policy documents by international agencies and think tanks, and research papers), and what is the meaning and implication of the rising greening agenda for sustainable development as it enters the 21st century. Through a systematic qualitative analysis of textual material, three categories of discourse that can illuminate the meaning and implication of greening are identified: ‘almost business as usual’, ‘greening’, and ‘all change’. An analysis of their relationship with Dryzek’s classification of environmental discourse leads to the identification of three interrelated patterns: (1) scarcity and limits, (2) means and ends, and (3) reductionism and unity—which deepen our understanding of the tensions between emerging propositions. The patterns help explain the meaning and implications of greening for sustainable development, revealing an economization and polarization of discourses, the persisting weak interpretation of sustainable development, and a tension between the fixing or shifting of dominant socioeconomic paradigms that underpin its conceptualization.
Discussants:
Dominick Salvatore
(Fordham University)
Jan 04, 2016 8:00 am, Parc 55, Mason
Transportation & Public Utilities Group
Fresh Thinking and New Tools in Regulated Industries
(L9)
Presiding:
John W. Mayo
(Georgetown University)
On the Design of Distributed Generation Policies: Are Common Net Metering Policies Optimal?
David Brown
(University of Alberta)
David E. M. Sappington
(University of Florida)
[View Abstract]
[Download Preview] Abstract: Electricity customers who install solar panels often are paid the prevailing retail price for the electricity they generate. We show that this rate of compensation typically is not optimal. A payment for distributed generation (w) that is below the retail price of electricity (r) will induce the welfare-maximizing level of distributed generation (DG) when centralized generation and DG produce similar (pollution) externalities. However, w can optimally exceed r when DG entails a substantial reduction in externalities. We demonstrate that the optimal DG policy varies considerably as prevailing production technologies change, and that a requirement to equate w and r can reduce aggregate welfare substantially and generate pronounced distributional effects.
Quality Competition in the Broadband Service Provision Industry
James Prieger
(Pepperdine University)
Scott Savage
(University of Colorado)
Gabor Molnar
(University of Colorado-Boulder)
[View Abstract]
[Download Preview] Abstract: We conduct an empirical analysis of quality competition between broadband Internet Service Providers (ISPs), using National Broadband Map data for 2011-2013 for almost a thousand local markets in California. We examine how incumbent ADSL firms respond to competition from CLECs and cable modem service providers. We use an important quality attribute, the downstream data rate, and estimate the strategic choice of quality for broadband ISPs. <br />
Our paper follows a static game theoretic approach to the profit maximization decision of a broadband provider that leads to a simple two-stage method of estimation of the structural parameters of the ISPs’ profit functions. The method accounts for both the strategic aspect of each firm’s quality decision, as well as the endogeneity problems inherent in the estimation problem. <br />
Our results include two main findings. First, ILECs improve the quality of their ADSL offerings when a cable player enters the market, and also when cable operators start to offer DOCSIS 3.0 speeds. Second, ILEC ADSL providers do not raise their service quality in response to ADSL competition from CLECs, but they do boost their speed when CLECs deploy fiber in the market. This research represents the first step in what we hope to be a major advance in the empirical analysis of broadband provision, where little structural econometric work has been done.
Adapting Regulatory Systems
Araceli Castaneda
(University of Florida)
Mark Jamison
(University of Florida)
Michelle Phillips
(University of Florida)
[View Abstract]
[Download Preview] Abstract: We examine the economics of adaptive behavior in forming and changing utility regulatory systems. Independent regulatory agencies dampen the effect politics has on investment and diminish information asymmetries. Although these effects improve industry performance, creating and modifying agencies means either transferring work from other organizations to the agency, restricting behaviors that have not been restricted before, or both. These changes create personal losses and those experiencing the losses resist changes. Using empirical studies from behavioral economics and psychology, we construct a model that examines where such losses occur and identify techniques for encouraging adaptive behavior.
The Competitive Effects of Uber
Scott Wallsten
(Technology Policy Institute)
[View Abstract]
[Download Preview] Abstract: The rapid growth of Uber and other ride-sharing services like Lyft and Sidecar has upended the traditional taxicab industry, which is generally heavily regulated. Consumers clearly benefit through new entry into what has been a highly-protected industry—ride-sharing creates a service that simply did not exist a few years ago and almost by definition consumers are better off when new services emerge. The benefits to consumers, however, are likely to be even larger than might appear based on growth of these new companies. <br /><br />
In particular, although the most prominent response by taxicab companies has been lobbying to slow Uber’s growth, they may also try to win customers by competing for them in the market. Because of regulations, their competitive responses are limited. Taxi drivers cannot, on their own, reduce prices or offer the frictionless payment systems ride-sharing services use. Even so, drivers might respond by trying to offer higher quality rides than they used to. Improved quality might take the form of, for example, being more courteous to passengers by turning off the radio, not talking on a cell phone while driving, and so on. If ride-sharing has generated this kind of competitive response by taxis then even consumers who do not use ride-sharing may benefit.<br /><br />
In this paper I assemble a dataset to test that hypothesis empirically. In particular, I test whether the growth in ride-sharing has led to a decrease in the number of consumer complaints about taxis. One benefit of regulation is that regulators often collect lots of data. And, indeed, the New York City Taxi and Limousine Commission (TLC) provided me with data on every taxi ride in the city from 2010 through 2014. Data on taxi complaints comes from NYC’s Open Data Project. Ride-sharing companies are private and make little data available. Nevertheless, data from Google Trends makes it possible to generate an index of ride-sharing’s growing popularity in NYC.<br /><br />
The data reveal that, in fact, the number of complaints per taxi trip has declined along with the growth of Uber, even when controlling for underlying trends and seasonal events that may affect taxi use. Based on others’ research on complaints in regulated in regulated industries, the results suggest that customers who used to complain now take their business elsewhere and also that taxi drivers are responding to competition from Uber by increasing the quality of their own service.<br />
Discussants:
Thomas P. Lyon
(University of Michigan)
Glenn Woroch
(University of California-Berkeley)
Jones Douglas
(Ohio State University)
Jeffrey Macher
(Georgetown University)
Jan 04, 2016 8:00 am, Marriott Marquis, Sierra J
Union for Radical Political Economics
End Poverty, Revive Democracy, and Rethink Economics: Policy and Theory Alternatives to the Neo-Liberal Status Quo
(E6)
Presiding:
Rajani Kanth
(Harvard University)
The Way Out: Letting Policy Lead Economic
Rajani Kanth
(Harvard University)
[View Abstract]
Economics is simply Politics, by Other Means: as such, it is probably Economics, not Politics , that is the real 'art of the possible'. As such, this Paper, with the real history of Mainstream Economics as backdrop, argues for boldness in Policy as the 'Way Out' of today's dilemmas. Economics (i.e., the 'Theory' ) will follow, where Policy Leads - rather than the other way around.
Eliminating Global Poverty without Aggravating Environmental Pollution
Ravi Batra
(Southern Methodist University)
[View Abstract]
[Download Preview] The old literature on economic development suggests that a poor country should invite foreign capital, especially foreign direct investment (FDI), in order to industrialize and reduce poverty. This Paper suggests an alternative approach based on the putting-out-system of industrialization. This system does not require the migration of workers to cities; it also sharply increases the productivity of capital, which is in short supply in poverty-stricken nations. It creates high-paying jobs right where people live, so that transportation of people to urban centers is minimized, which also mitigates the pollution of the environment. In fact, the same approach can be followed in advanced economies.
Lessons from Iceland's Financial Crisis
Thorsteinn Thorgeirsson
(Central Bank of Iceland)
[View Abstract]
Iceland's financial crisis followed the country's accession to the European Economic Area agreement in 1994 and the privatization of its three main banks by 2003. Given the freedom, the banks went on an international lending and borrowing spree, with their combined balance sheet reaching ten times Iceland's GDP, of which two-thirds were denominated in foreign currency. When liquidity on the international wholesale funding market dried up in the autumn of 2008, and without a viable FX safety net, the banks and currency collapsed. A deep recession ensued. Lessons have been drawn and institutional and policy reforms enacted. More work to identify the causes of the international financial crisis is in order.
Austerity vs Stimulus: The Real Nature of the Crisis
Anwar Shaikh
(New School)
[View Abstract]
The current debate on austerity vs stimulus during times of crisis is<br />
rooted in the debate between neoclassical and Keynesian/Post Keynesian<br />
views of macroeconomics. There is a Third Approach, though, which can be<br />
developed from the classical tradition in which profitability regulates<br />
both demand and supply and sets conditions and limits on possible<br />
responses to a crisis.
Enclosing the Democratic Commons: Private Organizations and the Legislative Process
Roslyn Fuller
(Waterford Institute of Technology)
[View Abstract]
[Download Preview] Freedom of Association is regarded as a key civil right. Private organizations formed under protection of this right are often regarded as positive forces that help to increase democratic participation as well as economic equality. This Paper aims to seriously question that perception by examining the considerable role that private organizations play in public decision-making both nationally and internationally. The Paper will attempt to quantify the impact that private associations have, and how laws governing them could be modified to better serve the public interest and assure greater political and economic equality.
Discussants:
Rajani Kanth
(Harvard University)
Ravi Batra
(Southern Methodist University)
Thorsteinn Thorgeirsson Thorgeirsson
(Central Bank of Iceland)
Anwar Shaikh
(New School)
Roslyn Fuller
(Waterford Institute of Technology)
Jan 04, 2016 8:00 am, Marriott Marquis, Sierra K
Union for Radical Political Economics
Financial Crisis, Institutional Changes and Variety of Capitalism
(G1)
Presiding:
Dominique Plihon
(University of Paris 13)
A Capital Markets Union in Europe: Repurposing the Megabanks at the Expense of Historical-Institutional Logics?
Gary Dymski
(Leeds University)
Nina Kaltenbrunner
(Leeds University)
[View Abstract]
[Download Preview] The introduction of a capital-markets union in Europe has been justified on the basis that it will support equity expansion and to finance investment activity for economic enterprises within the European Community. It will, however, simultaneously undercut the institutional logic of Europe’s diverse ecostructure of financial intermediation, which has depended heavily on bank-based financial services. While Europe’s too-big-to-fail megabanks will be repurposed, other financial intermediaries will be more exposed to risk, in part because crises will be more frequent, and the governments on which these nations rely to overcome episodes of crisis will have more resources locked up in cleaning up their further failures.
European Shadow Banking and Variety of Capitalism
Esther Jeffers
(University of Paris 8)
[View Abstract]
[Download Preview] The financial crisis that broke out in 2007 revealed the existence of a completely parallel funding system outside of regular banking, the so-called shadow banking system (SBS). This subject has become a central field of academic research with numerous studies seeking to evaluate its size, describe the entities involved, assess its role, and possibly regulate it somewhat. However, most of these studies focus on the US due to a lack of data for Europe. Different features specific to Europe make it difficult to just copy and apply the analysis of the US SBS to the European situation. Our article focuses on analyzing the distinctive features of the European shadow banking system. Using a principal component analysis (PCA) we study four different groups of variable concerning other financial institutions in 25 European countries. The results highlight four different groups of countries that share similar characteristics according to the variety of capitalism to which they belong.
On the Variety of Capitalism Approach: What Can We Learn From the Diversity of National Reactions to the Global Financial Crisis?
Pascal Petit
(University of Paris 13)
Elias Mouhoud Mouhoud
(University of Paris Dauphine)
[View Abstract]
The global financial crisis rapidly led to a crisis of the eurozone which split the member countries in ways that the diversity of capitalism approach did not foresee. What can we learn from this experience? Does it invalidate the typology that the diversity of capitalism approach retained? Is it a transitional or lasting change? Can we identify a new typology that would fit the experiences of the countries in the last five years and help to appreciate how they are likely to behave in the years to come? What does it tell on their ability to meet the challenge of the transition to more sustainable development path? To what extent the various migration regimes identified around the 1990s and 2000s accounted for the current reactions to the inflows of migrants?
Capital Market Union: Will Capitalism in Continental Europe Shift to Market-based Anglo-American Capitalism?
Dominique Plihon
(University of Paris 13)
[View Abstract]
The European Commission has stated that its priority for the coming period is to build a single market for capital – a Capital Market Union (CMU) for all 28 member states. Accomplishing that would require removing all barriers in order to ensure complete free circulation of capital, deregulating more, making the capital markets larger, deepening and increasing the degree of financial market integration across the EU, and developing and encouraging processes such as securitization. The CMU is primarily discussed under the heading of "finance for growth". However, there is also a second, more long-term or structural goal : to shift the European economy with its traditionally strong reliance on bank financing to a more market-financed economy with bonds and investment funds, similar to the Anglo-American model. This project is not consistent with existing institutions in continental Europe. If promoted, it would exert a destabilizing effect on the economy and the society in Continental Europe.
Some Proposals to Enhance the Role of the SDR: A SFC Modelling Approach
Jacques Mazier
(University of Paris 13)
Sebastian Valdecantos
(CEPAL)
[View Abstract]
In this paper we examine the Special Drawing Right (SDR), using a more formalized approach based on a Stock Flow Consistent (SFC) model initially developed by Godley and Lavoie (2007). The model consists of four country blocks (the U.S., the Eurozone, China and the rest of the world) with multiple real and financial interactions (international trade, portfolio investments, etc.). In order to test the effects of the introduction of the SDR as a reserve asset we run different types of simulations. A first set of simulations attempt to compare the current system (organized upon the U.S dollar as the key currency) with a scenario where there is a coordinated decision to enhance the role of the SDR as a reserve asset. The second set of simulations aim at comparing the present system with one where SDRs are issued countercyclically in times of global recessions. Last, the simulations also examine the contribution of SDR to monetary stability thanks to an enlarged use with new SDR denominated assets or with a role of anchor for the rest of the world.
Discussants:
Gerald Epstein
(University of Massachusetts-Amherst)
Gary Dymski
(Leeds University)
Esther Jeffers
(University of Paris 8)
Pascal Petit
(University of Paris 13)
Jan 04, 2016 10:15 am, Hilton Union Square, Continental Ballroom 4
American Economic Association
60 Million Refugees
(J1)
Presiding:
Robert J. Shiller
(Yale University)
Refugees, Asylum Seekers and Policy
Timothy J. Hatton
(University of Essex and Australian National University)
[View Abstract]
[Download Preview] [Download PowerPoint] Refugees and asylum seekers are only a small proportion of the 60 million forcibly displaced persons. But those seeking asylum in the developed world have received much of the attention and Western governments have struggled to develop a policy response. An analysis of asylum applications by origin and destination indicates that these flows are largely driven by political terror and human rights abuses. Poor economic conditions in origin countries and tough asylum policies in destination countries matter too. In the light of the findings I suggest that greater coordination among OECD countries could improve the lot of those fleeing from persecution but even this would make small inroads on the sum of human misery.
Rethinking Protection of those Displaced by Humanitarian Crises
Susan F. Martin
(Georgetown University)
[View Abstract]
[Download Preview] Crisis migration refers to all forms of mobility associated with humanitarian crises—that is, any situation in which there is a widespread threat to life, physical safety, health or basic subsistence that is beyond the coping capacity of individuals and the communities in which they reside. Crisis migration is not a legal concept. Rather, the term was coined to encompass persons who move as a result of life threatening events and processes but do not fall within the legal definition of a refugee--that is, a person unable to return to his or her country of origin because of a well founded fear of persecution. Hurricanes, cyclones, tsunamis, earthquakes, nuclear and industrial accidents, “acts of terrorism”, armed conflict, environmental degradation, drought, famine, climate change, and situations of generalized violence, gang and cartel violence, and political instability are all potential triggers of crisis migration. I discuss failures in the current protection system as well as recent initiatives to fill the gap. I argue that new legal and institutional arrangements are needed and provide a framework for determining who among crisis migrants are in need of international protection.
Towards an International Migration Regime
Jeffrey D. Sachs
(Columbia University)
[View Abstract]
[Download Preview] Few if any issues in public policy are as muddled and contentious as international migration. There is no international regime that establishes standards and principles for national migration policies other than in the case of refugees (migrants escaping persecution). My aim here is to describe some economic and ethical principles that may underpin an international migration regime.
The Economic Impact of Syrian Refugees on Host Countries: Quasi-Experimental Evidence from Turkey
Semih Tumen
(Central Bank Republic of Turkey)
[View Abstract]
[Download Preview] Civil war in Syria, which started in March 2011, has led to a massive wave of forced immigration from the Northern Syria to the southeastern regions of Turkey. The unexpected arrival of a large number of refugees due to civil conflict in Syria resembles a natural experiment that generates an almost exogenous flow of immigrants, which offers a good opportunity to study the economic impact of refugees on the host country. Using micro-level data, I focus on three main topics: labor market outcomes, consumer prices, and housing markets. I find that Syrian refugee inflows have considerably affected the employment outcomes of natives living in the hosting regions of Turkey. I document notable employment losses among informal native workers, which suggest that the informal native workers are substituted by informally employed refugees. The prevalence of informal employment in the Turkish labor markets has amplified the negative impact of Syrian refugee inflows on natives' labor market outcomes. I also find that the prices of the goods and services produced in the informal-labor intensive sectors have declined due to the wage-cost advantages generated by the refugee penetration to the informal labor market. Finally, I report that the market for housing rentals has also been affected by refugee inflows. In particular, I find that the refugee inflows have led to an increase in the rents of higher quality housing units, while there is no effect in the rents of lower quality units. This finding supports a residential segregation story, which suggests that the refugee wave has increased the demand for better and safer neighborhoods especially among natives. Overall, the inflow of Syrian refugees is shown to affect a wide range of economic outcomes of the natives residing in the hosting regions of Turkey.
Discussants:
Joseph Altonji
(Yale University)
George J. Borjas
(Harvard University)
David Jaeger
(City University of New York)
Giovanni Peri
(University of California-Davis)
Jan 04, 2016 10:15 am, Hilton Union Square, Yosemite C
American Economic Association
Applied Microeconomics
(D1) (Poster Session)
Presiding:
Gail Hoyt
(University of Kentucky)
The Impact of 'Soft' Affirmative Action Policies on Minority Hiring in Executive Leadership: The Case of the NFL's Rooney Rule
Cynthia DuBois
(Northwestern University)
[Download Preview] Fostering Voluntary Contributions to a Public Good: A Large-Scale Natural Field Experiment at Wikipedia
Jana Gallus
(Harvard University)
Migration, Liquidity Constraints, and Income Generation: Evidence from Randomized Credit Access in China
Shu Cai
(Hong Kong University of Science and Technology)
[Download Preview] The Occupational Selection of Mexican Migrants
Miguel Flores
(Harvard University)
Alexander Patt
(Leuphana University)
Jens Ruhose
(Ifo Institute and IZA)
Simon Wiederhold
(Ifo Institute)
A Friendly Turn: Advertising Bias in the News Media
Florens Focke
(University of Mannheim)
Alexandra Niessen-Ruenzi
(University of Mannheim)
Stefan Ruenzi
(University of Mannheim)
[Download Preview] Supplier Innovation Strategy: Transactional Hazards and Innovation in the Automotive Supply Chain
Jennifer W. Kuan
(Stanford University)
Daniel Snow
(Brigham Young University)
Susan Helper
(Case Western Reserve University)
[Download Preview] Fee-only Advice - Answers from a Large Field Study
Benjamin Loos
(University of Mannheim)
Steffen Meyer
(Leibniz University Hannover)
Andreas Hackethal
(Goethe University Frankfurt)
A Persistence Test of Micro Efficiency in the Norwegian Housing Market
Andre K. Anundsen
(Norges Bank)
Erling R Larsen
(BI Norwegian Business School and Eiendomsverdi)
[Download Preview] Price Heterogeneity and Consumption Inequality
Luigi Pisano
(Northwestern University)
Andrea Stella
(Federal Reserve Board)
[Download Preview] Do Policies Affect Preferences? Evidence from Random Variation in Abortion Jurisprudence
Vardges Levonyan
(ETH Zurich)
[Download Preview] A Double-edged Sword: Using Public Recognition to Encourage Individual Charitable Giving. -- Evidence from a Field Experiment in China.
Jun Luo
(Zhejiang University of Finance and Economics)
Yefeng Chen
(Zhejiang University)
Haoran He
(Beijing Normal University)
Guanlin Gao
(Indiana University South Bend)
[Download Preview] Classy Identity: A Model of Expected Identity Utility
Fabrizio Botti
(University of Perugia)
Anna Conte
(University of Westminster)
Carlo D’Ippoliti
(Sapienza University of Rome)
[Download Preview] Bracket Creep Revisited - with and without r>g: Evidence from Germany
Junyi Zhu
(Deutsche Bundesbank)
[Download Preview] Effect of Trade Liberalization on Gender Inequality: The Case of India
Ashmita Gupta
(University of Houston)
[Download Preview] Flypaper Effect Chinese Style: Effects of Block Grants on Education Expenditure in Rural China
Wei Ha
(Peking University)
Testing Endogeneity of Social Interaction and Spatial Relationship
Wei Cheng
(Ohio State University)
Lung-Fei Lee
(Ohio State University)
Secularization, Tax Policy and Prosocial Behavior
Benjamin Bittschi
(ZEW Mannheim and KIT Karlsruhe)
Sarah Borgloh
(Federal Employment Agency)
Berthold Wigger
(KIT Karlsruhe)
The Role of Gun Supply in 1980s and 1990s Urban Violence
Geoffrey Fain Williams
(Transylvania University)
William Alan Bartley
(Transylvania University)
[Download Preview] On the Incidence of Renewable Energy Subsidies into Land Prices - Evidence from Germany
Martin Simmler
(DIW Berlin, Oxford University)
Peter Haan
(Freie Universität Berlin, DIW Berlin)
[Download Preview] Coordination and Collective Action in Online Social Network Experiments
Gizem Korkmaz
(Virginia Tech)
Christopher Kuhlman
(Virginia Tech)
Kiran Lakkaraju
(Sandia National Laboratory)
Fernando Vega-Redondo
(University of Bocconi)
Price Risk and Migration: Evidence from Ethiopian Rural Households
Yu Na Lee
(University of Minnesota, Twin Cities)
[Download Preview] Risk Preferences When the Stakes are High: Evidence from the Field
Benjamin L. Collier
(University of Pennsylvania)
Daniel Schwartz
(University of Chile)
Howard Kunreuther
(University of Pennsylvania)
Erwann Michel-Kerjan
(University of Pennsylvania)
For Whom to Tweet? A Study of a Large-Scale Social Network
Zaiyan Wei
(Purdue University)
Mo Xiao
(University of Arizona)
[Download Preview]
Jan 04, 2016 10:15 am, Hilton Union Square, Continental – Parlor 2
American Economic Association
Behavioral Interventions and Environmental Sustainability
(D1, Q4)
Presiding:
Matthew E. Kahn
(University of California-Los Angeles)
Using Information to Improve the Effectiveness of Nonlinear Pricing: Evidence from a Field Experiment
Matthew E. Kahn
(University of California-Los Angeles)
Frank A. Wolak
(Stanford University)
[View Abstract]
This paper reports on the results of two field experiments examining the impact of providing information on how a consumer’s own electricity use translates into its monthly electricity bill on how that consumer responds to a nonlinear retail price schedule for electricity. Across the two utilities, over 2,000 consumers participated in a customized on-line interactive educational program that taught them how their monthly electricity bill was determined from nonlinear retail price schedule they face. Each consumer was also told where their typical consumption monthly places it on this nonlinear pricing schedule. Consumers were also shown how changes in their major electricity-consuming activities would affect their monthly bill under the nonlinear price schedule. Using data from before and after this intervention for consumers that took the educational program (our treatment) and a randomly selected set of control consumers, we estimate the overall treatment effect associated with our educational program as well as a treatment effect for consumers on each specific pricing tier on the nonlinear price schedule during the pre-intervention period. For both utilities, we find that the overall impact of our treatment is a reduction in the consumer’s daily average consumption. In addition, our price tier-specific treatment effect results are that consumers that learn they face a higher marginal price for consuming electricity reduce their electricity consumption and consumers that learn they face the lowest marginal price increase their electricity consumption. These results emphasize that the need to provide timely and actionable information to consumers in order to maximize the effectiveness of nonlinear retail price schemes.
Overcoming Salience Bias: How Real-Time Feedback Fosters Resource Conservation
Verena Tiefenbeck
(ETH Zurich)
Lorenz Goette
(University of Bonn and HEC Lausanne)
Kathrin Degen
(HEC Lausanne)
Vojkan Tasic
(ETH Zurich)
Elgar Fleisch
(ETH Zurich and University of St. Gallen)
Rafael Lalive
(HEC Lausanne)
Thorsten Staake
(University of Bamberg)
[View Abstract]
Inattention and imperfect information bias behavior towards the salient and immediately visible. They drive individuals to lose sight of long-term goals, such as leading a sustainable and healthy life, and promote overindulgence and waste. We show that providing real-time feedback on a specific resource intense behavior can be a powerful remedy for this bias: In a large-scale field experiment, participants receive real-time feedback on their resource use. We find that this approach reduced resource consumption by 22% - much larger conservation gains than conventional policy interventions achieve. Real-time feedback directly overcomes salience bias, and avoids the negative psychological pressure that has been observed with widely-used policy interventions. Providing real-time feedback has the potential for cost-effective policy interventions aimed at resource conservation, and could help individuals eliminate salience bias in other domains of life.
Paternalism and Energy Efficiency: An Overview
Hunt Allcott
(New York University and NBER)
Dmitry Taubinsky
(University of California-Berkeley and Harvard University)
[View Abstract]
[Download Preview] This review paper provides an overview of the application of behavioral public economics
to energy efficiency. I document policymakers' arguments for \paternalistic" energy efficiency
policies, formalize with a simple model of misoptimizing consumers, review and critique empirical
evidence, and suggest future research directions. While empirical results suggest that policies
to address imperfect information and internalities may increase welfare in some cases, some
existing policies may be mistargeted or miscalibrated.
Nudges of School Children and Electricity Conservation: Evidence from the “Project Carbon Zero” Campaign in Singapore
Sumit Agarwal
(National University of Singapore)
Satyanarain Rengarajan
(National University of Singapore)
Tien Foo Sing
(National University of Singapore)
[View Abstract]
Children’s persuasion and appeals could be an effective nudge to encourage parents to change their energy consumption behavior. Using the experimental setting of “Project Carbon Zero” (PCZ) campaign, an energy saving contest for schools in Singapore, this study is the first to empirically test the effectiveness of school children’s nudges in bringing electricity conservation messages back to families and neighbors. Using a simple difference-in-difference approach that relies on the time of implementation of the PCZ campaign and the home-school distance measure as identification, we found that the behavioral intervention reduced the electricity consumption of the treated housing blocks by 1.8% relative to the control housing blocks during the contest months. The electricity savings effects persisted into the post-campaign months with estimated marginal savings of 1.6% between households in a 2km radius from the schools (the treatment group) and those located outside the school zone (the control group). We find no significant income effects in the private housing, but strong income effect in the public housing. However, the building design effect could influence the energy saving behaviors of families in private housing.
Discussants:
Michael K. Price
(Georgia State University)
Katherine L. Milkman
(University of Pennsylvania)
Kenneth Gillingham
(Yale University)
Katrina Jessoe
(University of California-Davis)
Jan 04, 2016 10:15 am, Hilton Union Square, Continental Parlors 7 & 8
American Economic Association
Behavioral Models of Housing Cycles
(G1, R2)
Presiding:
Charles G. Nathanson
(Northwestern University)
An Extrapolative Model of House Price Dynamics
Edward L. Glaeser
(Harvard University)
Charles G. Nathanson
(Northwestern University)
[View Abstract]
[Download Preview] A model in which homebuyers make a modest approximation leads house prices to display three features present in the data but usually missing from perfectly rational models: momentum at one-year horizons, mean reversion at five-year horizons, and excess longer-term volatility relative to fundamentals. Valuing a house involves forecasting the current and future demand to live in the surrounding area. Buyers forecast using past transaction prices. Approximating buyers assume that past prices reflect only contemporaneous demand, just like professional economists who use trends in housing prices to infer trends in housing demand. Consistent with survey evidence, this approximation leads buyers to expect increases in the market value of their homes after recent house price increases, to fail to anticipate the price busts that follow booms, and to be overconfident about the accuracy of their assessments of the housing market.
Housing Speculation and Housing Cycles
Zhenyu Gao
(Chinese University of Hong Kong)
Michael Sockin
(Princeton University)
Wei Xiong
(Princeton University)
[View Abstract]
[Download Preview] In contrast to the conventional wisdom that supply elasticity in housing markets attenuates price cycles, we document in the recent U.S. housing cycle a hump-shaped pattern with respect to supply elasticity in both the housing price increase during the boom period of 2004 to 2006 and the price drop during the bust period of 2007 to 2009. We also find that the rise in investment home purchases during the boom, which were likely made by homebuyers unfamiliar with local housing market conditions, were particularly large in areas with intermediate elasticities. Furthermore, these investment home purchases also led to large quantities of housing supply during the boom in these areas, which resulted in an overhang problem that amplified the subsequent housing price bust.
Information, Speculation, and Bubbles: Theory and Evidence from the Housing Market
Elliot Anenberg
(Federal Reserve Board of Governors)
Patrick Bayer
(Duke University)
James W. Roberts
(Duke University)
Timothy J. Schwuchdow
(Duke University)
[View Abstract]
We specify a model of housing markets in which homebuyers cannot directly observe market demand but infer it using observed prices and their own private valuations. Demand shocks are incorporated into market prices gradually when demand is not directly observable, providing an explanation for the short-run momentum and long-run mean reversion observed in the data. To characterize the effects of speculation, we compare prices in markets without speculation and markets in which better-informed speculators trade against less-informed buyers. We show that asset bubbles can form when buyers are unaware of speculative activity and relatively uniformed about market demand. Under these conditions, ordinary buyers mistake speculator-driven price growth for positive demand shocks, resulting in a self-fulfilling cycle of speculative purchasing and increasingly biased buyer beliefs. Conversely, speculation increases price efficiency if buyers account for speculation when forming beliefs or information asymmetries between buyers and speculators are small.
Personal Experiences and Expectations about Aggregate Outcomes
Theresa Kuchler
(New York University)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] We use novel survey data to estimate how personal experiences affect household
expectations about aggregate economic outcomes in housing and labor markets.
We exploit variation in locally experienced house prices to show that individuals
systematically extrapolate from recent locally experienced home prices when
asked for their expectations about US house price changes over the next year. In
addition, higher volatility of locally experienced house prices causes respondents
to report a wider distribution over expected future national house price movements.
We find similar results for labor market expectations, where we exploit
within-individual variation in labor market status to estimate the effect of own
experience on national labor market expectations. Personally experiencing unemployment
leads respondents to be significantly more pessimistic about future
nationwide unemployment. The extent of extrapolation is unrelated to proxies
for how informative personal experiences are, and is more pronounced for less
sophisticated individuals.
Discussants:
Nicholas C. Barberis
(Yale University)
Alvin Murphy
(Arizona State University)
Christopher J. Mayer
(Columbia University)
Ulrike Malmendier
(University of California-Berkeley)
Jan 04, 2016 10:15 am, Hilton Union Square, Golden Gate 5
American Economic Association
Behavioral Responses to Taxation
(H2)
Presiding:
William J. Congdon
(IDEAS42)
Capital Allowances and Investment: Evidence from UK Corporate Tax Returns
Giorgia Maffini
(University of Oxford)
Jing Xing
(Shanghai Jiao Tong University)
Michael Peter Devereux
(University of Oxford)
[View Abstract]
[Download Preview] How do corporate tax incentives affect firms' investment? Employing confidential UK corporate tax returns (2001/02-2009/10), we provide new evidence on the effects of capital allowances. We exploit exogenous changes in the qualifying thresholds for first year accelerated capital allowances (FYAs) to conduct a difference-in-difference analysis. Results suggest that gross investment rate increased between 2.1 and 2.6 percentage points when firms became qualified for FYAs, relative to firms that never qualified. Exploiting exogenous heterogeneity in firms' characteristics, we show that the cash flow channel through which capital allowances affect investment is not of first order importance. We then identify the presence of adjustment costs as firms do not react immediately to higher capital allowances. They react relatively quickly (in up to 12/18 months), though. Finally, larger capital allowances for small and medium-sized companies create notches. We identify a small number of firms bunching just below the qualifying thresholds for FYAs. Such companies do not drive our results: incentives are effective for a wide group of firms and not only for those manipulating their size indicators.
Corporate Taxation and Investment - Evidence from the Belgian ACE Reform
Nils aus dem Moore
(RWI Essen)
[View Abstract]
[Download Preview] [Download PowerPoint] We contribute to the empirical literature on the relationship between corporate taxes and investment.
We exploit the introduction of the so-called ACE corporate tax reform in Belgium that came into effect in January 2006 to evaluate this relationship in a quasi-experimental setting based on firm-level accounting data. To identify the causal effect of the reform on capital spending of Belgian corporations, we focus on the indirect effect of taxes on investment via their impact on free cash-flow. We use the systematic variation of the cash-flow sensitivity of investment between small and medium versus large firms to form treatment and control groups for difference-in-differences (DiD) estimations.
Our benchmark results provide highly significant and robust estimates that correspond to an increase in investment activity by small and medium-sized firms of about 3 percent in response to the ACE reform.
We substantiate the robustness of our results by means of triple differences estimations (DDD) that use a matched sample of French companies as an additional dimension of contrast.
The Tax-Rate Elasticity of Local Business Profits
Frank M. Fossen
(Freie Universitaet-Berlin)
Viktor Steiner
(Freie Universitaet-Berlin)
[View Abstract]
[Download Preview] Local business profits respond to local business tax (LBT) rates that vary across municipalities. We estimate that a one percent increase in the LBT rate decreases the LBT base by 0.45 percent, based on the universe of German LBT return files, which include corporations and unincorporated businesses. However, the fiscal equalization scheme largely compensates municipalities for the loss in the LBT base when they increase the LBT rate. Our estimates suggest that using tax revenue data instead of tax return data, as commonly done in the literature, results in a significant bias of the elasticity away from zero.
Early Education, Labor Supply and Taxation
Ankur Patel
(U.S. Department of the Treasury)
Jed Richardson
(University of Wisconsin-Madison)
[View Abstract]
We will examine the effects of early education on parent’s labor supply, income and taxation using administrative tax records between tax years 2001 and 2012. We will identify these effects using state-specific age eligibility cut-offs along with exact birthdates of claimed dependents. Preliminary results using joint returns from Georgia indicate that filers with dependents born just before the age cut-off claim a smaller child and dependent care credit and are more likely to have a secondary earner. In future work we will extend our analysis to states with (Georgia, Florida and Oklahoma) and without universal pre-kindergarten education, to single filers with dependents, and will utilize available demographic and panel information to uncover potential causal relationships.
How Sensitive Are Taxpayers to Marginal Tax Rates: Evidence from Income Bunching in the United States
Jacob Mortenson
(Georgetown University)
Andrew Whitten
(Georgetown University and Joint Committee on Taxation)
[View Abstract]
[Download Preview] Understanding the way taxpayers respond to the tax code is critical for revenue and
welfare analyses of taxation. One way taxpayers may respond is by bunching at kink
points in the tax schedule to avoid high marginal tax rates. We study this phenomenon
using over 400 million federal individual income tax returns in the United States from
1996 to 2014, analyzing state and federal statutory kinks as well as effective kinks
created by tax credits and phase-outs of deductions and exemptions. Though most
kinks do not cause statistically discernible bunching, we find strong responses at other
kinks. Consistent with prior research, we see bunching patterns grow over time at
the first kink in the Earned Income Tax Credit (EITC) schedule. In addition, we
present new evidence documenting (i) the emergence and rapid rise of bunching at
the second EITC kink and the Child Tax Credit refundability plateau, (ii) strong
responses to the temporary Making Work Pay Tax Credit, and (iii) weak responses at
three statutory kinks. In general, responsiveness is strongest at kinks that maximize
tax credits, particularly at global refund-maximizing points in the schedule. Though
the self-employed bunch more, we find wage earners also respond in recent years. Their
responses appear to be driven by evasion, however, as there is no bunching in employer reported W-2 wages. When translating bunching patterns to elasticities of taxable
income, we find a range of values from zero to 1.50, with substantial variation by kink
and household type.
Jan 04, 2016 10:15 am, Hilton Union Square, Franciscan D
American Economic Association
CoCos: Funding Costs, Risks and Financial Stability
(G2, E5)
Presiding:
Anastasia Kartasheva
(Bank for International Settlements)
Convertible Bonds and Bank Risk-Taking
Natalya Martynova
(De Nederlandsche Bank)
Enrico Perotti
(University of Amsterdam)
[View Abstract]
[Download Preview] We study how contingent capital that converts in equity ahead of default affects bank risk-shifting. Going concern conversion restores equity value in highly levered states, thus reducing heightened risk incentives. In contrast, conversion at default for traditional bail-inable debt has no effect on endogenous risk. The main beneficial effect comes from reduced leverage at conversion. In contrast to traditional convertible debt, equity dilution under going concern conversion has the opposite effect. The negative effect of dilution is tempered by any value transfer at conversion. We find that CoCo capital may be less risky than bail-inable debt when lower priority is compensated by lower endogenous risk, which is beneficial as a lower bond yield improves incentives. The risk reduction effect of CoCo debt depends critically on the informativeness of the trigger, but is always inferior to pure equity.
Contingent Capital, Tail Risk and Debt-Induced Collapse
Nan Chen
(Chinese University of Hong Kong)
Paul Glasserman
(Columbia University)
Behzad Nouri
(Columbia University)
Markus Pelger
(University of California-Berkeley)
[View Abstract]
[Download Preview] Contingent capital in the form of debt that converts to equity as a bank approaches financial distress offers a potential solution to the problem of banks that are too big to fail. This paper studies the design of contingent convertible bonds and their incentive effects in a structural model with endogenous default, debt rollover, and tail risk in the form of downward jumps in asset value. We show that once a firm issues contingent convertibles, the shareholders’ optimal bankruptcy boundary can be at one of two levels: a lower level with a lower default risk or a higher level at which default precedes conversion. An increase in the firm’s total debt load can move the firm from the first regime to the second, a phenomenon we call debt-induced collapse because it is accompanied by a sharp drop in equity value. We show that setting the contractual trigger for conversion sufficiently high avoids this hazard. With this condition in place, we investigate the effect of contingent capital and debt maturity on capital structure, debt overhang, and asset substitution. We also calibrate the model to past data on the largest U.S. bank holding companies to see what impact contingent convertible debt might have had under the conditions of the financial crisis.
CoCo Bonds Issuance and Bank Funding Costs
Stefan Avdjiev
(Bank for International Settlements)
Patrick Bolton
(Columbia University)
Wei Jiang
(Columbia University)
Anastasia Kartasheva
(Bank for International Settlements)
Bilyana Bogdanova
(Bank for International Settlements)
[View Abstract]
[Download Preview] We conduct a first comprehensive empirical study of the bank contingent convertible (CoCo) issues market from 2009 to 2015. Large banks with relatively adequate core capital bases are among the early adopters of CoCos. CoCo issuance leads to an average of 8 basis point drop in the issuers' CDS spreads, indicating that CoCo issuance reduces banks' credit risk. The reduction in CDS spreads is increasing in the trigger ratio. In contrast, there is no significant impact on equity prices of CoCo issuers, though the trigger ratio is significantly positively (negatively) related to stock returns for principal write down (mandatory conversion) CoCos. An analysis of bank's securities pricing post CoCo issuance reveals that investors in CoCos view instruments as risky and place a significant likelihood on the possibility of conversion.
Contingent Capital Trigger Effects: Evidence from Liability Management Exercises
Boris Vallee
(Harvard University)
[View Abstract]
[Download Preview] This paper investigates the so called liability management exercises by European banks, which bear comparable effects to triggering contingent capital. I first explore the determinants of these exercises. I then study market reactions to these operations, and banks' economic performance following them. Debtors positively receive these exercises, while stockholders discriminate according to the terms of the operation. Moreover, banks implementing liability management exercises exhibit higher economic performance than the ones that do not. These findings point towards contingent capital offering an effective solution to the dilemma of bank capital regulation.
Discussants:
Philip Bond
(University of Washington)
Alexei Tchistyi
(University of Illinios-Urbana-Champaign)
Theo Vermaelen
(INSEAD)
Bo Becker
(Stockholm School of Economics)
Jan 04, 2016 10:15 am, Hilton Union Square, Yosemite A
American Economic Association
Digital Currencies
(E4)
Presiding:
Andrew K. Rose
(University of California-Berkeley)
Balancing Public and Private Provision of Electronic Currencies
Kenneth Rogoff
(Harvard University)
[View Abstract]
With the impending introduction of real-time clearing systems, the phasing out of paper currency has become both inevitable and desirable. Paper currency now accounts for an increasingly small share of transactions in advanced economies, with tax evasion activities and illegal activities accounting for the vast bulk of holdings of paper currency holdings. Paper currency also leads to an artificial zero bound on central bank policy rates. However, as paper currency disappears, it raises fundamental questions about the governments role in provision of transactions media, and how private electronic monies should be regulated, including especially what kinds of anonymous transactions media should be allowed. These issues have important implications for central bank independence, price stability and government debt management. This paper develops a simple framework for analyzing these issues.
The Macroeconomics of Central Bank-Issued Digital Currency
John Barrdear
(Bank of England)
Michael Kumhof
(Bank of England)
[View Abstract]
Since the launch of Bitcoin in 2009, there has been rapid development in the area of private digital currencies, in which payments are made over ledgers that are shared over a decentralised network. This paper explores the macroeconomic consequences of central banks themselves issuing digital currency in sizeable amounts, in direct competition with privately-issued bank deposits. We find that this introduction would lead to an increase in the steady state level of output and and an improvement in the central bank's ability to stabilise inflation and the business cycle. We believe that it would also help to ameliorate some important risks to financial stability, but may also lead to the creation of some others.
Breaking Through the Zero Lower Bound and Electronic Money
Ruchir Agarwal
(International Monetary Fund)
Miles Kimball
(University of Michigan)
[View Abstract]
[Download Preview] There has been much discussion about eliminating the “zero lower bound” by eliminating paper currency. But such a radical and difficult approach as eliminating paper currency is not necessary. Much as during the Great Depression—when countries were able to revive their economies by going off the gold standard—all that is needed to empower monetary policy to cut interest rates as much as needed for economic stimulus now is to change from a paper standard to an electronic money standard, and to be willing to have paper currency go away from par. This paper develops the idea further and shows how such a mechanism can be implemented in a minimalist way by using a time-varying paper currency deposit fee between private banks and the central bank. This allows the central bank to create a crawling-peg exchange rate between paper currency and electronic money; the paper currency interest rate can be either lowered below zero or raised above zero. Such an ability to vary the paper currency interest rate along with other key interest rates, makes it possible to stimulate investment and net exports as much as needed to revive the economy, even when inflation, interest rates, and economic activity are quite low, as they are currently in many countries. The paper also examines different options available to the central bank to return to par when negative interest rates are no longer needed, and the associated implications for the financial sector and debt contracts. Finally, the paper discusses various legal, political, and economic challenges of putting in place such a framework and how policymakers could address them.
Discussants:
Andrew K. Rose
(University of California-Berkeley)
Paolo Tasca
(Deutsche Bundesbank)
Jan 04, 2016 10:15 am, Hilton Union Square, Continental – Parlor 3
American Economic Association
Education and Gender
(I2, J1)
Presiding:
Shulamit Kahn
(Boston University)
The STEM Gender Gap: Evidence from the CA State Science Fair
Nanneh Chehras
(University of California-Irvine)
[View Abstract]
In this paper, I present a novel STEM gender gap measure to document when gender differentials emerge and what factors may aid in their reduction. I construct a dataset of over 17,000 California State Science Fair (CSSF) participants and use students’ choices in project type, which places them in one of up to 24 categories. I then evaluate the role of several factors that may influence participation and performance gender gaps: advisor gender, parent assistance, school-level teacher gender composition, and judge gender composition. Although approximately an equal number of males and females participate in the overall CSSF, I find significant gender gaps in middle school that become more apparent among high school students. For example, middle school females are 28.5 percentage points less likely to compete in a math category, relative to social science, compared to 38.5 percentage points in high school. However, among winners, gender gaps do not exist in technology, engineering, and mathematics fields, where females are least represented. In terms of influential factors, I find that advisor or parent gender is significant both for project type and performance. For example, students who receive assistance from female advisors or mothers are significantly less likely to compete in male-dominated fields, like engineering or technology. This is important because female participants are significantly more likely to receive assistance from other females. I do not find evidence to suggest that the general gender composition of school teachers influences students’ project decisions or performance. Finally, the gender composition of category judges does not predict performance.
Educational Mobility across Three Generations of American Women
Sarah Kroeger
(University of Wisconsin-Milwaukee)
Owen Thompson
(University of Wisconsin-Milwaukee)
[View Abstract]
We analyze the intergenerational transmission of education in a three-generation sample of women from the US. The studied cohorts were born between the early 1910s and the early 1980s, a period of transformational increases in female educational attainment, making this an especially interesting context in which to study multigenerational inequality. We find strong three-generation educational persistence, with the association between the education of grandmothers and their granddaughters approximately two-times stronger than would be expected under the type of first-order auto regressive transmission structure that has been assumed in much of the existing two-generation mobility literature. To better understand these findings we outline a simple theoretical transmission structure that is consistent with strong three-generation effects, assess various mechanisms through which grandparents may directly influence the education of their grandchildren, and investigate the extent to which demographic processes such as differential fertility impact multigenerational educational persistence.
Student Appearance and Class Performance
Christina Peters
(Metropolitan State University of Denver)
Rey Hernandez-Julian
(Metropolitan State University of Denver)
[View Abstract]
[Download Preview] Studies have shown that attractive people have higher earnings. In this paper, we test the hypothesis that physical attractiveness may be a proxy for unobserved productivity. We compare the impact of attractiveness on grades in college courses where instructors can directly observe the student’s appearance to courses where they do not. We confirm that appearance matters: attractive female students earn higher grades than unattractive ones. Moreover, we provide evidence that this return to appearance is significantly smaller for both male and female students in online course environments. Thus, our empirical evidence provides little support for the hypothesis that appearance is a proxy for productive traits, but instead suggests that the return to appearance is due to discrimination.
The Math Gender Gap: The Role of Culture
Núria Rodríguez-Planas
(City University of New York-Queens College)
Natalia Nollenberger
(IAE-CSIC)
Almudena Sevilla
(Queen Mary University of London)
[View Abstract]
[Download Preview] This paper investigates the effect of gender-related culture on the math gender gap by analysing math test scores of second-generation immigrants, who are all exposed to a common set of host country laws and institutions. We find that immigrant girls whose parents come from more gender-equal countries perform better (relative to similar boys) than immigrant girls whose parents come from less gender-equal countries, suggesting an important role of cultural beliefs on the role of women in society on the math gender gap. The transmission of cultural beliefs accounts for at least two thirds of the overall contribution of gender-related factors.
Discussants:
Shulamit Kahn
(Boston University)
Gary Solon
(University of Arizona)
Tanya Rosenblat
(University of Michigan)
Margaret E. Blume-Kohout
(New Mexico Consortium and Mount Holyoke College)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 17 & 18
American Economic Association
Exchange Rates, Monetary Policy, and the Real Economy
(F3, G1)
Presiding:
Vania Stavrakeva
(London Business School)
Exchange Rates and Monetary Policy
Vania Stavrakeva
(London Business School)
Jenny Tang
(Federal Reserve Bank of Boston)
[View Abstract]
[Download Preview] In this paper we confront the data with the financial-market folk wisdom that monetary policy is one of the key drivers of nominal exchange rates. Focusing on measures of conventional and unconventional monetary policy, we find that monetary policy surprises and changes in expectations about future monetary policy can explain a sizable fraction of the variation in exchange rate changes for certain currency pairs. However, our results show that expected excess returns account for most of this variation. We also find that the importance unconventional monetary policy plays for explaining exchange rate changes is larger in the period since the United States hit the zero lower bound in December 2008. In contrast, the importance of conventional monetary policy is lower during this period due to a decrease in the volatility of monetary policy surprises. Meanwhile, the marginal response of exchange rate changes relative to conventional policy surprises actually has strengthened due to a change in the relationship between these surprises and expected excess returns.
Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy”
Wenxin Du
(Federal Reserve Board)
Carolin Pflueger
(University of British Columbia)
Jesse Schreger
(Princeton University & Harvard Business School)
[View Abstract]
[Download Preview] We document large cross-country variations in the cyclicality of nominal
bond returns across 30 developed and emerging markets over the past
decade. We show that countries with more procyclical nominal bond
returns rely less on nominal debt in their sovereign debt portfolios,
despite of the better hedging property of the nominal debt from the
issuer's perspective. We explain these findings using a tractable
model featuring imperfect monetary policy credibility and an endogenous
currency composition of sovereign debt. A low credibility government
issues foreign currency debt to constrain next period's incentive
to inflate away the debt. Cost-push shocks to a New-Keynesian Phillips
curve create high inflation during recessions and positive local currency
bond betas. In contrast, a high credibility government issues local
currency debt and offsets recessionary cost-push shocks by strengthening
its commitment to low future inflation, thereby raising local currency
bond returns in recessions.
Not so Disconnected: Exchange Rates and the Capital Stock
Tarek Hassan
(University of Chicago )
Thomas Mertens
(New York University)
Tony Zhang
(University of Chicago)
[View Abstract]
[Download Preview] We endogenize capital accumulation within a standard model of exchange rate determination in which real exchange rates fluctuate with real and monetary shocks. The model predicts that currencies of countries that are more "systemic" for the world economy (countries that face particularly volatile shocks or account for a large share of world GDP) appreciate when the marginal utility of traded goods is high and are thus better hedges against the consumption risk faced by international investors. As a consequence, these countries face a lower cost of capital, accumulate more capital per worker and pay higher wages than less systematic countries. We estimate our model using data from OECD countries with freely floating exchange rate regimes 1984-2010 and show that cross-currency variation in the stochastic properties of exchange rates accounts for 70% of the cross-country variation in capital-output ratios. In this sense, the stochastic properties of exchange rates map to fundamentals in the way predicted by standard models.
Currency Wars or Efficient Spillovers?
Anton Korinek
(Johns Hopkins University)
[View Abstract]
[Download Preview] In an interconnected world, national economic policies regularly lead to international spillover effects that can be large and politically contentious. This paper shows that there are three and only three categories of inefficient spillovers - if policymakers abuse market power, have imperfect policy instruments, or face imperfections in international markets. If none of these three circumstances are met, we prove that spillovers from national economic policymaking are Pareto efficient and therefore not worth expending diplomatic efforts on. We give a number of examples of efficient spillovers, including from reserve accumulation, monetary policy, fiscal policy, exchange rate stabilization, and current account intervention to combat a liquidity trap. Furthermore, we provide general guidelines and several examples for how cooperation can improve welfare in the three categories of inefficiency.
Discussants:
Vania Stavrakeva
(London Business School)
Jesse Schreger
(Princeton University & Harvard Business School)
Adrien Verdelhan
(MIT Sloan School of Management)
Rossen Valchev
(Duke University)
Jan 04, 2016 10:15 am, Hilton Union Square, Golden Gate 8
American Economic Association
Forward Guidance in Monetary Policy
(E4)
Presiding:
Douglas Pearce
(North Carolina State University)
The Forward Guidance Puzzle
Marco Del Negro
(Federal Reserve Bank of New York)
Christina Patterson
(Massachusetts Institute of Technology)
Marc P. Giannoni
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] With short-term interest rates at the zero lower bound, forward guidance has become a key tool for central bankers, and yet we know little about its effectiveness. This paper first empirically documents the impact of forward guidance announcements on a broad cross section of financial markets data and professional forecasts. We find that FOMC announcements containing forward guidance had heterogeneous effects depending on the other content of the statement. We show that once we control for these other elements, forward guidance had, on average, positive and meaningful effects on output and inflation expectations. Using this benchmark, we then show that standard medium-scale DSGE models tend to grossly overestimate the impact of forward guidance on the macroeconomy, a phenomenon we call the "forward guidance puzzle." We explain why this is the case and show that incorporating a perpetual youth structure into the benchmark provides a possible resolution to the puzzle.
Effects of Fed Announcements on Emerging Markets: What Determines Financial Markets’ Reactions?
Prachi Mishra
(International Monetary Fund)
Papa N'Diaye
(International Monetary Fund)
Lam Nguyen
(International Monetary Fund)
[View Abstract]
This paper analyzes markets’ reactions to the 2013-14 Fed announcements related to the tapering of asset purchases and examines how these reactions are influenced by financial depth. The study focuses on long-term government bond yields and uses daily data for all emerging markets where data are available. Controlling for all time-invariant country characteristics as well as time-varying macroeconomic fundamentals (current account, fiscal balance, growth, and inflation), countries with deeper domestic financial markets (as measured by higher bank credit, M2, M3, or stock market capitalization) experienced smaller increases in government bond yields during 2-day windows around Federal Open Market Committee (FOMC) announcements related to tapering. Countries with better macroeconomic fundamentals (higher fiscal and current account balances, and lower inflation) also experienced smaller increases in government bond yields around such episodes.
Forward Guidance and Credible Monetary Policy
Bingbing Dong
(University of Virginia)
[View Abstract]
[Download Preview] The effectiveness of forward guidance depends crucially on the credibility of the central bank. Instead of assuming full commitment or full discretion of the central bank, this paper sheds light on the best credible forward guidance policy a central bank can offer by solving for the whole set of sustainable sequential equilibria (SSE) in a standard New Keynesian model with the occasionally binding constraint of a nominal interest rate of zero.The inflation bias resulting from eliminating price distortion under the best SSE is much smaller than the bias under full discretion. In the presence of the zero lower bound (ZLB), while the full commitment solution implies that forward guidance has a longer duration of the nominal rate at zero bound followed by a quick revert-to-normal path, the best SSE features low but non-zero rates, and even a prolonged period of higher inflation after the recession ends. The forward guidance policy under the best SSE can close output gap during recessions comparable to that under full commitment. To make forward guidance credible and as stimulative as possible, the adjustment of policy rates should be smooth and gradual. The full commitment (Ramsey) equilibria are not generally implementable.
Forward Guidance and the State of the Economy
Benjamin Keen
(University of Oklahoma)
Alexander W. Richter
(Auburn University)
Nathaniel A. Throckmorton
(College of William and Mary)
[View Abstract]
[Download Preview] This paper examines the economic effects of forward guidance using a New Keynesian model with a zero lower bound (ZLB) constraint on the short-term nominal interest rate. Forward guidance is modeled with anticipated news shocks to the monetary policy rule. There are five key findings: (1) the stimulative effect of forward guidance falls as the economy deteriorates or as households expect a slower recovery because there is a smaller margin to lower expected policy rates; (2) longer forward guidance horizons do not generate increasingly larger impact effects on output when the total amount of news is fixed, unlike with an exogenous interest rate peg; (3) in steady state, an unanticipated shock has a larger impact effect on output than a news shock, but a news shock has a larger cumulative effect in every state of the economy; (4) at the ZLB, the cumulative effect on output from lengthening the forward guidance horizon increases over short horizons but decreases thereafter, which indicates the central bank faces limits on how far forward guidance can extend into the future and continue to add stimulus; and (5) forward guidance is stimulative in the absence of other shocks, but the observed effect on output is smaller or even negative if another shock simultaneously reduces demand.
Forward Misguidance
Luigi Paciello
(EIEF)
Claudio Michelacci
(EIEF and CEMFI)
[View Abstract]
[Download Preview] While higher inflation always redistributes wealth from creditors to debtors, the effects of an inflationary announcement on perceived aggregate net wealth depend on the relative credibility of the announcement among creditors and debtors. When creditors believe the announcement more than debtors do, their expected wealth losses are larger than the expected gains of debtors and aggregate net wealth is perceived to fall. Inflationary announcements can then misguide the economy towards a deflationary period caused by lack of aggregate demand. This Forward Misguidance effect is strong when financial imbalances are large and when the difference in the credibility of the central bank among creditors and debtors is high, as at the time of the Forward Guidance announcement by the ECB in July 2013. By using micro data for Italian provinces,
we find that, in accordance with the Forward Misguidance effect, more trust in the ECB announcement was inflationary in a debtor province while it was deflationary in a creditor one.
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 22
American Economic Association
Global Imbalances and Exchange Rates
(F3)
Presiding:
Xavier Gabaix
(New York University)
International Correlation Risk
Philippe Mueller
(London School of Economics)
Andreas Stathopoulos
(University of Washington)
Andrea Vedolin
(London School of Economics)
[View Abstract]
[Download Preview] We document that cross-sectional FX correlation dispersion is countercyclical, as FX pairs with high average correlation become more correlated in bad times whereas pairs with low average correlation become less correlated. We show that currencies that perform badly (well) during periods of high cross-sectional disparity in conditional FX correlation yield high (low) average excess returns, suggesting that correlation risk is priced in currency markets. Furthermore, we find a negative cross-sectional relationship between average FX correlations and average option-implied FX correlation risk premia. Finally, we propose a no-arbitrage model that features unspanned FX correlation risk to jointly match the properties of FX correlations and correlation
risk premia.
Capital Flows and Foreign Exchange Intervention
Paolo Cavallino
(International Monetary Fund)
[View Abstract]
[Download Preview] I consider a New Keynesian model of a small open economy where international financial markets are imperfect and the exchange rate is determined by capital flows. I use this framework to study the effects of exchange rate fluctuations driven by capital flows and characterize the optimal foreign exchange intervention. Capital flows shocks cause inefficient exchange rate fluctuations that trigger boom-bust cycles in the domestic economy. The optimal policy response is to partially stabilize these fluctuations using both foreign exchange intervention and monetary policy. The optimal foreign exchange intervention leans against the wind and stabilizes the path of the exchange rate: following an increase (decrease) in the foreign demand for domestic assets, the central bank increases (decreases) their net supply and accumulates (decumulates) foreign reserves. By doing so the central bank stabilizes the path of the exchange rate and smooths out fluctuations in domestic consumption. Simultaneously, the central bank reduces (increases) the nominal interest rate in order to reduce the relative price of domestic goods and mitigate the output gap. Foreign exchange intervention is not a mere substitute for monetary policy. Rather, the two tools complement each other.
Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach
Gustavo Adler
(International Monetary Fund)
Rui C. Mano
(International Monetary Fund)
[Download Preview] N/A
Exchange Rates and Sovereign Risk
Lucio Sarno
(University of London)
Pasquale Della Corte
(Imperial College London)
Maik Schmeling
(University of London)
Christian Wagner
(Copenhagen Business School)
[View Abstract]
[Download Preview] We empirically investigate the relation between exchange rates and sovereign risk, as measured by credit default swap (CDS) spreads. An increase in a country's CDS spread is accompanied by a significant depreciation of its exchange rate as well as an increase of its currency volatility and crash risk. This link is mainly driven by exposure to global sovereign risk shocks and also emerges in a predictive setting for currency risk premia. Sovereign risk forecasts excess returns to trading exchange rates, volatility and skewness. Moreover, we find that carry and momentum strategies generate high (low) returns across countries with high (low) sovereign risk.
Discussants:
Hanno Lustig
(Stanford University)
Matteo Maggiori
(Harvard University)
Paolo Cavallino
(International Monetary Fund)
Jan 04, 2016 10:15 am, Hilton Union Square, Imperial A
American Economic Association
Identity Economics 2016
(A1, D1)
Presiding:
Robert A. Johnson
(Institute for New Economic Thinking)
Identity Economics 2016
Rachel Kranton
(Duke University)
[View Abstract]
[Download Preview] This paper takes stock of how economics has incorporated identity into research and thinking and argues for further study of the power of social motivations for economic decisions. In the last decade, new empirical and theoretical research has shown how norms can emerge and shape economic outcomes. The paper gives an overview of this research and points to future directions.
Identity-Based Organizations
Jean-Paul Carvalho
(University of California-Irvine)
[View Abstract]
[Download Preview] A single club model describes the collective production of both personal and social identity. Personal identity, how one perceives oneself, is formed through a process of cultural transmission. Social identity, how one is perceived by others, takes the form of collective reputation. Our model of identity-based organizations incorporates into the economics of identity insights from the economics of religion and cultural transmission. The identities that develop tend to be oppositional. Organizations devoted to more extreme identities are able to support higher levels of participation and collective action.
“We Thinking” and its Consequences
Robert Akerlof
(Warwick University)
[View Abstract]
[Download Preview] Traditionally, economists have modeled agents as individualistic; however, increasingly, they have been drawing on concepts from outside economics – such as “norms,” “esteem,” and “identity” -- to model agents’ social natures. A key reason for studying such social motivation is to shed light on the conditions that facilitate – or deter – collective action. It has been widely observed, for instance, that groups are more able to engage in collective action when they have a common, group identity. This paper gives one explanation for such a link. The paper develops a new concept, “we thinking”; and it also provides a deeper understanding of the concepts of norms, identity, and esteem.
Motivation, Social Interaction, and Identity
Dennis Snower
(Kiel Institute for the World Economy)
[View Abstract]
[Download Preview] The paper seeks to extend the economics of identity by considering (a) a variety of motives underlying social cooperation and social divisions, (b) the social and environmental stimuli that activate these different motives, (c) personality traits that account for individual differences in motivational responsiveness to given stimuli, and (d) the evolution of identities arising from the reflexive interaction between individual actions and group pressures.
In the simplest interpretation of identity economics at present, social identities rest primarily on the motive of social affiliation; social interactions are centered on the realization of norms and ideals; and economic decisions take account not only pecuniary incentives, but also the degree to which social norms and ideals are attained. The paper extends this theory by considering a variety of motives (in addition to affiliation) that induce people to cooperate within social groups and not cooperate across social groups, thereby providing a micro foundation for identity formation.
This contribution sheds light on the economic causes and consequences of identity formation, leading to distinctive policy implications. The analysis suggests that mainstream economics, through its emphasis on pecuniary incentives, overlooks the role of internal change agents (such as mental training and motivation-oriented education) and external change agents (choice architecture and design of social situations) in shaping identities and thereby affecting economic decision making. The mainstream focus on pecuniary incentives also ignores the influence of such incentives on the identity-related motives underlying economic
Discussants:
Robert A. Johnson
(Institute for New Economic Thinking)
Eli Berman
(University of California-San Diego)
Steven Bosworth
(Kiel Institute)
Bryony Reich
(University College London)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 13
American Economic Association
Inequality, Mobility, and Taxation
(H2, J3)
Presiding:
David Seim
(University of Toronto)
Millionaire Migration and the Taxation of the Elite: Evidence from Administrative Data
Cristobal Young
(Stanford University)
Charles Varner
(Stanford University)
Ithai Lurie
(U.S. Department of the Treasury)
Richard Prisinzano
(U.S. Department of the Treasury)
[View Abstract]
A growing number of U.S. states have adopted “millionaire taxes” on top income earners. This increases the progressivity of state tax systems, but raises concerns about tax flight: elites migrating from higher-tax to lower-tax states, draining state revenues and undermining redistributive policies. Are top income-earners “transitory millionaires” searching for lower-tax places to live? Or are they “embedded elites” that are reluctant to migrate away from places where they have been highly successful? This question is central to understanding the economic and social consequences of progressive taxation. We draw on administrative tax returns for all million-dollar income earners in the United States over 13 years, tracking the state from which millionaires file their taxes. The data set contains 43 million tax records and provides census-scale panel data on top income-earners. We advance two core analyses: (1) state-to-state migration of millionaires over the long-term, and (2) a sharply-focused discontinuity analysis of millionaire population along the borders of states. We find limited evidence of millionaire tax flight across states in the U.S, with elasticities around 0.1.
Inheritance Taxation and Inequality: Evidence from Sweden
Arash Nekoei
(IIES-Stockholm)
David Seim
(University of Toronto)
[View Abstract]
Today's level of income and wealth inequality has brought forward a heated discussion about adequate policy interventions. Some argue that the frequently-employed inheritance tax is preferable as it enhances equality of opportunity. Yet, we lack an empirical assessment of the potency of inheritance taxation in the equity-efficiency trade-off. In this paper, we use the universe of Swedish inheritance records to investigate this question. We find extensive evidence of avoidance and evasion behavior. Exploiting the progressive tax scheme combined with tax-rate thresholds varying by the relationship with the deceased, we detect a within-family tax minimization strategy. This strategy accelerates transfers of wealth across generations and allows us to investigate the effect of inheritance taxation on income and wealth inequality.
Tax Evasion and Inequality
Annette Alstadsæter
(University of Oslo)
Gabriel Zucman
(London School of Economics)
Niels Johannesen
(University of Copenhagen)
[View Abstract]
This paper proposes a method that combines macro and micro data to quantify and detect capital tax evasion in population-wide administrative data. At the macro level, we draw on official central bank data and recent leaks from a large Swiss bank to provide country-by-country estimates of the wealth hidden in offshore tax havens. We then attempt to allocate this wealth across individuals. We rely on samples of individuals who disclose previously hidden assets (e.g., in the context of a tax amnesty) and attempt to learn from the cross-border bank transfers made by the disclosers in order to detect the tax evaders who do not disclose themselves. We apply our method to a country with high-quality micro-data, Norway. We find that hidden wealth is extremely concentrated: more than half belongs to the top 0.01% richest households, and taking it into account erases half of the secular decline in wealth inequality seen when using tax data. Our results highlight the need to move beyond tax data to capture the true inequality of income and wealth, even in countries where tax compliance is thought to be high. Our method could be applied to improve tax collection and inequality statistics in a large number of countries where tax amnesty and bank transfer data are available to governments.
Dancing with the Stars: Interactions and Human Capital Accumulation
Ufuk Akcigit
(University of Chicago)
Santiago Caicedo Soler
(University of Chicago)
Stefanie Stantcheva
(Harvard University)
Valerio Sterzi
(University of Bordeaux)
Ernest Miguelez
(University of Bordeaux)
TBD
Discussants:
Itzik Fadlon
(Harvard University)
Mathew J. Notowidigdo
(Northwestern University)
Kory Kroft
(University of Toronto)
Jan 04, 2016 10:15 am, Hilton Union Square, Continental – Parlor 1
American Economic Association
Inflation Experience and Inflation Expectations
(E3, E5)
Presiding:
Michael Weber
(University of Chicago)
Inflation Targeting and Anchoring of Inflation Expectations: Evidence from New Zealand
Olivier Coibion
(University of Texas-Austin)
Yuriy Gorodnichenko
(University of California-Berkeley)
Saten Kumar
(Auckland University of Technology)
[View Abstract]
[Download Preview] Monetary models and central bankers often emphasize anchored inflation expectations as a key benefit of inflation targeting. Using a unique survey of firms in New Zealand--a country with 25 years of experience in successful inflation targeting--we document that inflation expectations are far from being anchored. First, inflation expectations as well as inflation backcasts depart radically from the official target. Second, long-term inflation expectations are highly volatile and correlated with short-term inflation expectations. Third, firms have large uncertainty about future inflation. Finally, firms are largely unaware of the central bank's policies and objectives. We argue that these facts can be rationalized in the rational inattention framework and use a randomized experiment to show that significant gains in anchoring inflation expectations can be achieved if the central bank enhances its communication to the public.
Inflation Expectations and Consumption Behavior
Francesco D'Acunto
(University of California-Berkeley)
Daniel Hoang
(Karlsruhe Institute of Technology)
Michael Weber
(University of Chicago)
[View Abstract]
[Download Preview] We document a positive cross-sectional association between households' inflation expectations and their willingness to purchase durable consumption goods. Households that expect inflation to increase are 8% more likely to have a positive spending attitude compared to households that expect constant or decreasing inflation. This positive association is higher for more educated households, working-age households, high-income households, and urban households. We use novel German survey data for the period from 2000 to 2013 to establish these facts. To obtain identification, we exploit an unexpected shock to households' inflation expectations: the newly-appointed administration unexpectedly announced in November 2005 a three percentage point increase in the value-added tax (VAT) effective in 2007. The unexpected VAT increase led to an exogenous increase in inflation expectations which had a large positive effect on the willingness to spend on durables. Our findings suggest that fiscal and monetary policy measures that engineer higher inflation expectations may be successful in stimulating consumption expenditures.
Inflation Experience and Inflation Expectations: Spatial Evidence
Marcel Fratzscher
(Humboldt University)
Refet S. Gürkaynak
(Bilkent University)
Gülserim Özcan
(Bilkent University)
[View Abstract]
Understanding inflation expectations is an integral part of understanding asset pricing and real economic decisions. We study the role of inflation experience in the formation of inflation expectations by investigating whether and to what extent inflation expectations of different forecasters are affected by the inflation they observe in the area they are residing in. In particular, we focus on the expectations of professional forecasters from different countries of euro area inflation and ask whether their forecast errors are correlated with the observed inflation in the forecaster’s country at the time the expectation was formed. We find that forecasters perceive the world to be more spatially correlated than it actually is: higher inflation in the home country leads to abnormally--in the rational expectations sense--higher expectations of future euro area inflation that result in more pronounced and forecastable forecast errors. This has important implications for asset pricing in internationally diversified portfolios and correlations of international asset prices.
Inflation Expectations, Learning and Supermarket Prices
Alberto Cavallo
(Massachusetts Institute of Technology)
Guillermo Cruces
(Universidad Nacional de La Plata)
Ricardo Perez-Truglia
(Microsoft Research)
[View Abstract]
[Download Preview] Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in lower-inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is made readily available, individuals still place a significant weight on less accurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discussing the implications of these findings for macroeconomic models and policy-making.
Discussants:
Oleksiy Kryvtsov
(Bank of Canada)
Ruediger Bachmann
(University of Notre Dame)
Ricardo Reis
(Columbia University)
John Leahy
(New York University)
Jan 04, 2016 10:15 am, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Money and Monetary Policy with Financial Frictions
(E4, E5)
Presiding:
Markus K. Brunnermeier
(Princeton University)
On the Optimal Inflation Rate
Markus K. Brunnermeier
(Princeton University)
Yuliy Sannikov
(Princeton University)
[View Abstract]
What should the optimal inflation rate be? How do financial frictions affect the optimal inflation rate? Can financial frictions alone annul the long-run super-neutrality of money? Should the inflation rate be higher in emerging market economies with less developed financial markets than in advanced economies, as real data suggest?
Sooner or Later: Timing of Monetary Policy with Heterogeneous Risk Taking
Dong Beom Choi
(Federal Reserve Bank of New York)
Thomas Eisenbach
(Federal Reserve Bank of New York)
Tanju Yorulmazer
(Unversity of Amsterdam )
[View Abstract]
We analyze the effects and interactions of monetary policy tools that differ in terms of their timing. In a model with heterogeneous agents, more productive agents endogenously expose themselves to higher interim liquidity risk by borrowing and investing more. While both ex-ante conventional monetary policy and ex-post unconventional monetary policy stimulate aggregate investment, individual agents differ in the strength of their response to the two tools. This implies that broadly targeted ex-post policy can be more effective in stimulating output by directly affecting liquidity risk, which more productive agents are more exposed to. However, when agents can hoard liquidity for asset purchases in the secondary market, ex-ante policy becomes equally effective – only targeted ex-post policy retains an edge over conventional monetary policy.
Money and Asset Liquidity in Frictional Capital Markets
Wei Cui
(University College London)
Sören Radde
(German Institute for Economic Research)
[View Abstract]
[Download Preview] We endogenize asset liquidity and financing constraints in a dynamic general equilibrium model with search frictions on capital markets. Assets trading on frictional capital markets are only partially saleable. Liquid assets, such as fiat money, are not subject to search frictions and can be used to insure idiosyncratic investment risks. Assets traded on frictional capital markets thus carry a liquidity premium over liquid assets. We show that, in equilibrium, low asset saleability is typically associated with lower asset prices, tighter financing constraints and, hence, stronger demand for public liquidity. Lower asset liquidity feeds into real allocations, constraining real investment, consumption, and production.
Discussants:
Itamar Drechsler
(New York University)
Valentin Haddad
(Princeton University)
Andy Atkenson
(University of California-Los Angeles)
Jan 04, 2016 10:15 am, Hilton Union Square, Plaza A
American Economic Association
New Approaches to Improving Diversity in Economics
(A1)
Presiding:
Cecilia Elena Rouse
(Princeton University)
Diversifying Economics: Challenges and Opportunities
Amanda Bayer
(Swarthmore College)
[Download Preview] Change Starts with UWE (Undergraduate Women in Economics)
Claudia Goldin
(Harvard University)
[View Abstract]
[Download Preview] There are three males for every female economics major (adjusted for relative number of BA degrees) in the US today. That number is almost four to one as an average of all institutions. It is greater than two to one in the “top 100” research institutions and 2.6 to one in the “top 100” liberal arts institutions. Most striking is that these ratios have hardly budged in 20 years. UWE (Undergraduate Women in Economics) is a randomized controlled trial (RCT) funded by the Alfred P. Sloan Foundation and initiated in the Fall 2015 to learn if various “treatments” can move the needle and attract more female majors. The treatments have been designed by each of 20 treatment departments since the reasons for the deficit of women differ by institution although some appear more universal. Another 38 institutions provide a matched group of controls. UWE is tracking economics enrollments and majors by student cohort and will be able to report on the efficacy of the treatments in a few years.
The Role of Effective Mentoring in Enhancing a More Inclusive Economics Profession
Darrick Hamilton
(New School)
Mentoring and Networking among Minority PhD Students to Broaden Participation in the Profession
Marie T. Mora
(University of Texas-Rio Grande Valley)
Discussants:
David Laibson
(Harvard University)
Mahmoud El-Gamal
(Rice University)
Bridget Terry Long
(Harvard University)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 21
American Economic Association
Program for International Student Assessment (PISA) Data on Financial Literacy
(A2)
Presiding:
William B. Walstad
(University of Nebraska–Lincoln)
An Overview of the PISA Financial Literacy Assessment
Annamaria Lusardi
(George Washington University)
NA
The Impact of Bank Account Ownership on Adolescents’ Financial Literacy
Dimitris Christelis
(University of Naples Federico II)
Dimitris Georgarakos
(Deutsche Bundesbank)
Annamaria Lusardi
(George Washington University)
[View Abstract]
We examine the causal impact of bank account ownership on adolescents’ financial literacy using data from 18 countries that participated in the 2012 PISA financial literacy assessment. This is an important topic because financial literacy early in life is associated with positive economic outcomes in adulthood, such as higher saving and better debt management. Moreover, bank accounts are the most basic financial instruments all over the world, and access to them could be influenced by policy. While the data are very rich, identifying the impact of bank account ownership on financial literacy is difficult, due, for example, to reverse causality and unobserved heterogeneity. We address these problems by using nonparametric partial identification methods that bound the effect of bank accounts on financial literacy, while making weak assumptions about the data. These methods allow us to generate bounds for both the average and the quantile treatment effects. We find that bank account ownership has a significant positive effect on adolescents’ financial literacy, with the lower bound of the average treatment effect being about 0.15 standard deviations of the financial literacy score. We also find economically relevant effects at various quantiles of the test score distribution, with Western European and Anglo-Saxon countries exhibiting stronger effects at higher quantiles; however, the opposite is true for Eastern European countries. Moreover, we find stronger effects at higher quantiles for students with higher socio-economic background, while students from less privileged backgrounds exhibit stronger effects at lower quantiles. These findings have implications for both research and policy; promoting access and encouraging the use of bank accounts can improve financial literacy both in adolescence and later in life.
Gender Differences in Financial Literacy: Evidence from PISA Data in Italy
Laura Bottazzi
(Bologna University)
Annamaria Lusardi
(George Washington University)
[View Abstract]
We use data from the 2012 Programme for International Student Assessment (PISA) to study the differences in financial literacy between Italian male and female 15-year old students. Italy is one of the countries where gender differences in financial literacy among students are more pronounced. Interestingly, the differences become even stronger among top performers. In our empirical analysis, we examine the determinants of the gender gap and look at how it varies by school types and school environment, family background, and geographical regions. That allows us to assess the relative importance of the peer/school effect and of socio-economic characteristics in determining the different financial literacy scores attained by male and female students in Italy. Using the results of the PISA survey combined with data from many other sources, we are also able to study the importance of factors related to cultural and other characteristics, measured at the regional level, and study gender differences across regions in Italy.
Finance for All: The Impact of Financial Literacy Training in Compulsory Secondary Education in Spain
Laura Hospido
(Banco del Espana - Servicio de Estudios)
Ernesto Villanueva
(Bank of Spain)
Gema Zamarro
(University of Arkansas)
[View Abstract]
[Download Preview] [Download PowerPoint] We estimate the impact on objective measures of financial literacy of a 10-hours financial education program among 15-year old students in compulsory secondary schooling. We use a matched sample of students and teachers in Madrid and two different estimation strategies. Firstly, we use reweighting estimators to compare the performance in a test of financial knowledge of students in treatment and control schools. In another specification, we use school fixed-effect estimates of the effect of the course on change in the score in tests of financial knowledge. The program increased treated students financial knowledge by between one fourth and one third of a standard deviation. We uncover heterogeneous effects, as students in private schools did not increase their knowledge much, possibly due to a less intensive implementation of the program. Secondly, we analyze the bias that arises because the set of schools that participate in financial literacy programs is not random. Such selection bias is estimated as the pre-program performance in financial PISA of students in applicant schools relative to a nationally representative sample of schools. We then study if estimators that condition on school and parental characteristics mitigate selection bias.
Discussants:
William Bosshardt
(Florida Atlantic University)
Anne Boring
(Sciences Po)
J. Michael Collins
(University of Wisconsin - Madison)
Jan 04, 2016 10:15 am, Hilton Union Square, Franciscan C
American Economic Association
Reproducibility of Social Science Experiments: Some Innovative Evidence
(C9, C8)
Presiding:
Colin F. Camerer
(California Institute of Technology)
Do Economics Lab Experiments in AER and QJE Replicate Predictably?
Eskil Forsell
(Stockholm School of Economics)
Teck Ho
(University of California-Berkeley)
Juergen Huber
(University of Innsbruck)
Michael Kirchler
(University of Innsbruck)
Anna Dreber Almenberg
(Stockholm School of Economics)
[View Abstract]
The ideal of direct replication of previous scientific findings is widely applauded, but rarely carried out in empirical social science. Recently a "reproducibility crisis" in psychology-- including high-profile replication failures-- has led to extensive replication and a rapid, significant shift in journal publication practices. Should we be also concerned about replicability of lab experiments in economics? To provide evidence we are conducting a large-scale direct replication of 18 experimental studies published in AER and QJE in 2011-2014. (Replications are hard-scheduled to be conducted in May-July 2015). Each study will replicated once at one of four international locations. Sample sizes were carefully chosen to have 90% power to detect an effect of the size that was originally reported. <br />
Before the replications are conducted, prediction markets (PMs) will be conducted among self-selected traders from the Economic Science Association mailing list, and economics journal editorial boards. The PMs will produce a collective probability that results will replicate (according to a strict criterion). <br />
The replication results will provide a novel sample of how well experiments replicate. The PMs will provide evidence about how easy it was for peers to predict what papers were replicable or not. <br />
All results will be interesting: Many experimentalists think it is highly likely all results will replicate. Others may be skeptical-- as the PMs may show-- that some results are vulnerable. This project provides hard data to use in discussing possible improvements in scientific practice (if, indeed, any are needed). <br /><br />
P-Curve Analysis Shows False Positives are Not Common in Experimental Economics
Klavdia Zemlianova
(National University of Singapore)
Colin F. Camerer
(California Institute of Technology)
[View Abstract]
In many sciences there are suspicions that if a statistical threshold of significance is useful to make a finding publishable, scientists will find conscious or implicit methods to "p-hack" to reach such thresholds. However, if many researchers are p-hacking in this way, or journals are only selecting sub-threshold results to publish, then the distribution of published p-values will have a particular shape. The "p-curve", the histogram of how frequently published results reach various p-values, should be bunched near .05 if there is p-hacking or publication bias. However, if results are genuine and not p-hacked or publication-biased, there will be relatively many results with low p-values (e.g. <.01) and not so many just below the threshold. This paper introduces these methods, and describes their foundation and value, to economists. (Note that they are not only potentially useful in experiments, but also in all areas of empirical economics.) We then create such a p-curve for all papers published in the journal Experimental Economics and other experimental papers published in mainstream journals in 2009-2013. The p-curve has many results at very low p-values and no bunching just below .05, indicating no detectable p-hacking or publication bias, unlike many results from studies of psychology experiments.
Using Prediction Markets to Estimate the Reproducibility in Science: The Many Labs 2 Replications
Eskil Forsell
(Stockholm School of Economics)
Thomas Pfeiffer
(NZ Institute Advanced Study)
Yiling Chen
(Harvard University)
Anna Dreber Almenberg
(Stockholm School of Economics)
Magnus Johannesson
(Stockholm School of Economics)
[View Abstract]
This paper investigates how well researchers in the field of psychology can judge the replicability of different hypothesis in their field. We use prediction markets to elicit and combine the researchers’ beliefs about both whether a hypothesis will be replicated and what the effect size in the replication will be compared to that in the original study. We compare the accuracy of the estimated probabilities and relative effect sizes to aggregated pre-market beliefs reported by the same experts as well as to the outcomes of the actual replications.
Jan 04, 2016 10:15 am, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Topics in Development Economics
(I2)
Presiding:
Christian Ahlin
(Michigan State University)
The Effects of Social Identity on Aspirations and Learning Outcomes: A Field Experiment in Rural India
Priya Mukherjee
(College of William and Mary)
[View Abstract]
[Download Preview] \I conduct a field experiment in nineteen schools in Rajasthan to investigate whether the norms associated with one's social identity affect one's aspirations, beliefs, and eventual outcomes. Utilizing a “priming” methodology used in social psychology, and more recently in economics, I exploit environmental cues within the subjects' existing environment to “prime” either caste or gender identity through priming questionnaires, thereby introducing exogenous variation in the salience of one's social identity. Randomly assigning whether a subject's caste or gender (or neither) is primed, I first elicit long-run aspirations of adolescents (parents) for their (their child's) future income, educational attainment and occupation. I find that girls have aspirations and beliefs that are biased downwards when gender is primed, while parents of high caste adolescents have higher aspirations and beliefs about income as well as educational attainment when caste is primed. Next, I set up a learning camp at school over ten weeks for these adolescents, in order to test whether identity affects learning outcomes. I elicit subjects' aspirations and beliefs for each of the tests conducted at the learning camp, and record attendance and actual test scores over the ten weeks. Again, I find that girls' aspirations and beliefs are significantly lower when gender is primed, and that learning outcomes are also worse, but only for upper castes girls. Priming caste makes males (but not females) from upper castes have higher aspirations and beliefs, while females from upper castes have worse learning outcomes.
Lights, Camera,....Income! Estimating Poverty using National Accounts, Survey Means and Lights
Maxim Pinkovskiy
(Federal Reserve Bank of New York)
Xavier Sala-i-Martin
(Columbia University)
[View Abstract]
[Download Preview] In this paper we try to understand whether national accounts GDP per capita or survey mean income or consumption better proxy for true income per capita. We propose a data-driven method to assess the relative quality of GDP per capita versus survey means by comparing the evolution of each series to the evolution of satellite-recorded nighttime lights. Our main assumption, which is robust to a variety of specification checks, is that the measurement error in nighttime lights is unrelated to the measurement errors in either national accounts or survey means. We obtain estimates of weights on national accounts and survey means in an optimal proxy for true income; these weights are very large for national accounts and very modest for survey means. We conclusively reject the null hypothesis that the optimal weight on surveys is greater than the optimal weight on national accounts, and we generally fail to reject the null hypothesis that the optimal weight on surveys is zero. Using the estimated optimal weights, we compute estimates of true income per capita and $1/day poverty rates for the developing world and its regions. We get poverty estimates that are substantially lower and fall substantially faster than those of Chen and Ravallion (2010) or of the survey-based poverty literature more generally. Our result is mainly driven by the finding that economic growth has been higher in poor countries than the surveys suggest. Additionally, we provide evidence that national accounts are good indicators of desirable outcomes for the poor (such as longer life expectancy, better education and access to safe water), and we show that surveys appear to perform worse in developing countries that are richer and that are growing faster.
From Proof of Concept to Scalable Policies: Challenges and Solutions, with an Application
James W. Berry
(Cornell University)
Abhijit Banerjee
(Massachusetts Institute of Technology)
Rukmini Banerji
(ASER Centre)
Esther Duflo
(Massachusetts Institute of Technology)
Harini Kannan
(J-PAL)
[View Abstract]
The promise of randomized controlled trials (RCTs) is that evidence gathered through the evaluation of a specific program helps us—possibly after several rounds of fine-tuning and multiple replications in different contexts—to inform policy. However, critics have pointed out that a potential constraint in this agenda is that results from small, NGO-run “proof-of-concept” studies may not apply to policies that can be implemented by governments on a large scale. This paper describes the journey from the original concept to the design and evaluation of scalable policy. We do so by evaluating a series of strategies that aim to integrate the NGO Pratham’s “Teaching at the Right Level” methodology into elementary schools in India. The methodology consists of re-organizing instruction based on children’s actual learning levels, rather than on a prescribed syllabus, and has previously been shown to be effective when run in communities by the NGO. We present RCT evidence on the designs that failed to produce impacts within the regular schooling system but helped shape subsequent versions of the program. As a result of this process, two versions of the programs were developed that successfully raised children’s learning levels using scalable models in government schools.
The Gendered Impact of Young Children's Health on Human Capital: Evidence from Turkey
Marcella Alsan
(Stanford University)
[View Abstract]
[Download Preview] This article investigates how technology interacts with underlying gender norms to affect health and human capital. The 1985 Turkish National Immunization Campaign vaccinated under-five children against measles, polio, tetanus, diphtheria and pertussis. The campaign was successful in reducing morbidity and increasing literacy and primary school completion rates for the targeted beneficiaries. I find similar but smaller gains of the campaign on human capital for older siblings who had an age eligible child in the household. These spillover benefits accrue exclusively to older sisters and are larger if the mother works outside the home. My findings suggest that older girl siblings most often tasked with caring for young children when they are ill will also benefit from their health improvement.
Jan 04, 2016 10:15 am, Hilton Union Square, Plaza B
American Economic Association
Value-Added Models: New Methods and Applications
(I2)
Presiding:
John Friedman
(Brown University and NBER)
Understanding Hospital Treatment Rates
Amitabh Chandra
(Harvard University)
Douglas Staiger
(Dartmouth College)
[View Abstract]
Variation in risk-adjusted treatment rates across hospitals serving similar patient populations are often interpreted as some hospitals delivering too much or too little care, either because they’re maximizing something other than health, or because they misperceive their ability to deliver care. An alternative interpretation is that the return to medical care varies across providers, so that variation in treatments rates across providers reflects their comparative advantage at delivering treatment---hospitals with higher returns should deliver more treatment. We provide an economic framework that separates these explanations and test our model using data from heart-attack treatments.
Leveraging Lotteries for School Value-Added: Testing and Estimation
Joshua D. Angrist
(Massachusetts Institute of Technology)
Peter D. Hull
(Massachusetts Institute of Technology)
Parag A. Pathak
(Massachusetts Institute of Technology)
Christopher Walters
(University of California-Berkeley)
[View Abstract]
[Download Preview] We discuss the design and interpretation of statistical tests that use quasi experiments to assess the predictive value of regression-based value-added estimates for schools and teachers. We show that such tests fit easily into a conventional instrumental-variables-type over-identification framework. The most powerful tests of VAM validity have degrees of freedom equal to the number of quasi-experiments available. By contrast, the most commonly used test looks at a single restriction only. Our framework also reveals that this test is biased towards under-rejection of the validity null when the test statistic is constructed from many lotteries or quasi-experiments, some of which have a weak first stage.
Using Prior Test Scores to Assess the Validity of Value-Added Models
Raj Chetty
(Harvard University)
John Friedman
(Brown University)
Jonah Rockoff
(Columbia University)
[View Abstract]
"A number of recent papers (e.g., Rothstein 2009, Chetty, Friedman, and Rockoff 2014, Rothstein 2014, and Bacher-Hicks, Kane, and Staiger 2015) have relied on lagged score tests in order to assess the amount of bias in value-added measures.At first glance, these “placebo tests” seem plausible, such that a correlation between value-added and lagged scores would suggest that value-added is biased: how can changes in current teacher quality affect students' past test scores? The problem with this placebo test is that teacher value-added is itself estimated from prior test scores. Hence, changes in current teacher VA will be mechanically correlated with changes in prior scores even when a research design is valid. We show that simple variants of the lagged score placebo test that remove this mechanical effect uncover no evidence of a relationship between changes in teacher VA and lagged test scores. We conclude that (1) the correlation between changes in teacher VA and prior test scores is not an informative placebo test and (2) the original CFR research design and
results are valid."
Fixed Effects, Invariance, and Spatial Variation in Intergenerational Mobility
Gary Chamberlain
(Harvard University)
[View Abstract]
[Download Preview] Chetty, Hendren, Kline, and Saez (2014) and Chetty and Hendren (2015) document variation across commuting zones in intergenerational mobility. With over 700 commuting zones, the task of estimating place effects involves a high-dimension parameter space. I consider a class of invariant estimators in a multivariate model. An infeasible oracle estimator provides a lower bound on risk. The oracle corresponds to an invariant prior distribution, which I use to construct a feasible random-effects estimator. In the univariate (scalar outcome) case, this estimator is in the James and Stein (1961) family of estimators. Its risk function is evaluated using the parameter space in the original, fixed-effects model. In the univariate case, this risk function depends only upon a scalar noncentrality parameter. In the empirical application, the random-effects estimator almost achieves the oracle bound on risk over the relevant part of the parameter space, and there is a substantial improvement over the risk of the least-squares estimator.
Discussants:
Lawrence Katz
(Harvard University)
Guido Imbens
(Stanford University)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Behavioral CEOs
(G3)
Presiding:
Geoffrey Tate
(University of North Carolina)
Do Managers Overreact to Salient Risks? Evidence from Hurricane Strikes
Olivier Dessaint
(University of Toronto)
Adrien Matray
(Princeton University)
[View Abstract]
[Download Preview] [Download PowerPoint] Consistent with salience theories of choice, we find that managers overreact to salient risks. We study how managers respond to the occurrence of a hurricane event when their firms are located in the neighborhood of the disaster area. We find that the sudden shock to the perceived liquidity risk leads managers to increase the amount of corporate cash holdings, even though the real liquidity risk remains unchanged. Such an increase in cash holdings is only temporary. Over time, the perceived risk decreases, and the bias disappears. This bias is costly for shareholders because it leads to higher retained earnings and negatively impacts firm value by reducing the value of cash. We examine alternative explanations for our findings. In particular, we find only weak evidence that the possibility of risk learning or regional spillover effects may influence our results.
Corporate Risk Culture
Yihui Pan
(University of Utah)
Stephan Siegel
(University of Washington)
Tracy Yue Wang
(University of Minnesota)
[View Abstract]
[Download Preview] We examine the formation and evolution of firms’ attitudes towards risk and uncertainty, characterized by the shared risk preferences of corporate executives and directors, as well as their effect on corporate policies. Commonality in risk preferences inside the firm arises as CEOs are selected to match the risk attitudes of existing directors and executives, and CEOs in turn shape the composition of executive teams and boards to be more aligned with their own risk preferences. Selection also gives rise to persistence in corporate risk attitudes over time and across generations of leadership. But poor performance in the firm and economic shocks in the industry can lead firms to change their risk culture. Finally, corporate policies are significantly associated with corporate risk culture. For financial policies, i.e., cash holdings and financial leverage, the association largely reflects the persistent component of corporate risk culture, while for investment policies, in particular, acquisitions, deviations from the persistent part matter as well.
Do CEO Beliefs Affect Corporate Cash Holdings?
Sanjay Deshmukh
(DePaul University)
Anand Goel
(Navigant)
Keith Howe
(DePaul University)
[View Abstract]
[Download Preview] We examine the effect of CEO optimism on corporate cash holdings by developing an expanded trade-off model of cash holdings that incorporates CEO beliefs. The optimistic CEO views external financing as excessively costly but expects this cost to decline over time, thus delaying external financing and maintaining a lower cash balance than rational CEOs. Our results indicate that CEO optimism, on average, is associated with a 24 percent decline in the firm's cash balance. We also document that, relative to rational CEOs, optimistic CEOs exhibit a lower change in the cash balance over time, hold lower cash to fund the firm's growth opportunities, and save less cash out of their current cash flow. We confirm our findings with two different samples of firms and alternative measures of optimism.
Initial Offer Precision and M&A Outcomes
Petri Hukkanen
(Aalto University )
Matti Keloharju
(Aalto University)
[View Abstract]
[Download Preview] [Download PowerPoint] Building on recent research in social psychology, this paper analyzes the link between the precision of initial cash offers and M&A outcomes. About one-half of the offers are made at the precision of one or five dollars per share, and an additional one-third at the precision of half dollar or one quarter. The practice of making offers at round price per share levels is associated with the following unfavorable outcomes for the bidder: (1) higher purchase price for target shares, (2) lower probability to complete the deal, and (3) lower announcement return. A median-sized offer made at the precision of one or five dollars per share is associated with a 4−5 million dollars higher expected transaction price than one made at a precision greater than one quarter.
Discussants:
Ran Duchin
(University of Washington)
Mara Faccio
(Purdue University)
Vikram Nanda
(Rutgers University)
Tim Loughran
(University of Notre Dame)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salon 8
American Finance Association
Cryptocurrencies, Blockchains and the Future of Financial Services
(G2)
Presiding:
David Yermack
(New York University)
Discussants:
Michael Casey
(Massachusetts Institute of Technology)
Morgan McKenney
(Citigroup)
Tim Swanson
(R3CEV)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Dimensions of Governance Revisited
(G3)
Presiding:
Augustin Landier
(Toulouse School of Economics)
The Evolution of Corporate Cash
John Graham
(Duke University)
Mark Leary
(Washington University-St. Louis)
[View Abstract]
[Download Preview] We study how corporate cash holdings evolved from 1920 to 2012. The well-documented
increase in average cash holdings in recent decades is not unique, but in fact is similar in
magnitude and rate of change to cash dynamics that occurred nearly a century ago.
Despite similarities in the mean, the cross-section of cash holdings has evolved quite
differently in recent years relative to earlier periods. Large increases in average cash
holdings from 1920 – 1945 and large decreases from 1945 – 1970 were broad-based,
occurring at all points in the distribution of firms, among companies of all sizes, and
among both new and existing firms. In contrast, modern average cash trends are
dominated by new Nasdaq firms in the technology and healthcare sectors entering the
sample. For most of the recent sample period, within-firm changes in cash are negative or
flat.
We examine the ability of standard models of cash holdings to explain these shifts in the
nature of cash policies and find little change in the dynamics of cash management over
time, but some evidence that the determinants of cash targets have changed. Surprisingly,
relations thought to support precautionary and transaction motives for holding cash are
weaker or disappear earlier in the century, when financial frictions were arguably more
severe. Finally, we show that cash targets based solely on firm characteristics have little
ability to explain the large time-series changes in average or aggregate cash through the
century. Including macroeconomic variables such as productivity and GDP growth
improves the model’s ability to capture the time series evolution of corporate cash.
Costly External Finance, Regulatory Regime, and the Strategic Timing of Vehicle Recalls
Sudipto Dasgupta
(Hong Kong University of Science and Technology)
Jin Xie
(Chinese University of Hong Kong)
[View Abstract]
[Download Preview] We examine how the timing of vehicle recalls depends on the quality of information that firms have about possible defects, the proactivity of the regulator (National Highway Traffic Safety Administration), and the need to raise external finance. We find that large recalls are timed strategically to minimize their impact on the cost of external finance. Our results suggest an important channel through which financial policy affects consumer welfare. This type of strategic timing of vehicle recalls also suggests that, contrary to company statements and some internal investigations about recent large-scale recall campaigns, top management is typically aware of product defects.
Staggered Boards and Firm Value, Revisited
Martijn Cremers
(University of Notre Dame)
Lubomir Litov
(University of Arizona)
Simone Sepe
(University of Arizona)
[View Abstract]
[Download Preview] This paper revisits the association between firm value and staggered boards. We document that firms adopting a staggered board increase in value, while de-staggering is associated with a decrease in value. The decision to adopt a staggered board is related to an ex ante lower firm value, which helps reconciling our novel results to prior cross-sectional studies. Our results are driven by firms more engaged in research and where firm-specific stakeholder investments are more important, suggesting that staggered boards may promote long-term value creation by serving as a credible commitment device towards investments in long-term projects and stronger stakeholder relationships.
Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class
Manuel Adelino
(Duke University)
Antoinette Schoar
(Massachusetts Institute of Technology)
Felipe Severino
(Dartmouth College)
[View Abstract]
Leading up to the financial crisis, mortgage originations increased proportionally across the whole income distribution, not just poor or subprime borrowers. Middle- and high-income borrowers (not the poor), and those with medium and high credit scores, sharply increased their share of delinquencies in the crisis relative to earlier years. At the individual borrower level, the relation between mortgage growth and income remained positive throughout the boom. These results highlight the importance of middle class borrowers for understanding the crisis. They also support the view that both homebuyers and lenders bought into increasing house values and borrowers defaulted once prices dropped.
Discussants:
Murillo Campello
(Cornell University and NBER)
Tom Chang
(University of Southern California)
Dirk Jenter
(Stanford University)
Nancy Wallace
(University of California-Berkeley)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Financial Markets and Government Interactions
(G3)
Presiding:
Francisco Perez-Gonzalez
(Instituto Tecnológico Autónomo de México )
Corporate Governance and the Creation of the SEC
Arevik Avedian
(Harvard University)
Henrik Cronqvist
(University of Miami )
Marc Weidenmier
(Claremont McKenna College)
[View Abstract]
[Download Preview] We study the effects of the creation of the Securities and Exchange Commission (SEC) on corporate governance. Established in 1934, the SEC effectively applied the listing standards of the NYSE to all regional stock exchanges in the U.S. We therefore examine the impact of the SEC by comparing non-NYSE listing firms before and after the landmark legislation was adopted, using the NYSE as a control group. Our estimates reveal that there was a 30% reduction in board independence, i.e., the creation of the SEC caused boards to become significantly less independent. We find no corresponding effects on firm valuations. Our evidence is consistent with a "substitution of governance mechanisms" hypothesis, i.e., firms endogenously trade off market-based (board) governance and government-sponsored (SEC) governance. This evidence has implications for corporate governance regulation around the world.
SHO Time for Innovation: The Real Effects of Short Sellers
Jie He
(University of Georgia)
Xuan Tian
(Indiana University)
[View Abstract]
[Download Preview] We examine the effect of short sellers on innovation. Using exogenous variation in short-selling costs generated by a quasi-natural experiment, Regulation SHO, which randomly assigns a subsample of Russell-3000 firms into a pilot program and removes the tick restriction on their stocks, we show that short sellers have a positive, causal effect on the quality, efficiency, and originality of corporate innovation. The exposure to patenting-related litigation initiated by short sellers is a plausible mechanism through which short sellers affect firms’ innovative activities. Our paper provides new insights into an unintended real effect of short sellers – their improvement of technological innovation.
The Economic Effects of Public Financing: Evidence from Municipal Bond Ratings Recalibration
Manuel Adelino
(Duke University)
Igor Cunha
(Nova School of Business and Economics)
Miguel Ferreira
(Nova School of Business and Economics)
[View Abstract]
[Download Preview] We show that municipalities’ credit constraints can have important effects on local economies through a ratings channel. We identify these effects by exploiting exogenous variation on U.S. municipal bond ratings due to Moody’s recalibration of its ratings scale in 2010. We find that local governments increase expenditures and employment due to an expansion of their debt capacity following a rating upgrade. These increases in local government spending have a local income multiplier of 2.4 and a cost per job of $21,000. Our findings suggest that debt-financed increases in local government spending can improve economic conditions during recessions.
Discussants:
Benjamin Hermalin
(University of California-Berkeley)
Sebastien Michenaud
(DePaul University)
Gabriel Chodorow-Reich
(Harvard University)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Financial System Stability
(G2)
Presiding:
Samuel Hanson
(Harvard Business School)
Measuring Liquidity Mismatch in the Banking Sector
Jennie Bai
(Georgetown University)
Arvind Krishnamurthy
(Stanford University)
Charles-Henri Weymuller
(French Treasury)
[View Abstract]
[Download Preview] This paper expands on Brunnermeier, Gorton and Krishnamurthy (2011) and implements a liquidity measure, "Liquidity Mismatch Index (LMI)," to gauge the mismatch between the market liquidity of assets and the funding liquidity of liabilities. We construct the LMIs for 2882 bank holding companies during 2002 - 2014 and investigate the time-series and cross-sectional patterns of banks' liquidity and liquidity risk. The aggregate banking sector liquidity worsens from +$5 trillion before the crisis to -$3 trillion in 2008, and reverses back to the pre-crisis level in 2009. We also show how a liquidity stress test can be conducted with the LMI metric, and that such a stress test as an effective macroprudential tool could have revealed the liquidity need of the banking system in the late 2007. In the cross section, we find that banks with more liquidity mismatch have a higher crash probability in the financial crisis and have a higher chance to borrow from the government during the financial crisis. Thus our LMI measure is informative regarding both individual bank liquidity risk as well as the liquidity risk of the entire banking system.
Risk Management Failures
Matthieu Bouvard
(McGill University )
Samuel Lee
(Santa Clara University)
[View Abstract]
[Download Preview] We present a model in which financial firms are engaged in preemptive competition for trading opportunities and the cost of risk management increases with time pressure in financial markets. Because time pressure is in turn endogenous to risk management choices, strategic complementarities can trigger a race to the bottom: firms' decisions to abandon risk management, while individually rational, are collectively inefficient and cause a misallocation of risks among financial intermediaries. Externalities operate through opportunity costs and agency costs, and provide a rationale for regulation that views risk management both as a coordination problem (among firms) and as a governance problem (inside firms).
By Force of Flow: Investor Behavior and Money Market Fund Risk Allocations During the Eurozone Crisis
Emily Gallagher
(Sorbonne - Paris School of Economics)
Lawrence Schmidt
(University of Chicago)
Allan Timmermann
(UCSD)
Russ Wermers
(University of Maryland)
[View Abstract]
[Download Preview] This paper studies fund flows and risk allocation decisions among prime money market funds (MMFs) during the 2011–2012 eurozone crisis. We exploit much more granular measures of fund credit risk and investor sophistication than those previously employed in the literature. Empirically, we find that funds
with greater credit risks experienced larger outflows during the eurozone crisis. This effect was substantially magnified among those funds held by the most sophisticated investors. A key finding in our study is that these sophisticated investors were quicker to redeem when credit risk was attributable to European investments, relative to the same level of credit risk attributable to other regions. In turn, we find that managers of riskier funds serving sophisticated investors more aggressively reduced their European risk exposure, while often adding risk exposure to other regions. Taken together, our results suggest that sophisticated investors closely monitor money fund portfolios and step-up redemptions when funds are on a riskier trajectory; in addition, fund managers appear to endogenize this threat by reallocating portfolio risks in a way that addresses redemptions. Our paper provides a unique perspective on this mechanism, as we study a period when, for the first time, investors had nearly real-time portfolio information on their money fund investments.
Countercyclical Bank Equity Issuance
Matthew Baron
(Cornell University)
[View Abstract]
It is well established that equity issuance for most non-financial firms is procyclical. This paper shows that, in contrast, equity issuance for banks is countercyclical across credit cycles after 1980, as is retained income. Thus, during credit booms, banks raise less equity, even though more equity might help banks better absorb shocks. This paper shows that government guarantees play a crucial role in driving banks' countercyclical equity issuance. Countercyclical equity issuance arises in the U.S. during the bailouts of the 1980s, mostly in banks that equity markets perceive as “too-big-to-fail” (TBTF). Across types of firms, historical time periods, and countries, equity issuance is countercyclical when government guarantees are strong and procyclical when government guarantees are weak. Furthermore, bank equity issuance becomes more countercyclical in Eurozone countries that gain increased implicit guarantees upon adopting the Euro. These findings help explain why banks may resist raising equity during credit expansions, making financial distress more likely.
Discussants:
Samuel Hanson
(Harvard Business School)
Konstantin Milbradt
(Northwestern University)
Antoine Martin
(Federal Reserve Bank of New York)
Adi Sunderam
(Harvard Business School)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Fund Managers
(G1)
Presiding:
Peter Kondor
(London School of Economics)
Investing in Low-Trust Countries: Trust in the Global Mutual Fund Industry
Massimo Massa
(INSEAD)
Chengwei Wang
(INSEAD)
Hong Zhang
(Tsinghua University)
Jian Zhang
(National University of Singapore)
[View Abstract]
[Download Preview] We hypothesize that trust plays an important role in affecting the activeness and effectiveness of the global mutual fund industry. Empirically, trust is positively associated with the activeness of domestic funds, whereas for internationals mutual funds conducting cross-border investments activeness is bounded by the trust of low-trust countries. In both cases, trust-related active share delivers superior performance, although the economic magnitude is larger for cross-border investments (around 2% per year). Our results suggest that trust, including both trust in fund managers and trust in the market of investment, acts as an important building block to the development of financial intermediaries and the efficiency of global investment.
Do Funds Make More When They Trade More?
Lubos Pastor
(University of Chicago )
Robert Stambaugh
(University of Pennsylvania)
Lucian Taylor
(University of Pennsylvania)
[View Abstract]
[Download Preview] We find that active mutual funds perform better after trading more. This time-series relation between a fund's turnover and its subsequent benchmark-adjusted return is especially strong for small, high-fee funds. These results are consistent with high-fee funds having greater skill to identify time-varying profit opportunities and with small funds being more able to exploit those opportunities. In addition to this novel evidence of managerial skill and fund-level decreasing returns to scale, we find evidence of industry-level decreasing returns: The positive turnover-performance relation weakens when funds act more in concert. We also identify a common component of fund trading that is correlated with mispricing proxies and helps predict fund returns.
Matching Capital and Labor
Jonathan B. Berk
(Stanford University)
Jules van Binsbergen
(University of Pennsylvania)
Binying Liu
(Northwestern University)
[View Abstract]
[Download Preview] We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. At least 30% of the value mutual fund managers add can be attributed to the firm's role in efficiently allocating capital among its mutual fund managers. We find no evidence of a similar effect when a firm hires managers from another firm. We conclude that an important reason why firms exist is the private information that derives from the firm's ability to better assess the skill of its own employees and the use of that information to efficiently allocate capital to labor.
The Unintended Consequences of the Zero Lower Bound Policy
Marco Di Maggio
(Columbia University)
Marcin Kacperczyk
(Imperial College London)
[View Abstract]
[Download Preview] We study the impact of the zero lower bound interest rate policy on the U.S. money fund industry. We find that in response to policies that maintain zero interest rates, money funds: invest in riskier asset classes; hold less diversified portfolios; are more likely to exit the market; and reduce the fees they charge their investors. Further, funds affiliated with large financial institutions are more likely to exit the market while funds managed by independent asset management companies take on relatively more risk—thus inducing a negative selection of risky funds in the market. Finally, fund families closing their money funds are more likely to open new funds, especially those invested in bonds. Overall, our results suggest that the zero lower bound policy has had a negative impact on the competitiveness of the money fund industry.
Discussants:
Dong Lou
(London School of Economics)
Clemens Sialm
(University of Texas-Austin and NBER)
Michael Ewens
(California Institute of Technology)
Philip Strahan
(Boston College)
Jan 04, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
Information Frictions in Asset Markets
(G1)
Presiding:
Laura Veldkamp
(New York University)
Impediments to Financial Trade: Theory and Measurement
Nicolae Garleanu
(University of California-Berkeley )
Stavros Panageas
(University of Chicago )
Jianfeng Yu
(University of Minnesota)
[View Abstract]
We propose a tractable model of an informationally inefficient market. We show the equivalence between our model and a substantially simpler model whereby investors face distortive investment taxes depending both on their identity and the asset class. We use this equivalence to assess existing approaches to inferring whether individual investors have informational advantages. We also develop a methodology of inferring the magnitude of the frictions (implicit
taxes) that impede financial trade. We illustrate the methodology by using data on cross-country portfolio holdings and returns to quantify these frictions, and locate the directions in which financial trade seems to be especially impeded. We argue that our measure of frictions contains useful information for the sources of failure of frictionless models, and it helps in studying whether certain factors (such as the size of the financial sector) are associated with lower financial frictions.
Multi-Asset Noisy Rational Expectations Equilibrium with Contingent Claims
Georgy Chabakauri
(London School of Economics)
Kathy Yuan
(London School of Economics)
Konstantinos E. Zachariadis
(London School of Economics)
[View Abstract]
[Download Preview] We consider a noisy rational expectations equilibrium in a multi-asset economy populated by informed and uninformed investors, and noise traders. We relax the usual assumption of normally distributed asset payoffs and allow for assets with very general payoff distributions, including non-redundant contingent claims, such as options and other derivatives. We provide necessary and sufficient conditions under which contingent claims provide information about the source of uncertainty in the economy and, hence, reduce the asymmetry of information. We also apply our results to pricing risky debt and equity and demonstrate that firms cannot manipulate the information contained in debt and equity prices by changing the face value of debt. Our paper provides a new tractable framework for studying asset prices under asymmetric information. When the market is complete, we derive the equilibrium in closed form. When the market is incomplete, we derive it in terms of easily computable inverse functions.
Information Asymmetries, Volatility, Liquidity, and the Tobin Tax
Christian Julliard
(London School of Economics)
Albina Danilova
(London School of Economics)
[View Abstract]
[Download Preview] Information asymmetries and trading costs, in a financial market model with dynamic information, generate a self-exciting equilibrium price process with stochastic volatility, even if news have constant volatility.
Intuitively, new (constant volatility) information is released to the market at trading times that, due to traders' strategic choices, differ from calendar times.
This generates an endogenous stochastic time change between trading and calendar times, and stochastic volatility of the price process in calendar time.
In equilibrium: price volatility is autocorrelated and is a non-linear function of number and volume of trades; the relative informativeness of number and volume of trades depends on the data sampling frequency; volatility, the limit order book, tightness, depth, resilience, and trading activity, are jointly determined by information asymmetries and trading costs.
Our closed form solutions rationalize a large set of empirical evidence and provide a natural laboratory for analyzing the equilibrium effects of a financial transaction tax.
Good Disclosure, Bad Disclosure
Itay Goldstein
(University of Pennsylvania)
Liyan Yang
(University of Toronto)
[View Abstract]
[Download Preview] We study the real e¢ciency implications of releasing public information in a model with multiple dimensions of uncertainty where market prices convey information to real decision makers. Disclosing more precise public information has a positive direct e¤ect of providing new information and an indirect e¤ect of changing price informativeness. The direction of the indirect e¤ect depends on the type of information being disclosed. Paradoxically, when disclosure is about a variable that real decision makers care to learn, the indirect e¤ect is negative and attenuates the direct e¤ect. Moreover, in markets which are very e¤ective in aggregating private information, the negative indirect e¤ect can be stronger than the direct e¤ect, implying that better disclosure can reduce the overall quality of information available to decision makers and harm real e¢ciency.
Discussants:
Ralph Koijen
(London Business School)
Bradyn Breon-Drish
(Stanford University)
Pietro Veronesi
(University of Chicago)
Pablo Kurlat
(Stanford University)
Jan 04, 2016 10:15 am, Marriott Marquis, Nob Hill A & B
American Finance Association
Institutional Biases and Asset Prices
(G1)
Presiding:
Alok Kumar
(University of Miami)
Distracted Institutional Investors
Daniel Schmidt
(HEC Paris)
[View Abstract]
[Download Preview] We investigate how distraction affects the trading behavior of professional asset managers. Exploring detailed transaction-level data, we show that managers with a large fraction of portfolio stocks exhibiting an earnings announcement are significantly less likely to trade in other stocks, suggesting that these announcements absorb attention which is missing for the choice of which stocks to trade. Hence, attention constraints can be binding even among this elite group of traders. Finally, we identify two channels through which distraction hurts managers’ performance: distracted managers fail to close losing positions and incur slightly higher transaction costs.
The Granular Nature of Large Institutional Investors
Itzhak Ben-David
(Ohio State University and NBER)
Francesco Franzoni
(University of Lugano)
Rabih Moussawi
(University of Pennsylvania)
John Sedunov
(Villanova University)
[View Abstract]
[Download Preview] Over the last 35 years, the concentration of institutional assets in equity markets has increased dramatically. The stock ownership by the largest ten asset managers now accounts for 23.1% of total stock market capitalization, having quadrupled over this period. The paper asks whether idiosyncratic shocks to these institutions can spill over to their underlying holdings through their trading activity. The conjecture is that large institutions are granular, that is, they cannot be reduced to a diversified collection of smaller entities. We provide evidence of a causal effect of ownership by large institutions on the volatility of their stock holdings. Moreover, we show that these effects are driven by larger-than-expected trades as well as by concentrated investor flows. Finally, the stocks owned by large institutions exhibit stronger price inefficiency.
Short Selling Activity and Waiting Games
Francesco Franzoni
(University of Lugano)
Massimo Massa
(INSEAD)
Carlo sommavilla
(University of Lugano)
[View Abstract]
[Download Preview] The paper studies empirically the reaction of informed investors to the presence of short sellers in the market. We find that other investors trade more slowly when short sellers are active. In addition, they break down their orders across a larger number of brokers. Consequently, they end up paying higher commissions and turn to more unfamiliar brokers. These effects are stronger when information asymmetry is more severe. Finally, when investors decrease their trading speed, prices adjust more slowly to a given amount of short selling. These findings are consistent with theories that predict a slow-down in trading activity by investors seeking to protect their informational advantage. A possible implication of our findings is that short selling does not always improve price efficiency, especially when information asymmetry is more severe.
Coordinated Noise Trading: Evidence from Pension Fund Reallocations
Zhi Da
(University of Notre Dame)
Borja Larrain
(Pontificia Universidad Catolica de Chile)
Clemens Sialm
(University of Texas-Austin and NBER)
Jose Tessada
(Pontificia Universidad Catolica de Chile)
[View Abstract]
[Download Preview] We document a novel channel through which coordinated noise trading exerts externalities on financial markets dominated by institutional investors. We exploit a unique set of events where Chilean pension fund investors followed an influential financial advisory firm that recommended frequent reallocations between equity and bond funds. The recommendations, which mostly followed short-term return trends, generated large and coordinated fund flows. Since the advisory firm gained popularity through social media, young investors were more likely to follow the recommendations and to reallocate their retirement savings. The fund flows resulted in substantial price pressure and increased volatility in both the equity and bond markets. Pension funds reduced their holdings of illiquid securities and increased cash holdings as a response to these flows. Our findings suggest that giving retirement savers unconstrained reallocation opportunities may destabilize financial markets and impose social costs on market participants.
Discussants:
Jawad Addoum
(University of Miami)
Tarun Ramadorai
(University of Oxford)
Russell Jame
(University of Kentucky)
Richard Sias
(University of Arizona)
Jan 04, 2016 10:15 am, Parc 55, Mission I
American Real Estate & Urban Economic Association
Housing Affordability
(R2, D1)
Presiding:
Richard K. Green
(University of Southern California)
Retirement and Unretirement During the Recent Housing Crises
Gregory Burge
(University of Oklahoma)
Lingxiao Zhao
(University of Oklahoma)
[View Abstract]
A majority of elderly households in the U.S. hold over half their wealth in the form of housing ownership. For this reason, the recent boom/bust cycle in the housing market has fueled interest in examining the labor market reactions of elderly households, as they experienced the financial crisis and traditional retirement planning periods concurrently. Using the restricted access version of the Health and Retirement Study covering the last two decades, we investigate how housing wealth, property taxes and financial wealth influence retirement and unretirement. We also use respondents’ self-reported probability of continuing work past age 62 to examine early retirement expectations, along with actual reporting of retirement timing, exploring interesting differences between them. Our investigation produces three main findings: (1) both retirement and unretirement transitions are influenced by housing wealth and property taxes in the expected opposing directions; (2) financial wealth shocks, together with changes in health, explain longitudinal variation in retirement expectations prior to the actual retirement; (3) unexpected changes in retirement decisions are influenced by housing wealth shocks and property taxes, but not financial wealth. Our findings offer important implications for evaluating the consequences of the recent housing bubble on older households in the U.S. and for designing retirement-related policies.
Housing Affordability and Inequality: A Consumption-Based Approach
Danny Ben-Shahar
(Tel Aviv University)
Stuart Gabriel
(University of California-Los Angeles)
Roni Golan
(Technion - Israel Institute of Technology)
[View Abstract]
[Download Preview] Assessments of the state of housing affordability generated under the traditional housing price-to-income approach may not be informative due to varying individual preferences for housing and the commonly positive correlation between individual housing price and income. We thus propose to implement an alternative approach—including standardized and normative housing price-to-income measures—that resolves the shortcomings of the traditional method. We employ an extensive representative dataset of Israeli households over the period 1998–2013. Results indicate a continuous under-assessment of the state of inequality in housing affordability under the traditional approach. Further, the association between housing affordability and household socio-demographic characteristics is under-evaluated. Our evidence may serve policymakers in designing programs aimed at mitigating housing distress.
Real Estate as a Luxury Good: Non-Resident Demand and Property Prices in Paris
Dragana Cvijanovic
(University of North Carolina-Chapel Hill)
Christophe Spaenjers
(HEC Paris)
[View Abstract]
[Download Preview] This paper examines how the international demand for luxury consumption affects the real estate market in global hotspots. Using a unique data set of housing transactions in Paris, we find that (i) non-resident foreigners crowd out residents in highly desirable areas of the city, especially in good times; (ii) these non-residents overpay and realize lower capital gains when reselling; and (iii) purchases by non-resident foreigners have a causal positive effect on price levels. Our results illustrate the importance of foreign buyers—and their tastes—in attractive locations worldwide.
Employment and the Shared Housing and Living Arrangements of Young Men: New Evidence from the Great Recession
Michael Eriksen
(Texas Tech University)
Gary Engelhardt
(Syracuse University)
Nadia Greenhalgh-Stanley
(Kent State University)
[View Abstract]
[Download Preview] Parents may use housing and shared living arrangements as a form of risk-sharing in the face of labor-market uncertainty for their adult children. We test this by estimating the effect of employment on co-residence between parents and adult children using detailed data on children and parents in the Health and Retirement Study (HRS) for 1998-2012. Our estimates indicate that on average a young man moving from full-time to non-employment raises the likelihood of co-residing with a parent by 1.7 percentage points. Similarly, on average moving from full-time employment to being part-time employed raises the likelihood of co-residing with a parent by 2.1 percentage points. The implied elasticity of parental co-residence with respect to the son’s income is . We find more muted responses for daughters: the implied elasticity of parental co-residence with respect to the daughter’s income is . For sons, the impact of employment changes on co-residence depends on the quality and quantity of housing services supplied by the parent: co-residence is substantially less likely with parents who rent, have smaller, and low-quality residences.
Discussants:
Vincent Yao
(Fannie Mae)
Jung Hyun Cho
(University of Southern California)
Luis Quintero
(World Bank)
Andra Ghent
(Arizona State University)
Jan 04, 2016 10:15 am, Parc 55, Mission II & III
American Real Estate & Urban Economic Association
Local Externalities
(R5, K2)
Presiding:
Janet Kohlhase
(University of Houston)
Do Local Governments Site Nuisance Activities Along Borders? A Empirical Strategy Applied to Wind Turbines
Justin Ross
(Indiana University)
Sanya Carley
(Indiana University)
[View Abstract]
The ability of communities to realize Pareto efficient outcomes may potentially be realized through the practice of fiscal zoning. A common concern to this theory is the prospect that political boundaries may undermine this process. If nuisance entities produce negative externalities that decay over distance and host fee compensation is completely internalized, then host fee compensation need not reflect the full external damages if the nuisance is sited along a political border. Furthermore, if a nuisance entity can credibly commit to being sited on either side of the border, host fee compensation can fall to zero. This paper presents a simple theoretical model that helpfully describes a, empirical strategy for testing the political boundary hypothesis among local governments. The strategy is applied to wind turbines in the continental United States across 1,258 local governments. The results are not supportive of the concerns and actually indicate that land near political boundaries is less likely to be used for nuisance siting.
I Can Hear My Neighbors' Fracking: The Effect of Natural Gas Production on Housing Values in Tarrant County, TX
Zach Hawley
(Texas Christian University)
Andrew Balthrop
(American University of Sharjah)
[View Abstract]
[Download Preview] The technique of hydraulic fracturing has made it possible to produce vast new quantities of oil and natural gas, yet the process has associated risks, and has been a controversial issue in popular media. In this study we estimate the effect hydraulically fractured natural gas wells have on residential real estate prices. We exploit variation in distance to nearby gas wells in home sales prices to estimate this effect. Our study is the first to focus on a relatively densely populated area, a section of the Dallas-Ft. Worth-Arlington urban area. Our data is from Texas over the period 2005-2011. We find robust evidence that increased proximity to a fractured well leads to reduced home sale prices. Existence of wells within 3,500 feet of a property reduces property values by approximately 3%.
Fewer Vacants, Fewer Crimes? Impacts of Neighborhood Revitalization Policies on Crime
Jonathan Spader
(ABT Associates Inc.)
Jenny Schuetz
(Federal Reserve Board )
Alvaro Cortes
(ABT Associates Inc.)
[View Abstract]
[Download Preview] The relationship between neighborhood physical environment and social disorder, particularly crime, is of critical interest to urban economists and sociologists, as well as local governments. Over the past 50 years, various policy interventions to improve physical conditions in distressed neighborhoods have also been heralded for their potential to reduce crime. Urban renewal programs in the mid-20th century and public housing redevelopment in the 1990s both subscribed to the idea that signs of physical disorder invite social disorder. More recently, the federal Neighborhood Stabilization Program (NSP) provided funding for local policymakers to rehabilitate or demolish foreclosed and vacant properties, in order to mitigate negative spillovers—including crime—on surrounding neighborhoods. In this paper, we investigate the impact of NSP investments on localized crime patterns in Cleveland, Chicago and Denver. Results suggest that demolition activity in Cleveland decreased burglary and theft, but do not find measurable impacts of property rehabilitation investments—although the precision of these estimates are limited by the number of rehabilitation activities.
Strip Clubs and Property Values
Adam Nowak
(West Virginia University)
Taggert Brooks
(University of Wisconsin-La Cross)
Brad Humphreys
(West Virginia University)
[View Abstract]
[Download Preview] The "secondary effects" legal doctrine allows municipalities to zone, or otherwise regulate, sexually oriented businesses like strip clubs. Negative "secondary effects" (externalities) justify limiting First Amendment protection of speech conducted inside strip clubs. We utilize a repeat sales regression model of housing prices to estimate the causal effect of strip clubs on nearby residential property price appreciation. Using real estate transactions from King County, Washington, we identify the effects of a property being located near a strip club, exploiting the unexpected end of a 17 year moratorium on new strip club openings and multiple legal cases to generate exogenous variation in club location in Seattle. We find no evidence that proximity to a strip club affected residential property price appreciation; strip clubs in Seattle did not have any "secondary effects" on nearby residential property values.
Discussants:
Ralph Mastromonaco
(University of Oregon)
Allen Klaiber
(Ohio State University)
Dionissi Aliprantis
(Federal Reserve Bank of Cleveland)
Elisheba Spiller
(Environmental Defense Fund)
Jan 04, 2016 10:15 am, Parc 55, Market Street
Association for Comparative Economic Studies/American Economic Association
Global Inequality in Comparative Perspective
(P5, F6) (Panel Discussion)
Panel Moderator:
Michael Alexeev
(Indiana University-Bloomington)
Joseph Eugene Stiglitz
(Columbia University)
Unequal Societies
Jan Svejnar
(Columbia University)
Are Billionaires Good or Bad for Economic Growth?
Branko Milanovic
(City University of New York-Graduate Center )
Recent Trends in Global Inequality & Their Political Implications
Jan 04, 2016 10:15 am, Marriott Marquis, Pacific H
Association for Evolutionary Economics/International Association for Feminist Economics
Inside Institutions: Feminist Perspectives
(B5, Z1)
Presiding:
Barbara E. Hopkins
(Wright State University)
Gender Gaps Post-Crisis: Women Workers, Employment and Precarity
Alicia Girón
(Mexico Autonomous National University)
Eugenia Correa
(Mexico Autonomous National University)
[View Abstract]
[Download Preview] The Gender Gap Index is very useful for international comparisons, and give several interesting approach about equality, human well-being and development. However, in less developed societies, reduction in gender gaps can have a large negative impact over the lives of women. A better position in the gender equality index doesn’t mean less inequality.
The Experience of Selling Experiences
Ellen Mutari
(Stockton University)
Deborah M. Figart
(Stockton University)
[View Abstract]
In a postindustrial economy, the selling of intangible experiences is replacing the manufacturing workplaces that were so critical to the livelihoods of previous generations of US workers. This qualitative study of work processes and job quality in the casino gaming industry reveals the need for new metaphors for describing economy, rather than continuing to rely on mechanistic imagery of an economy as a factory.
Did I Shave My Legs for This? Navigating, Conforming to, and Challenging the Rules of Markets and Men at Work and Home
Paula M. Cole
(University of Denver)
[View Abstract]
This research examines the economic lives of U.S. women and whether institutional changes in gender norms conform to or challenge neoliberalism. We evaluate the internal mechanisms of sexism and neoliberalism within homes and the workplace and how women must navigate these systems in hopes of economic success.
The Care Tax: An Instrument for a (Re)Productive Economy?
Anna Saave
(Carl von Ossietzky University-Gemany)
[View Abstract]
How can care work be financed and sustained in capitalist industrialized economies? In light of the current crisis of reproduction with e.g. global care chains and the overexploitation of natural resources, this question challenges actual ways of organizing care. At the nexus of the analysis of care and sustainability economics, the paper answers the question by discussing Tove Soilands proposal of a “Care Tax based on the hypothesis of diverging productivities. By this analysis it could be found that care is externalized by the capitalist market system and affected by the feminist-marxist coined term of Landnahme. This is also true for the natural environment which causes a twofold trouble in creating sustainable economies. A solution for correcting these externalizations could be a care tax internalizing problematic externalities, designed in analogy to the German “Ecological Tax Reform”. Three variations of this so constructed care tax are developed in the paper. Finally the paper seeks to identify economic instruments for an economics drawing on findings of feminist economics and sustainability sciences.
Globalization, Gender Empowerment and Fertility
Mizuki Komura
(Nagoya University-Japan)
Hikaru Ogawa
(University of Tokyo-Japan)
[View Abstract]
[Download Preview] This study explores the effects of globalization on fertility rates of countries. Globalization affects the income gap among certain groups and the gender gap is not an exception. Since a couple consisting of a man and a woman is one decision unit of family planning, there is a growing consensus that the gender gap influences the population of countries. In this study, we find that globalization (in terms of integration of capital market) alters the gender gap in wage rates through the changes in labor demand for capital-intensive sectors. Consequently, globalization leads to opposite effects on fertility decisions in capital-importing and capital-exporting countries, via changes in the bargaining positions of men and women. Moreover, by taking account of the properties of industrial structures of capital-importing and capital-exporting countries, our results show that globalization induces empirically observed declines in fertility rates throughout the world.
Jan 04, 2016 10:15 am, Marriott Marquis, Pacific B
Association for Social Economics/Association for Evolutionary Economics
Financialisation and Institutional Changes
(B5, G3)
Presiding:
Tonia L. Warnecke
(Rollins College)
Shareholder Value Orientation, the Acquisition of Financial Assets, and Corporate Cash Holdings among US Corporations, 1971-2013
Leila Davis
(Middlebury College)
[View Abstract]
In this paper, I investigate determinants of growth in the financial asset holdings of nonfinancial corporations (NFCs) in the post-1970 US economy. I first develop a framework that describes firm-level portfolio and financing decisions by a balance sheet adjustment process. This framework emphasizes interdependence between NFC decisions to invest in fixed capital or acquire financial assets, and to borrow. Applying the framework to a firm-level panel of US corporations, I find empirical evidence that shareholder value-maximizing objectives of NFC managers are one important determinant of growth in NFC financial asset holdings. This relationship strengthens for later time periods – as institutions supporting shareholder value orientation become increasingly entrenched – and for sub-samples of larger firms. Shareholder value orientation is, furthermore, found to be a stronger predictor of growth in cash than in total financial asse! ts. This cash finding is important given that shareholder value orientation is aimed, in part, at encouraging managers to ‘disgorge’ excess cash. Finally, NFC financial asset holdings are also positively related to firm-level volatility, suggesting that – in a context of rising firm-level volatility – firms’ precautionary motive for holding liquid assets has strengthened over this period.
Financial Liberalization as a Process of Flawed Institutional Change: Institutional Cognitive Dissonance and Systemic Crisis
Faruk Ülgen
(University Grenoble Alpes)
[View Abstract]
[Download Preview]
This article argues that the financial liberalization of the last decades that resulted in a worldwide crisis relied on an institutional change which ill-shaped actors’ behavior so as to let them enter into unsustainable speculative activities at the expense of macro stability. To support such an assertion the article draws upon a specific Veblen-Minsky approach to a credit-money economy and its endogenous fragilities. It maintains that when financial markets are liberalized and private-interests-related self-regulation replaces public macro-prudential supervision, the financial system undergoes institutional deadlock and the ensuing confusion is transformed into a market gridlock. Markets then become unable to recover without public rescue operations of banks. The subsequent negative economic and social consequences are beyond the limits of any acceptable liberal ideology and scientific understanding. Therefore systemic stability calls for a tighter macro-regulatory framework to remove the domination of speculative finance over economic decisions and activities.
Governance Structures, Cultural Distance, and Socialization Dynamics: Further Challenges for the Modern Corporation
Christian Cordes
(University of Bremen)
Sarianna M Lundan
(University of Bremen)
Stephan Mueller
(University of Goettingen)
Georg Schwesinger
(University of Bremen)
[View Abstract]
[Download Preview] This paper relates cultural distance (CD), as a further attribute of transactions, and governance structures. We suggest an additional problem of economic organization: assessing alternative governance structures in terms of the socialization dynamics they enable, which entail different intraorganizational transaction costs due to CD. We assume that transactions in organizations can be assigned to and organized within governance structures that allow transaction cost economizing socialization processes. Our socialization governance approach appeals to behavioral theory and cultural evolution. A model of cultural evolution captures socialization processes and the development of CD within and between groups or organizational units. It describes the idiosyncratic learning and socialization dynamics taking place in groups of interacting agents and explains important aspects of governance structures and related transaction costs. CD has be! en used as a key variable in many areas of organizational behavior and firms have been interpreted as multi-cultural teams. We suggest that given certain socialization dynamics that occur in groups and that are based on evolved human cognitive dispositions, processes of convergence and divergence in CD within and between organizational units take place. Furthermore, CD between parties is an important attribute of transactions. Transaction cost theorists associate higher CD with higher costs of transaction due to communication costs or less efficient intraorganisational transfer of knowledge and skills. Employees who have different cultures impose costs on an organization that would be absent were cultures homogeneous. An organization can react to this challenge by choosing suited governance structures that close CD between individuals or organizational entities.
A Theory of Why and How Central-Bank Culture Supports Predatory Risk-Taking at Megabanks
Edward J Kane
(Boston College)
[View Abstract]
[Download Preview] his paper applies Edgar Schein’s model of organizational culture to financial firms and their prudential regulators. It identifies a series of hard-to-change cultural norms and assumptions that create powerful incentive conflicts for regulators in any country when large,complex, and politically powerful banks fall into distress. Throughout the business cycle, these unspoken norms favor light-touch supervision and misrepresentations that support reckless go-for-broke risk-taking by a country's major banks. The author argues that this behavior meets the every-day definition of theft. To have a chance of working, financial reform must identify and attack these norms so as to sanction individual decision-makers for the harm their abusive risk-taking visits on other citizens. Current reforms seek only to constrain the pursuit of tail risk and focus on collecting large fines from shareholders when managers can be shown to have viola! ted capital, liquidity, or market-conduct restrictions. But to reduce individual managers' incentives to pursue tail risk, it is necessary to re-characterize willful risk-shifting as theft and to outlaw it directly by re-writing corporate law to establish that managers of megabanks owe fiduciary duties of loyalty, competence, and care to taxpayers.
Selectivity and Transparency in Social Banking: Evidence from Europe
Panu Kalmi
(University of Vaasa)
Simon Cornée
(University de Rennes 1)
Ariane Szafarz
(Université Libre de Bruxelles)
[View Abstract]
[Download Preview] [Download PowerPoint] Social banks (SBs) claim that their values and practices distinguish themselves from traditional banks insofar as they prioritise social goals over financial ones. The main goal of SBs consists in serving community-oriented projects and social enterprises, which put the emphasis not only on financial returns, but also –and often as a priority– on social aims. Our study examines how these “virtuous” principles are evident from the observed behaviour of social banks. Our investigation relies on a rich European dataset consisting of 6,500 European banks, and our observation window covers the 1999-2013 period. Of this large group of banks, we identify around 30 banks as SBs. We aggregate micro-level bank balance sheet data (at unconsolidated level) from Bankscope, which is a standard source for institutional comparisons of banks. Our preliminary results shows that, as compared to profit-maximizing banks, SBs promote to a greater extent stakeholder value and contribute more to financial stability (via higher z-score). Second, SBs adhere more to uncomplicated financial intermediation principles than their counterparts, in particular when we look at the non-interest income share in gross revenue. However, there is also evidence on SBs having excess liquidity. Third, there is evidence suggesting that SBs exhibit sounder loan portfolios than their counterparts. Interestingly, stakeholder banks generally occupy an intermediate position between SBs and commercial banks in our results. Finally, asset growth rates prove to be significantly higher for SBs, in particular since the outbreak of the 2008 financial crisis.
Jan 04, 2016 10:15 am, Parc 55, Powell II
Association for the Study of Cuban Economy
The Cuban Economy
(P2)
Presiding:
Roger Betancourt
(University of Maryland-College Park)
Why Has the Growth of the Cuban Economy Been So Strong Since the Mid 1990s?
Ernesto Hernandez-Cata
(International Monetary Fund-Retired)
[View Abstract]
[Download Preview] This paper tries to answer the following question. If Cuba’s workforce is stagnant, if the country’s investment to GDP ratio is one of the lowest in the world, and if total factor productivity growth has been miserable, why has the Cuban economy expanded so rapidly since the country emerged from its post-Soviet doldrums? The main answer is that in 1994, at the end of the post-Soviet contraction, the country still had considerable unused resources and that, over the following 18-year period, it has been using these resources with ever greater intensity. Another, probably smaller, part of the answer is that numbers in the social services sector occasionally have been cooked to show higher than actual growth.
The Value of Food Consumption in Cuba 1966-2011
Luis Locay
(University of Miami)
[View Abstract]
Using official Cuban figures for consumption of individual food items and their corresponding market unit prices in the Dominican Republic in June 2010, we construct a time series from 1966 to 2011 of the real market value of per capita food consumption on the island. We make adjustments for sources of food missing from official sources after the special period, and compare our series with that of the FAO's for caloric consumption.
Modelling Economic Growth in Cuba
Carlos Seiglie
(Rutgers University-Newark)
[Download Preview] TBA
Discussants:
John Devereux
(City University of New York-Queens College)
Roger Betancourt
(University of Maryland-College Park)
Jan 04, 2016 10:15 am, Marriott Marquis, Walnut
Association for the Study of Generosity in Economics/International Association for Feminist Economics
Gender and Altruistic Decisions
(D6, J1)
Presiding:
Catherine Eckel
(Texas A&M University)
Making Decisions for Others: The Consequences of Gender Stereotypes
Catherine Eckel
(Texas A&M University)
[View Abstract]
Many financial decisions are made with advice from professional advisors, yet little is known about how gender stereotypes might affect the advice that is given to women and men. We investigate this issue in a lab experiment using time preferences and risk tolerance as proxies for financial decision making. Subjects first complete a (risk or time-preference) decision for themselves. Then each subject stands and the others choose an alternative for that person. At the end of the experiments one subject is selected and she becomes the “financial advisor” whose decisions are implemented for everyone. We find that decisions for others exaggerate underlying differences in the decisions of women and men. Both male and female financial advisors choose much less risky alternatives for women than for men. Implications for advice professionals are explored.
Finding Excuses to Decline the Ask
Ragan Petrie
(George Mason University)
Christine Exley
(Harvard University)
[View Abstract]
[Download Preview] A growing body of empirical evidence documents a reluctance to give. Individuals avoid donation asks, and when asked, give less by viewing factors, such as ambiguity or risk, in a self-serving manner. By considering donation asks that do not introduce or highlight such factors, this paper explores whether self-serving tendencies may arise from the mere expectation of the ask, or opportunity for individuals to find their own excuses when the ask is unavoidable. Our field experiment supports this extension of self-serving tendencies: prosocial behavior reduces by 20% when the ask is explicitly forecasted and thus expected. Additional results provide insight into the conditions and types of individuals contributing to this finding. While self-serving responses persist when information on why to give is not provided or can be easily avoided, the provision of unavoidable information proves effective. The need to counteract self-serving responses to the expectation of the ask, moreover, is most relevant among individuals who have not previously supported the non-profit organization in question.
The Importance of Fuzzy Beliefs
Katherine Coffman
(Ohio State University)
Muriel Niederle
(Stanford University)
Abstract forthcoming
Mitigating the Gender Gap in the Willingness to Compete: Evidence from a Randomized Field Experiment
Sule Alan
(University of Essex)
Seda Ertac
(Koc University)
[View Abstract]
[Download Preview] The lower willingness of females to compete is extensively documented, and has a wide range of implications including gender gaps in occupational choice, achievement and labor market outcomes. In this paper we evaluate the impact on competitiveness of two randomized interventions that involve (1) targeted education to foster grit, a non-cognitive skill that has been shown to be highly predictive of achievement, (2) exposure to successful female role models. The interventions are implemented in a large sample of elementary schools, and we measure their impact using a dynamic competition task with interim performance feedback. We find that competitiveness is malleable in both girls and boys. Specifically, when children are exposed to a worldview that encourages goal-setting and perseverance, the gender gap in the willingness to compete disappears. Introducing successful female role models to all children, however, does not replicate this effect, as it leads both boys and girls to compete more relative to control group, leaving the gender gap intact. We explore the effect of treatments on self-confidence and the response to performance feedback as a potential mechanism to explain these results.
Discussants:
Jonathan Meer
(Texas A&M University)
Jan 04, 2016 10:15 am, Marriott Marquis, Pacific C
Association of Christian Economists
Religion and Social Insurance: Evidence from Across Time and Place
(Z1)
Presiding:
Daniel Hungerman
(University of Notre Dame)
Rainfall Risk and Religious Membership in the Late 19th Century U.S.
Philipp Ager
(University of Southern Denmark)
Antonio Ciccone
(Pompeu Fabra)
[View Abstract]
[Download Preview] Building on the idea that religious communities provide mutual insurance against some idiosyncratic risks, we argue that religious membership is more valuable in societies exposed to greater common risk. In our empirical analysis we exploit rainfall risk as a source of common economic risk in the nineteenth-century United States and show that religious communities were larger in counties where they faced greater rainfall risk. The link between rainfall risk and the size of religious communities is stronger in counties that were more agricultural, that had lower population densities, or that were exposed to greater rainfall risk during the growing season.
Acts of God: Religiosity and Natural Disasters Across Subnational World Districts
Jeanet Sinding Bentzen
(University of Copenhagen)
[View Abstract]
[Download Preview] Religiosity affects everything from fertility and labor force participation to health. But why are some societies more religious than others? To answer this question, I test the religious coping theory, which states that many individuals draw on their religious beliefs to understand and deal with adverse life events. Combining sub-national district level data on values across the globe from the World Values Survey with spatial data on natural disasters, I find that individuals are more religious when their district was hit recently by an earthquake. And further, that individuals are more religious when living in areas with higher long term earthquake risk. Using data on children of immigrants in Europe, I document that this is mainly due to a long-term effect: high religiosity levels, evolving in high earthquake risk areas, are passed on through generations to individuals no longer living in high earthquake risk areas. The impact is global: earthquakes increase religiosity both within Christianity, Islam, and Hinduism, and within all continents. Last, I document that the results are consistent with the literature on religious coping and inconsistent with alternative theories of insurance or selection.
The Political Economy of Beliefs: Why Fiscal and Social Conservatives/Liberals Come Hand-in-Hand
Daniel Chen
(ETH Zurich)
[View Abstract]
[Download Preview] We propose and test a model where religious provision of social insurance explains why fiscal and social conservatism align in the times and places that they do. We find evidence that religious groups with greater within-group charitable giving are more against the welfare state and more socially conservative. The alignment disappears when there is a state church and it reverses for members of a state church (social conservatives become fiscal liberals). Increases in church-state separation precede increases in the alignment between fiscal and social conservatism. This framework provides a novel explanation for religious history: as credit markets develop, elites gain access to alternative social insurance. They increase church-state separation to create a constituency for lower taxes. This holds if religious voters exceed non-religious voters, otherwise, elites prefer less church-state separation in order to curb the secular left. This generates multiple steady states where some countries sustain high church-state separation, high religiosity, and a low welfare state, and vice versa. We use this framework to help explain the changing nature of religious movements, from the Social Gospel to the religious right and why church-state separation arose in the U.S. but not in many European countries.
Discussants:
David Yanagizawa-Drott
(Harvard University)
Markus Brueckner
(University of Queensland)
Jorg Spenkuch
(Northwestern University)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 5 & 6
Association of Environmental & Resource Economists
Management of Natural Resources: Theory and Applications
(Q2, Q3)
Presiding:
Harrison Fell
(Colorado School of Mines)
Do Catch Shares End the Race to Fish and Increase Ex Vessel Prices? Evidence from U.S. Fisheries
Martin Smith
(Duke University)
Anna Birkenbach
(Duke University)
David Kaczan
(Duke University)
[View Abstract]
[Download Preview] [Download PowerPoint] Catch shares appear to lower fishing costs by eliminating redundant capacity. Theory suggests that catch shares may also alter within-season behavior and generate revenue benefits through improved market timing, higher product quality, and changes in the fresh/frozen product mix. Do catch shares alter within-season behavior to end the race to fish? Do catch shares cause ex vessel prices to increase? Despite compelling theory and anecdotal evidence, there is little systematic causal evidence to support these hypotheses. We test both hypotheses for all U.S. catch share fisheries using an individually matched control fishery for each treated fishery and a difference-in-differences estimation approach. We find strong evidence that catch shares cause season decompression consistent with the theory that rights-based management ends the race to fish. However, evidence for price increases is weak, and, on average, our models suggest price decreases. To the extent that catch shares produce benefits on the revenue side, these benefits do not appear to manifest in ex vessel prices. We discuss potential confounding factors in fishing revenues and the need for a richer theoretical understanding of transitions to rights-based management.
Mining and Quasi-Option Value
Charles Kolstad
(Stanford University)
Christopher Costello
(University of California-Santa Barbara)
[View Abstract]
[Download Preview] We study the timing-of-extraction problem facing a decentralized mine owner when extraction entails environmental damage. When the environmental damage from mining is known, the optimal timing will depend on the magnitude of the damage relative to these costs in the rest of the world. But when environmental damage is uncertain, and these costs are revealed over time, a quasi-option value arises. We show that for sufficiently high uncertainty over this damage, it is socially optimal to postpone the mining decision, even when the expected value of damages would otherwise suggest it is optimal to mine immediately. We show conditions under which it is optimal to postpone the mining decision indefinitely, and conditions when it is optimal to postpone only for a finite duration. The analysis leverages a crucial observation that distinguishes the non-renewable resource problem from the traditional quasi-option value framework. In the traditional framework, the presence of an irreversible investment and uncertainty can help nudge the decision maker to preserve the option, but it by no means implies the decision maker should always preserve the option. In contrast, for a non-renewable resource model, the logic of the Hotelling rule suggests that in the absence of uncertainty, the marginal mine owner is completely indifferent between mining immediately and at any point in the future. Thus, for our problem, any uncertainty will convince him to defer the mining decision.
Electrification, Agricultural Productivity and Deforestation in Brazil
Dimitri Szerman
(Pontifical Catholic University of Rio de Janeiro)
Juliano Assunção
(Pontifical Catholic University of Rio de Janeiro)
Molly Lipscomb
(University of Virginia)
Ahmed Mushfiq Mobarak
(Yale University)
[View Abstract]
When deforestation laws are difficult to enforce, increased agricultural productivity and intensification are used as an indirect policy tools to reduce the pressure to clear forests for new land, a strategy known as the "Borlaug hypothesis". Increasing productivity can have ambiguous effects on forest protection in theory: it can expand the scope of farming, which is detrimental to the forest, but it can also induce farmers facing factor-market constraints to shift away from land-intensive cattle grazing toward less-harmful crop cultivation. We examine these predictions using five waves of the Brazil Agricultural census, 1970-2006. We identify productivity shocks using the expansion of rural electrification in Brazil during 1960-2000. We show that electrification increased crop productivity, and farmers subsequently both expand farming through frontier land conversion, but also shift away from cattle ranching and into crop cultivation. The latter allows farmers to retain more native vegetation within rural settlements. Overall, electrification causes a net decrease in deforestation. We also show that Brazilian farmers are credit constrained and invest more in capital following electrification, consistent with the theory we build. We address the endogeneity of electrification by developing a model that forecasts hydropower dam placement based on topographic attributes of each location, and isolate the exogenous portion of the panel variation in electrification.
Elephants and Mammoths: Can Ice Ivory Save Blood Ivory?
Naima Farah
(University of Calgary)
John Boyce
(University of Calgary)
[View Abstract]
[Download Preview] We study both theoretically and empirically how the presence of a substitute alters the exploitation path of an open access resource. Elephants, poached for ivory, are the endangered species, and mammoth ivory is a non-renewable substitute. Our theory shows that the presence of the mammoth ivory substitute reduces both the elephant poaching rate and the minimum viable elephant population. Thus, there exist elephant population levels which are non-viable absent a substitute, but become viable with a substitute. Our empirical analysis finds that absent the eighty tonnes of Russian mammoth ivory exports per annum 2010-2012, the current poaching level of 34,000 elephants per year may have increased to as many as 85,000 elephants per year, out of a population of a half-million animals, and reduced elephant ivory prices by $100 per kilogram. Thus mammoth ivory trade may be saving elephants from extinction.
Discussants:
Harrison Fell
(Colorado School of Mines)
Michael Hanemann
(Arizona State University)
Eduardo Souza-Rodrigues
(University of Toronto)
Christopher Costello
(University of California-Santa Barbara)
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra A
Association of Financial Economists
Culture and Finance
(G3, G1)
Presiding:
Andrew Karolyi
(Cornell University)
National Culture, Corporate Governance Practices, and Firm Value
Dale Griffin
(University of British Columbia)
Omrane Guedhami
(University of South Carolina)
Chuck C.Y. Kwok
(University of South Carolina)
Kai Li
(University of British Columbia)
Liang Shao
(Hong Kong Baptist University)
[View Abstract]
[Download Preview] We examine why corporate governance varies widely across countries and across firms, and why such variation matters. Using a new database from Governance Metrics International on corporate governance practices across a large number of countries and firms for 2006-2011 and employing a hierarchical linear model specification, we find that the national cultural dimension of individualism is positively associated with, whereas the national cultural dimension of uncertainty avoidance is negatively associated with, firm-level corporate governance practices. Within countries, there is a positive association between firm-level
corporate governance practices and firm value; however, across countries, the association is negative or zero.
Board Diversity and Firm Performance Volatility
Mariassunta Giannetti
(Stockholm School of Economics)
Mengxin Zhao
(University of Alberta)
[View Abstract]
[Download Preview] Diverse directors may have diverse preferences over firms’ policies or even objectives. As shown by Arrow (1951), diverse individual preferences may fail to univocally aggregate in collective preferences and may consequently lead to arbitrary and volatile decisions. Using the board of directors as a laboratory, we test whether diversity leads to higher performance volatility. We show that firms with more diverse boards have greater stock return and fundamental volatility suggesting that board diversity indeed makes decision-making more erratic. Also, firms with diverse boards have less persistent strategies and analysts make larger forecast errors in predicting their performance supporting the conjecture that board members’ diverse preferences lead to arbitrary and hard to predict decisions. Consistent with the presence of conflicts in the boardroom, we find that executive and director turnovers are higher in firms with diverse boards. These firms also have more board meetings. We find no evidence that our results may be driven by firm risk-taking or complexity.
Enforcement Actions and Corporate Culture in Banking
Franco Fiordelisi
(Durham University)
Jacopo Raponi
(Durham University)
Raghavendra Rau
(University of Cambridge)
[View Abstract]
[Download Preview] Enforcement actions are a key tool for supervisors to reduce moral hazard behavior at all banks, not just the sanctioned ones. Do regulatory supervisor actions influence bank culture? Using a sample of enforcement actions in the US between 2006 and 2013, we find little evidence that supervisory actions influence bank culture enough to cause changes in their behavior.
Discussants:
Jordan Siegel
(Harvard University)
Kenneth Ahern
(University of Southern California)
Alberto Manconi
(Tilburg University)
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra J
Chinese Economists Society
Chinese Consumption and Saving Behavior: Evidence from Household Survey Data
(D1)
Presiding:
Jinlan Ni
(University of Nebraska-Omaha)
Effect of Access to Informal Finance on Consumption:Evidence from a Representative Sample of Chinese Households
Robert Cull
(World Bank)
Li Gan
(Texas A&M University and Southwestern University of Finance and Economics)
Nan Gao
(Southwestern University of Finance and Economics)
Lixin Colin Xu
(World Bank)
[View Abstract]
We use a comprehensive new data in China with 28000 households to understand the role of informal finance for household consumption. Informal loans are quantitatively important for Chinese households both in terms of incidence and loan amounts. Reliance on informal loans is stronger for rural residents, younger households, low-income residents, less-educated households, households with more children and more working adults. While affiliation with the Communist Party does not affect usage of informal finance, the number of siblings of the household couple does. Furthermore, access to informal loans is robustly and positively related to average consumption per household member. The effects are especially pronounced when dealing with the endogeneity of access to informal finance by using the instrumental variable of the number of siblings of the household couple. Informal finance is also especially helpful for the poor. The effect differs by types of consumption. The daily consumption of rural households is not affected by informal financing, while their long-term consumption is substantially boosted by it. In contrast, urban households, upon access to informal finance, seem to feature a tradeoff between daily consumption and long-term consumption: they reduce daily consumption while increase their long-term consumption.
Earnings, Income, and Wealth Distributions in China: Facts from the 2011 China Household Finance Survey
Jijun Tan
(Southwestern University of Finance and Economics)
Ting Zeng
(National University of Singapore)
Shenghao Zhu
(National University of Singapore)
[View Abstract]
We use the 2011 China Household Finance Survey (CHFS) data to describe inequalities of earnings, income, and wealth in China. We find high inequalities of labor earnings, income, and wealth in China. Wealth is the most unequally distributed variable among Chinese households. We also find that the business income comprises a large share of income among the top groups. The households with young heads tend to be rich in earnings and income, and their income is largely generated from businesses.
Housing Wealth and Consumption: Evidence from CHFS Panel Data
Han Li
(Southwestern University of Finance and Economics)
[View Abstract]
Using the panel data from China Household Finance Survey (CHFS) in 2011 and 2013, we study the impact of housing wealth on household consumption by a fixed-effect model. We find that housing wealth effect does exist in China. Holding other factors constant, a 1% increase in housing wealth leads to a 0.055% increase in household consumption. Further study shows that housing wealth not only affects consumption directly through the wealth effect, but also boosts consumption by easing liquidity constraint. We also find that buying a house does not crowd out consumption in the long run.
Micro-Data Evidence on Family Size and Chinese Household Saving Rates
Steven Lugauer
(University of Notre Dame)
Jinlan Ni
(University of Nebraska at Omaha)
Zhichao Yin
(Southwestern University of Finance and Economics)
[View Abstract]
[Download Preview] This paper examines the impact of family size on household saving. We first study a theoretical life-cycle model that includes finite lifetimes, saving for retirement, and in which parents care about the consumption of their dependent children. The model implies a negative relationship between the number of dependent children in the family and a household’s saving rate. Then, we test the model’s implications using a new data set on household finances in China. We use the differential enforcement of the one-child policy across counties to address the endogeneity between household saving and fertility decisions within a standard two-stage least squares Tobit regression. We find that Chinese families with fewer dependent children have significantly higher saving rates. The regressions also indicate that saving rates vary with age and tend to be higher for households with more workers, higher education, better health, and more assets.
Discussants:
Zhao Rong
(Southwestern University of Finance and Economics)
Jia Yuan
(University of Macau)
Steven Lugauer
(University of Notre Dame)
Yong Wang
(Hong Kong University of Science and Technology)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 20
Econometric Society
Auctions: Theory and Evidence
(A1)
Presiding:
Hugo A. Hopenhayn
(University of California-Los Angeles)
Dynamic Bidding in Second Price Auction
Maryam Saeedi
(Ohio State University)
Hugo A. Hopenhayn
(University of California-Los Angeles)
[View Abstract]
[Download Preview] We consider equilibrium bidding behavior in a dynamic second price auction where agents have the option to increase bids at random times and values follow a Markov process. We prove that equilibrium exists and is unique and give an algorithm to solve for bids as a function of time and values. Equilibrium bids equal the expected final value conditional on the bid placed being the final one, meaning that either the agent doesn't get another opportunity to rebid or chooses not to increase this bid if given the option. This results in adverse selection with respect to a bidder's own future strategy, and as a result bids are shaded relative to the bidder's expected value. This is true in spite of values being independent across bidders. Under mild conditions, desired bids increase as time increases and the close of the auction is approached. Our results are consistent with repeated bidding and sniping, two puzzling observations in eBay auctions. We estimate the model by matching moments from Ebay auctions and consider a series of counterfactuals.
How to Boost Revenues in First-Price Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions
Fabio Michelucci
(CERGE-EI)
Philippe Jehiel
(Paris School of Economics)
Peter Katuscak
(University of Economics in Prague)
[View Abstract]
[Download Preview] A long-term auctioneer who repeatedly sells identical or similar items might
disclose selective information about past bidding. We present an experimental
design to evaluate the revenue implications of two common policies: disclosure
of all past bids versus winning bids only. The analysis of our data points out
that disclosing winning bids dominates in terms of revenue generation. We
propose that when presented historical winning bids some of the bidders
mistakenly best-respond to that distribution, failing to realize that winning
bids are not representative of all bids. In the steady state, this
selection bias results in higher auction revenues relative to when
all bids are presented. On the theory side, the findings challenge the
predictive power of Bayesian Nash Equilibrium based on rational bidders (that
would yield revenue equivalence). On the market design side, they underline
the role of historical market information as a key design choice.
Robustness and Multidimensional Screening
Gabriel Carroll
(Stanford University)
[View Abstract]
We consider a robust version of a multidimensional screening problem. A monopolist sells several goods simultaneously to a buyer with additive valuation. The seller does not have a Bayesian prior over the buyer's values for the goods. Instead, she knows the marginal distribution of values for each good separately, but not the joint distribution. Any mechanism for selling the goods is evaluated by its worst-case expected revenue over all joint distributions consistent with the known marginals. We show that it is optimal to simply post a price for each good separately.
Auctions with an Asking Price
Peyman Khezr
(University of Queensland)
[View Abstract]
[Download Preview] This paper studies a sales mechanism, prevalent in housing markets, where the seller does not reveal or commit to a reserve price but instead publicly announces an asking price. We show that the seller sets an asking price such that, in equilibrium, buyers of certain types would accept it with positive probability. We also show that this sales mechanism, with an optimally chosen asking price set above the seller's reservation value, does better than any standard auction with a reserve price equal to the seller's reservation value. We then extend the analysis to the case where the asking price reveals information about the seller's reservation value. We show that in this case there is a separating equilibrium with fully-revealing asking prices, which is revenue-equivalent to a standard auction with a reserve price set at the seller's reservation value.
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 19
Econometric Society
Firms and the Aggregate Economy
(A1)
Presiding:
Ufuk Akcigit
(University of Chicago)
Entry Costs Rise with Development
Huiyu Li
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] Looking at manufacturing industries over time and across countries, the number of firms and establishments is closely tied to employment. Relative to employment, the number of businesses is at best weakly increasing in output per worker. In many models of firm dynamics, trade and growth, these facts imply that the cost of creating a new firm or plant increases sharply with productivity. This increase in entry costs can stem from rising cost of labor used in entry, as well as higher output costs of setting up a business to use more sophisticated technologies. How entry costs vary with development matters for welfare in many settings, such as in love of variety models and in span-of-control models. Our findings suggest that the welfare impact of productivity-enhancing policies is not significantly amplified through an increase in the number of firms or plants.
Lack of Selection and Limits to Delegation: Firms Dynamics in Developing Countries
Ufuk Akcigit
(University of Chicago)
Harun ALP
(University of Pennsylvania)
Michael Peters
(Yale University)
[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. To explain these differences we develop a theory, whereby contractual frictions limit firms' acquisition of managerial time. If managerial effort provision is non-contractible, entrepreneurs will benefit little from delegating decision power to outside managers, as they spend most of their time monitoring their managerial personnel. As the return to managerial time is higher in big firms, improvements in the degree of contract enforcement will raise the returns of growing large and thereby increase the degree of creative destruction. 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 efficacy of managerial delegation can explain a sizable fraction of the difference between plants' life-cycle in the US and India.
Welfare Effects of European R&D Support Policies
Otto Toivanen
(KU Leuven)
Dirk Czarnitzki
(KU Leuven)
Elena Huergo
(Universidad Complutense de Madrid)
Mila Köhler
(KU Leuven and ZEW)
Pierre Mohnen
(Maastricht University)
Sebastian Pacher
(UNU-Merit)
Tuomas Takalo
(Hanken School of Economics)
[View Abstract]
[Download Preview] We estimate the welfare effects of government support to private R&D using comparable R&D project level data from Belgium, Finland, and Germany. In a counterfactual analysis we evaluate the existing policies against alternative policies, including first best. There is considerable heterogeneity in R&D investments, R&D participation rates, spillovers, and profits across firms. Socially optimal R&D participation rates are only marginally higher than those observed in the data, suggesting that most of the benefits from activist policies come from increasing R&D in firms already doing R&D rather than from enticing new firms to start R&D. We find that activist policies increase R&D substantially, but have essentially no effect on welfare. We also find that the gap between laissez-faire and first- and second-best policies is narrow at 3-4 per cent. EU-wide innovation policy is clearly more effective than national ones.
Microeconomic Origins of Macroeconomic Tail Risks
Alireza Tahbaz-Salehi
(Columbia University)
Daron Acemoglu
(Massachusetts Institute of Technology)
Asu Ozdaglar
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We document that even though the normal distribution is a good approximation to the nature of aggregate fluctuations, it severely underpredicts the frequency of large economic downturns. We then provide a model that can explain these facts simultaneously. Our model shows that the propagation of microeconomic shocks through input-output linkages can fundamentally reshape the distribution of aggregate output, increasing the likelihood of large downturns (macroeconomic tail risks) from infinitesimal to substantial. For example, an economy subject to thin-tailed micro shocks but with “unbalanced” input-output linkages (where some sectors or firms play a much more important role than others as inputs suppliers to the rest of the economy) may exhibit deep recessions as frequently as economies that are subject to heavy-tailed shocks. This is despite the fact that a central limit theorem-type result would imply that aggregate output is normally distributed. We characterize what types of input-output linkages and distributions of microeconomic shocks lead to sizable macroeconomic tail risks, and also show how the same economic forces cause the output of many sectors to simultaneously fall by large amounts.
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 14
Econometric Society
Heterogenous Production Functions: Estimation and Applications
(A1)
Presiding:
Jeremy Fox
(University of Michigan)
Heterogeneous Firms: Skilled-Labor Productivity and Export Destinations
Jorge Balat
(Johns Hopkins University)
Irene Brambilla
(Universidad de La Plata)
Yuya Sasaki
(Johns Hopkins University)
[View Abstract]
This paper studies a systematic link between the choice of export destinations and technology differences across firms. Our setting is based on three premises: (i) firms differ in the efficiency with which they can utilize skilled labor, (ii) product quality is higher when more skilled workers are used, and (iii) high-income countries value quality more. Thus, firms that are more efficient in the use of skilled labor will tend to export to high-income destinations. The contribution of the paper is twofold. First, we propose a new production function estimation method in which the production technology is heterogeneous across firms and we show that the parameters of the production function are non-parametrically identified. The identification strategy is based on an extension of the structural control variable approach (Olley and Pakes (1996); Levinsohn and Petrin (2003)) to multi-dimensional heterogeneous parameters. We propose sample-counterpart consistent estimators of firm-specific coefficients. Second, we provide an empirical measure of “capability” of quality production and show that it is a determinant of the choice of exports, export destinations, and quality using firm-level data from Chile.
Heterogenous Production Functions, Panel Data, and Productivity Growth Accounting
Stefan Hoderlein
(Boston College)
Jeremy Fox
(University of Michigan)
Vitor Hadad
(Boston College)
Amil Petrin
(University of Minnesota)
[View Abstract]
We study the identification of the Cobb-Douglas production function where the input elasticities are treated as random coefficients. Importantly, we allow total factor productivity and the input elasticities to be correlated with observed input choices. To allow for such correlation we develop a new panel data identification strategy that does not rely on inverting unobservables from input or investment decisions, as in other methods. We show how to adjust benchmark productivity decompositions for production function heterogeneity. We revisit existing empirical conclusions from productivity decompositions with our heterogeneous productions functions.
On the Identification of Production Functions with Non Hicks Neutral Technical Change
Amit Gandhi
(University of Wisconsin-Madison)
Salvador Navarro
(University of Western Ontario)
David Rivers
(University of Western Ontario)
[View Abstract]
In this paper we show how to empirically study production functions that allow for general forms of technical differences among firms. Unlike the vast majority of empirical work that assumes technical differences among firms in an industry takes a Hicks neutral form, we allow for the scalar productivity of a firm to enter technology in a non-separable fashion. This encompasses a variety of alternative models of productivity, such as labor or capital augmenting technical change. We show how the micro econometric production function with a general productivity index index can be identified and estimated using the information in the firm’s first order condition for a static input. Unlike index number approaches to productivity that also employ a nonparametric specification of the production function and non separable productivity, our approach allows for the possibility of some inputs being quasi-fixed (most notably capital) as well as the presence of ex-post productivity shocks. We use our empirical strategy to study industry misallocation, which has been quantified typically with Cobb-Douglas and Hicks neutral technical differences.
Identification and Estimation of Production Function with Unobserved Heterogeneity
Hiroyuki Kasahara
(University of British Columbia)
Paul Schrimpf
(The University of British Columbia)
Michio Suzuki
(University of Tokyo)
[View Abstract]
[Download Preview] This paper examines non-parametric identifiability of production function when production functions are heterogenous across firms beyond Hicks-neutral technology terms. Using a finite mixture specification to capture unobserved heterogeneity in production technology, we shows that production function for each unobserved type is non-parametrically identified under regularity conditions. We estimate a random coefficients production function using the panel data of Japanese publicly-traded manufacturing firms and compare it with the estimate of production function with fixed coefficients estimated by the method of Gandhi, Navarro, and Rivers (2013). Our estimates suggest that there exists substantial heterogeneity in production function coefficients beyond Hicks neutral term. We also find that the correlation between estimated productivity and investment is different across different types of firms, where the correlation is stronger among a type of firms with capital intensive production technology than other types of firms.
Discussants:
Paul Grieco
(Pennsylvania State University)
Daniel A. Ackerberg
(University of Michigan)
Matthew Backus
(Cornell University)
Stephane Bonhomme
(University of Chicago)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 16
Econometric Society
Risk Sharing, Uncertainty and Information
(A1)
Presiding:
Raman Uppal
(Edhec Business School)
Does Household Finance Matter? Small Financial Errors with Large Social Costs
Harjoat Bhamra
(Imperial College Business School)
Raman Uppal
(Edhec Business School)
[View Abstract]
[Download Preview] Households with familiarity bias tilt their portfolios towards a few risky assets. Consequently, household portfolios are underdiversified and excessively volatile. To understand the implications of underdiversification for social welfare, we solve in closed form a model of a stochastic, dynamic, general-equilibrium economy with a large number of heterogeneous firms and households, who bias their investment toward a few familiar assets. We find that the direct mean-variance loss from holding an underdiversified portfolio that is excessively risky is a modest 1.66% per annum, consistent with the estimates in Calvet, Campbell, and Sodini (2007). However, we show that in a more general model with intertemporal consumption, this loss is amplified because it increases household consumption-growth volatility. Moreover, in general equilibrium where growth is endogenous, we show that the welfare losses of individual households are magnified further through the externality on aggregate investment and growth. We demonstrate that even when forcing the familiarity biases in portfolios to cancel out across households, their implications for consumption and investment choices do not cancel---individual household biases can have significant aggregate effects. Our results illustrate that financial markets are not a mere sideshow to the real economy and that financial literacy, regulation, and innovation that improve the financial decisions of households can have a significant positive impact on social welfare, equivalent to an increase in the expected return on aggregate wealth of over 10% per annum.
Back-Running: Seeking and Hiding Fundamental Information in Order Flows
Liyan Yang
(University of Toronto)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
We model the strategic interaction between fundamental informed trading and order-flow informed trading. Adding to a two-period Kyle (1985) model, a "back-runner" observes a signal of the fundamental informed investor's period-1 order after the order is filled. Learning from past order-flow information, the back-runner competes with the fundamental investor in period 2. If order-flow information is accurate, the fundamental investor hides her information by randomizing her period-1 trade, resulting in a mixed-strategy equilibrium. A pure-strategy equilibrium obtains if order-flow information is inaccurate. Back-running delays price discovery and reduces fundamental information acquisition. Recent evidence on high-frequency trading supports our theoretical predictions.
The Elephant in the Room: the Impact of Labor Obligations on Credit Risk
Jack Favilukis
(University of British Columbia)
Xiaoji Lin
(Ohio State University)
Xiaofei Zhao
(University of Texas-Dallas)
[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 both of the aggregate time series and the
cross sectional variations of credit risk. Recent studies have highlighted a link between credit
risk and macroeconomic/firm-level variables such as investment growth, financial leverage,
volatility, etc. We show that labor market variables (wage growth or labor share) can forecast
the aggregate credit spread as well as or better than alternative predictors. Furthermore,
firm-level labor expense growth rates and labor share can explain a substantial fraction
of cross sectional variations of changes in Moody-KMV expected default frequency (EDF)
across a wide range of countries. A model with wage rigidity can explain these links 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
have explanatory for credit risk.
Economic Policy Uncertainty and the Yield Curve
Felix Matthys
(Princeton Bendheim Center For Finance)
Markus Leippold
(Swiss Finance Institute and University of Zurich)
[View Abstract]
[Download Preview] We study the impact of economic policy uncertainty on the term structure of nominal interest rates. We develop a general equilibrium model, in which the real side of the economy is driven by government policy uncertainty and the central bank sets money supply endogenously following a Taylor rule. We analyze the impact of government and monetary policy uncertainty on nominal yields, short rates, bond risk premia, and the term structure of bond yield volatility. Our affine yield curve model is able to capture both the shape of the interest rate term structure as well as the hump-shape of bond yield volatilities. Our empirical analysis shows that higher government policy uncertainty leads to a decline in yields and an increase in bond yield volatility, whereas monetary policy uncertainty has no significant contemporaneous effect on yields nor volatilities. However, it is an important predictor for bond risk premia.
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 15
Econometric Society
Topics in Health
(A1)
Presiding:
Nicolas Robert Ziebarth
(Cornell University)
Is China's Pollution the Culprit for the Choking of South Korea? Evidence from the Asian Dust
Ruixue Jia
(IRPS)
[View Abstract]
The biggest empirical challenge to quantifying cross-border air pollution externalities is the fact that the observed pollution at a given locality cannot be easily decomposed and traced back to its originating sources when multiple countries are emitting. We propose a novel strategy based on the incidence of Asian Dust across South Korea -- a meteorological phenomenon driven by strong stable westerly wind that carries China’s pollution to South Korea -- to identify air pollution spillovers. We construct monthly and daily datasets on cause-specific mortalities and exploit the variation in the incidence of Asian Dust across 232 districts in South Korea between 2000 and 2011 as well as variations in China’s pollution. We find that the adverse health impacts of Asian Dust in South Korea get significantly amplified by China’s pollution, particularly on deaths from respiratory and heart diseases. The results are robust to various placebo tests. We compare the spillover impact of China’s pollution via Asian Dust with that of local energy production. In addition, we compare the impact of dust as a carrier of China’s pollution with that of strong winds.
Sleep and Human Capital: Evidence from Daylight Saving Time
Nicolas Robert Ziebarth
(Cornell University)
[View Abstract]
[Download Preview] This paper is one of the first to test for a causal relationship between sleep and human capital. It exploits the quasi-experimental nature of Daylight Saving Time (DST), up to 3.4 million BRFSS respondents from the US, and all 160 million hospital admissions from Germany over one decade. We find evidence of mild negative health effects when clocks are set forward one hour in spring. When clocks are set back one hour in fall, effectively extending sleep duration for the sleep deprived by one hour, sleep duration and self-reported health increase and hospital admissions decrease significantly for four days.
Do Doctors Prescribe Antibiotics Out of Fear of Malpractice?
Sebastian Panthöfer
(Universidad Carlos III de Madrid)
[View Abstract]
[Download Preview]
Doctors in the U.S. (and elsewhere) prescribe too many antibiotics. According to recent estimates, more than a quarter and up to one half of all antibiotics prescribed in U.S. ambulatory care are inappropriate (CDC 2013, Shapiro et al. 2014). The overuse of antibiotics has severe consequences. Most importantly, it promotes the growth of antibiotic resistance, which is one of the most pressing public health issues that many developed countries face today. At least two million people become infected with antibiotic-resistant bacteria in the U.S. every year, and more than 23,000 die as a direct consequence from these infections (CDC 2013). According to the Centers of Disease Control and Prevention (CDC), the best way to control antibiotic resistance is to decrease the inappropriate use of antibiotics. To achieve this goal, one must first identify the factors that lead to inappropriate prescriptions, which are still largely misunderstood.
One candidate explanation for the excessive use of antibiotics in the U.S. compared to other developed countries is the medical malpractice system. Doctors practicing medicine in the U.S. face considerable legal pressure: more than 7% of all doctors are sued every given year, and the lifetime risk of being sued is north of 75% (Jena et al. 2011). In response to this liability pressure, doctors have been found to resort to defensive medicine, i.e., to administer diagnostic tests, treatments, or medications with expected benefits below cost to protect themselves against legal proceedings (Kessler and McClellan 1996). The frequent use of antibiotics may constitute a form of defensive medicine: doctors may feel inclined to prescribe an antibiotic against their own clinical judgement because the antibiotic presents a safeguard against serious bacterial infections, which may trigger a malpractice claim if left untreated. Anecdotal evidence and physician surveys support this theory. For instance, of the 824 physicians who participated in a survey in Pennsylvania, 33% reported to prescribe more medications than medically indicated in response to liability pressure (Studdert et al. 2005). However, to date, no attempt has been made to examine the influence of liability pressure on antibiotic prescribing in actual clinical decisions.
This paper is the first to systematically examine the relationship between liability pressure and antibiotic prescriptions. Using a simple theoretical model of physician prescribing behavior, I link the effect that a tort reform has on the number of antibiotics prescribed with the clinical appropriateness of these prescriptions. The model can be used to test for whether antibiotics constitute a form of defensive medicine.
Using 19 years of data from the National Ambulatory Care Survey (NAMCS), a nationally representative sample of visits to office-based physicians in the U.S., I estimate the causal effect of liability pressure on antibiotic prescription rates with a difference-in-differences model that exploits the variation in tort law reforms across U.S. states. I allow for heterogenous responses to the malpractice environment across doctors and patients, e.g. based on the patient’s type of health insurance. Throughout the analysis, I carefully consider the possibility of legislative endogeneity.
Policy Interventions When Medical Treatment Dynamics Matter: The Case of In Vitro Fertilization
Juan Pantano
(Washington University-St. Louis)
Barton Hamilton
(Washington University)
Brian McManus
(UNC)
[View Abstract]
[Download Preview] As in many medical treatments, decision-making dynamics are central to In Vitro Fertilization (IVF), a technologically advanced infertility treatment for which patients usually pay out-of-pocket. Patients make decisions throughout a single treatment cycle as information about treatment progress is gradually revealed, and they consider the possibility of multiple cycles over time. Patients who choose more aggressive treatment actions reduce the risk of concluding a treatment without a birth, but this comes with an increased likelihood of a high-risk twin or triplet pregnancy. Several policy interventions are possible to increase IVF access or encourage patients to take more conservative treatment courses. We use data on treatment choices and outcomes at a single large IVF clinic to estimate technological processes and patient preferences in a dynamic structural model of patients choices within and across IVF treatments. The estimated model allows us to evaluate the impact of counterfactual policies to directly limit aggressive treatment, extend insurance to all potential patients, and implement new treatment processes that were unavailable in the market during our sample period. We also explore an alternative ("top-up") insurance design that forces the patient to internalize the additional expected medical costs associated with more aggressive treatment options. All policies have significant impacts at the extensive margin and within treatment, and vary substantially in their impacts on patient welfare and implementation costs.
Jan 04, 2016 10:15 am, Hilton Union Square, Powell A & B
Health Economics Research Organization
Contributed Papers in Physician Practices, Commercial Insurance, and HMO Penetration
(I1, D4)
Presiding:
J. Michael Fitzmaurice
(JMF Associates)
The Role of Organizational Factors in Explaining Variation in Inpatient Physician Practices: The Case Study of Knee and Hip Replacement Surgeries
Julie Sakowski
(Rational Answer Consulting)
Paula Song
(University of North Carolina)
[View Abstract]
Despite decades of work documenting and cataloging the variation in health care delivery and possible inefficiencies therein, it still persists. The purpose of this exploratory study is to examine the impact of organizational characteristics on inpatient physician health services production decisions. Specifically, this study takes advantage of between facility differences to explore variations in individual provider practice. We present a model outlining the proposed contextual factors that influence the result of production decisions. A fuller understanding of the factors that contribute to variation will enable us to predict the impact of policy changes and design policies that provide the correct incentives.
This assessment of the impact of organizational characteristics on individual physician practice choices focuses on two research questions:
• Do patient level costs vary within and between hospitals after controlling for patient characteristics and local price effects
• Are organization characteristics associated with physician practice variation after controlling for physician and patient characteristics.
We utilized the 2011 New York HCUP State Inpatient Discharge (SID) data linked with the American Hospital Association Hospital survey file for our analysis. The dependent variable is the inpatient cost of care associated with elective primary hip and knee replacement normalized for local price effects. Our dataset contained discharge records for 25,879 patients who had elective knee and 16,434 hip replacements as their primary procedure in 2011. Variation in hip and knee replacement costs vary among patients, between and within hospitals. This highlights the nested nature of the data: patients are treated by physicians, who are operating within hospitals. Thus, we used multilevel modeling estimations to include fixed and random effects for each of the clustering levels.
To evaluate the impact of hospital and provider characteristics on patient level costs, we performed a 3-level estimation of a random intercept model with level 1, 2 and 3 fixed covariates. The intercepts for hospital and physician were assumed to be random. To evaluate the impact of hospital characteristics on physician behavior, we used a 2 level model using physician-within-a-hospital specific mean costs as the dependent variable. Fixed effects included the mean characteristics of the physician’s patient population and key hospital characteristics. The hospital was treated as a random coefficient.
We found that there is indeed significant between hospital variation in the cost of care and that hospital characteristics impact the mean cost of providing uncomplicated knee and hip replacement procedures, even after controlling for local price effects and patient characteristics. Costs were significantly impacted by the volume of procedures performed, both by the physician and at the hospital, as well as ownership control and setting. More importantly, we found significant within hospital variation in costs. Again, hospital characteristics impacted this variation. Some variation in practice is to be expected, and appropriate, depending on patient characteristics, needs and preferences. The relationship between this variation and outcomes and drawing conclusions on what variation is ‘appropriate’ is beyond the scope of this study but will be the focus of future work.
Hospital Decision Making and Physician Alignment: The Role of the Commercial Insurance Market
Sean Huang
(Georgetown University)
Ian M. McCarthy
(Emory University)
[View Abstract]
Hospital Decision Making and Physician Alignment: The Role of the Commercial Insurance Market
HMO Penetration and Fee-For-Service Price: Is There a Connection?
Christopher Whaley
(University of California-Berkeley)
H. Edward Freck III
(University of California-Santa Barbara)
William Comanor
(University of California-Santa Barbara)
[View Abstract]
HMO Penetration and Fee-For-Service Price: Is There a Connection?
Discussants:
Joanne Spetz
(University of California-San Francisco)
Gautam Gowrisankaran
(University of Arizona)
Roger Feldman
(University of Minnesota)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 23 & 24
Industrial Organization Society
Empirics of Markets with Information and Learning
(L1, M1)
Presiding:
Kenneth Hendricks
(University of Wisconsin)
Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining
Matthew Grennan
(University of Pennsylvania)
Ashley Swanson
(University of Pennsylvania)
[View Abstract]
[Download Preview] We empirically examine the role of information in bargaining between hospitals and suppliers. Using a new data set including all purchase orders issued by over ten percent of US hospitals 2009-14, and differences-in-differences identification strategies based on both timing of hospitals' joining a benchmarking database and on new products entering the market, we find that access to information on purchasing by peer hospitals leads to reductions in prices. These reductions are concentrated among hospitals previously paying relatively high prices relative to other hospitals and for products purchased in relatively large volumes, and appear to result from solving asymmetric information problems between hospitals and their suppliers. The results have implications for the emerging role of ``information intermediaries" in business-to-business bargaining and calls for transparency in medical device pricing specifically.
Just Starting Out: Learning and Price Competition in a New Market
Ulrich Doraszelski
(University of Pennsylvania)
Greg Lewis
(Microsoft Research)
Ariel Pakes
(Harvard University)
[View Abstract]
[Download Preview] We document the evolution of the newly created market for frequency response
within the UK electricity system over a six-year period from 2005 to 2011. Firms
competed in price while facing considerable initial uncertainty about market demand
and rival behavior. We show that over time prices stabilized, converging to a rest
point that is consistent with equilibrium play. We draw on models of fictitious play
and adaptive learning to further analyze how this convergence occurs, showing that
these models t the data well and indeed outperform equilibrium analysis during the
middle two years of our data.
Bounding Equilibria in Counterfactual Analysis
Mar Reguant
(Northwestern University)
[View Abstract]
In many economic settings, counterfactual analysis can be difficult for two reasons: (i) we do not know how to compute the equilibrium of the game, or (ii) even if we know how to compute one equilibrium, the game might feature multiple equilibria, which are difficult to exhaustively characterize. I propose a new methodology to allow for counterfactual analysis even when these problems might arise. The method relies on determining valid (conservative) bounds to counterfactual outcomes that contain any outcome that could be sustained in equilibrium, i.e., any outcome that can be supported by a set of equilibrium constraints. To ensure that all potential solutions are considered, I propose to reframe equilibrium constraints as a relaxed mixed-integer linear program. I show that the framework can also be used to narrow down equilibria, by imposing additional equilibrium constraints. I provide examples related to discrete choice models and dynamic games, which exemplify how the method can be used in a practical context. I also discuss other potential applications for the methodology.
Complex Disclosure
Ginger Zhe Jin
(University of Maryland)
Michael Luca
(Harvard Business School)
Daniel Martin
(Northwestern University)
[View Abstract]
[Download Preview] From finance to automobile, many industries are mandated to disclose their business practice or product quality to the public. Such regulations often specify the areas subject to disclosure, but let businesses decide how to present the information. One important degree of freedom that businesses have is the ability to make information more or less complex. In other words, businesses choose how many hoops to make customers jump through before they can figure out important details. We explore this strategic complexity through a series of disclosure experiments. In a game with senders and receivers of a payoff-relevant piece of information, we require senders to truthfully disclose the information – but allow them to vary the complexity of the message without changing its information content. We present three main findings. First, senders with unfavorable information choose to make their disclosure more complex. Second, receivers make mistakes, presumably due to the cognitive costs of information processing. Third, receivers systematically underestimate the extent to which complexity is a strategic decision being made by senders with unfavorable information. Based on these findings, we explore a number of market and regulatory settings that may reduce complexity or help receivers fully understand strategic complexity.
Discussants:
Michael Dickstein
(Stanford University)
Marc Rysman
(Boston University)
Ali Hortaçsu
(University of Chicago)
Timothy Simcoe
(Boston University)
Jan 04, 2016 10:15 am, Parc 55, Divisadero
International Association for Energy Economics/National Association for Business Economics
The Impact of Oil Price Volatility on the Economy
(E3, Q4) (Panel Discussion)
Panel Moderator:
Mine Yucel
(Federal Reserve Bank of Dallas)
Troy Davig
(Federal Reserve Bank of Kansas City)
The Effect of Oil Price Volatility on the Macroeconomy and Monetary Policy
James Crain
(EnCap Investments L.P.)
Impact of Oil Price Volatility on Energy Investment
Otaviano Canuto
(International Monetary Fund)
Impact of Oil Price Volatility on Oil Exporting and Importing Countries
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra B
International Economics & Finance Society
International Trade, Economic Geography, and Firm Heterogeneity
(F1, F2)
Presiding:
Jeffrey H. Bergstrand
(University of Notre Dame)
Optimal City Structure
Treb Allen
(Northwestern University)
Costas Arkolakis
(Yale University)
Xiangliang Li
(Yale University)
[View Abstract]
Place-based policies comprise a significant fraction of government expenditures worldwide. Despite the popularity of such interventions, design of such policies has been an extremely challenging task, due to the variety of economic linkages across regions. We develop a general equilibrium spatial economic model with a large number of locations that nests previous models that feature trade and commuting. The model allows us to determine economic activity, labor allocations, commuting and trade patterns for any geography of trade and commuting costs. The model allows for a sharp characterization of the equilibrium properties such as existence and uniqueness. We derive analytical formulas for comparative statics, such as welfare effects. Finally, the model provides a direct mapping to spatial micro-data, which allows us to identify key parameters.
Heterogeneous Economic Integration Agreement Effects
Scott L. Baier
(Clemson University)
Jeffrey H. Bergstrand
(University of Notre Dame)
Matthew W. Clance
(University of Pretoria)
[View Abstract]
[Download Preview] Gravity equations have been used for more than 50 years to estimate ex post the partial effects of trade costs on international trade flows, and the well-known -- and traditionally presumed exogenous -- ``trade-cost elasticity'' plays a central role in computing general equilibrium trade-flow and welfare effects of trade-cost changes. This paper addresses theoretically and empirically the influence of variable and fixed export costs in explaining the likely endogenous trade-cost elasticity. We offer four potential contributions. First, using a random coefficients econometric approach, we show that the heterogeneity in various economic integration agreements' (EIAs') partial effects on trade flows far exceeds that explained simply by variation in depth of the trade liberalization. Second, we use standard Armington- and Melitz-type general equilibrium trade models to motivate theoretically the roles of variable trade costs and fixed and variable export costs, respectively, for explaining (endogenous) heterogeneous partial effects of ad valorem tariff rates on trade flows, as well as on intensive and extensive product margins (with or without network effects and with a truncated or untruncated Pareto productivity distribution in the Melitz model). Third, we show empirically that the heterogeneity in EIAs' partial effects on the intensive margin is explained well just by distance and adjacency, capturing variable trade costs; however, the heterogeneity in EIAs' partial effects on the extensive margin is explained empirically by distance and adjacency, as well as several other cultural and institutional variables, capturing variable and fixed exports costs. Fourth, in the context of a class of standard quantitative trade models, we show that such estimated heterogeneous effects can predict 85-94 percent of economic welfare effects of EIAs and can potentially predict ex ante a potential EIA's partial trade-flow effect and general equilibrium welfare effect.
Trade Integration and the Fragility of Trade Relationships: Theory and Empirics
Tibor Besedes
(Georgia Institute of Technology)
Juan Moreno-Cruz
(Georgia Institute of Technology)
Volker Nitsch
(Technische Universitat Darmstadt)
[View Abstract]
[Download Preview] We build a dynamic model of trade which allows us to study dynamic changes at both the intensive and extensive margins of trade. We show both theoretically and empirically (using 5-digit level SITC on trade for over 180 countries from 1962 to 2005) that economic integration agreements positively affect the stability of existing trade relationships, but negatively affect the stability of trade relationships which commence after an agreement is signed. Existing trade becomes more stable, while new trade becomes more fragile in the wake of an agreement. An agreement increases the growth rate of an already active trade relationship and makes it less likely to cease, while it has the opposite effect on relationships which start after the agreement. In addition, relationships which start after the agreement begin with lower values of trade than those that started before the agreement. Finally, agreements increase the rate of formation of new trade relationships between the two partner countries, likely indicating that the well-known increase in the value of trade that agreements induce is driven by extensive margin changes, rather than intensive margin changes.
Trade and Inequality: From Theory to Estimation
Elhanan Helpman
(Harvard University)
Oleg Itskhoki
(Princeton University)
Marc-Andreas Muendler
(University of California-San Diego)
Stephen J. Redding
(Princeton University)
[View Abstract]
[Download Preview] While neoclassical theory emphasizes the impact of trade on wage inequality between occupations and sectors, more recent theories of firm heterogeneity point to the impact of trade on wage dispersion within occupations and sectors. Using linked employer-employee data for Brazil, we show that much of overall wage inequality arises within sector-occupations and for workers with similar observable characteristics; this within component is driven by wage dispersion between firms; and wage dispersion between firms is related to firm employment size and trade participation. We then extend the heterogeneous-firm model of trade and inequality from Helpman, Itskhoki and Redding (2010) and structurally estimate it with Brazilian data. We show that the estimated model fits the data well, both in terms of key moments as well as in terms of the overall distributions of wages and employment, and find that international trade is important for this fit. In the estimated model, reduction in trade costs have a sizeable effect on wage inequality.
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra C
International Network for Economic Method
Economic Models and Their Use
(B4, B2)
Presiding:
D. Wade Hands
(University of Puget Sound)
Derivational Robustness, Credible Substitute Systems, and Mathematical Economic Models: The Case of Stability Analysis in Walrasian General Equilibrium Theory
D. Wade Hands
(University of Puget Sound)
[View Abstract]
[Download Preview] This paper supports the literature which argues that derivational robustness can have epistemic import in abstract economic models. The defense is based on a particular example from mathematical economic theory, the dynamic Walrasian general equilibrium model. It is argued that derivational robustness first increased and later decreased the credibility of the Walrasian model. The example demonstrates that derivational robustness correctly describes the practices of a particular group of influential economic theorists and provides support for the arguments of philosophers who have offered a general epistemic justification of such practices.
Causal Theories, Models and Evidence in Economics – Some Reflections from Biology
Michael Joffe
(Imperial College London)
[View Abstract]
[Download Preview] Models have been extensively analyzed in economic methodology, notably their degree of ability to provide explanations. This paper takes a complementary, comparative approach, focusing on biology which – like economics – studies a highly complex reality. The aim is to propose a concept of theory and theory development, distinct from models, and to discuss the theory-model relationship.
Such a theory seeks to understand phenomena by combining core concepts relating to the causal mechanism with a broad range of evidence – including mechanistic and “difference-making” evidence. It is broad and descriptive, and evolves over time, becoming modified to accommodate new findings. Examples include the germ theory of disease, the theory of evolution by natural selection, and several physiological theories. Similar theories occur outside biology too, e.g. tectonic plate theory. They are phrased in the language of causation, not mathematics. Mathematical models can then be developed relating to specific components of the theory, e.g. epidemiological models of infectious diseases, and models of physiological processes such as the biophysics of the circulation. Thus, models are nested within the broader causal theory; crucially, scientists are therefore aware of what the model omits.
Parallels do exist in economics, as in recent work on the nature and origin of money, but are atypical. Before the 2007-08 crisis, macroeconomic models notoriously assumed frictionless financial systems, obscuring problems originating in the financial sector.
Relatedly, the term “theory” is typically equated with models in economics. It tends to be based on axioms and assumptions, not on evidence as in e.g. biology – despite economists’ sophisticated and effective methods for causal inference and for testing predictions against evidence. These issues will be critically discussed in the light of the literature, including the influence of Friedman, notably his biological examples: the distribution of leaves on a tree, and the billiard player.
Uncertainty Management of Economic Modeling
Marcel Boumans
(Utrecht University)
[View Abstract]
On the science-policy interface one find advisory bodies that have to mediate between combined model-based and expertise-based knowledge on the one – scientific – side, and the demands of accurate information about the whereabouts of the economy on the other – political – side. The main tension these kinds of advisory bodies have to deal with is between the uncertain nature of scientific knowledge and the political-pragmatic requirement of factual knowledge. The main worry that induces this tension is that factual knowledge is considered to be value-neutral and so the acceptance of uncertainty as essential part of scientific knowledge would open the door for value judgements, which would endanger the scientific reputation of these advisory bodies as being neutral and independent.
To tame uncertainty, particularly in the mediation between climate science and climate-policy protocols and agreements, uncertainty management guidance systems have been developed. These guidance systems entail a framework that provides a uncertainty typology to manage uncertainty in an advisory body with the aim of improving its communication about uncertainty to its stake holders. So far they have only been used to define a standard vocabulary and have been studied as such. But these uncertainty management systems influence methodology, that is, the model design and the way these models will be validated. This paper will discuss a specific case in economics of this interaction between an uncertainty management guidance system and methodology, namely the current debates about this interaction at the CPB Netherlands Bureau for Economic Policy Analysis.
The Mosteller-Nogee and Davidson-Suppes-Siegel Experiments to Measure the Utility of Money
Ivan Moscati
(Insubria University)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper explores the relationships between economics and psychology in the 1940s and 1950s by investigating the origin, the content, and the influence on economic analysis of two experiments on individual decision making performed in that period, namely by Frederick Mosteller and Philip Nogee, and by Donald Davidson, Patrick Suppes, and Sidney Siegel.
Both experiments had the same goal and overall structure: they aimed at measuring the utility of money of a number of individuals on the basis of their preferences between gambles where small amounts of real money were at stake. Both experiments relied on expected utility theory (EUT), and the utility measures they generated provided an indirect test for EUT’s validity.
Davidson, Suppes, and Siegel took into account some aspects of the psychology of decision that had been neglected by Mosteller and Nogee in order to neutralize them and thus obtain more reliable utility measures. Both groups of experimenters concluded that their findings supported the experimental measurability of utility as well as EUT.
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 3 & 4
Korea-America Economic Association
Market Design Approach to School Choice
(C7, D4)
Presiding:
Jinwoo Kim
(Seoul National University)
Integrating Schools for Centralized Admissions
Bumin Yenmez
(Carnegie Mellon University)
Mehmet Ekmekci
(Boston College)
[View Abstract]
[Download Preview] As school districts integrate charter schools for centralized admissions in Denver, New Orleans, Newark and Washington D.C., some charter schools have stayed out of the system. This is counterintuitive as centralized clearinghouses are deemed beneficial to schools as well as students. We provide a new framework to study the incentives of a school to join a clearinghouse and we show that each school prefers to remain out of the system when others join it for the standard mechanisms used in practice for student assignment. Therefore, our analysis provides an explanation of why some charter schools have evaded the clearinghouse. To overcome this issue, we propose two schemes that can be used by policymakers to incentivize schools to join the system, which achieves the desired integration of schools to the clearinghouse.
Promoting School Competition Through School Choice: A Market Design Approach
John William Hatfield
(McCombs School of Business, University of Texas at Austin)
Fuhito Kojima
(Stanford University)
Yusuke Narita
(Massachusetts Institute of Technology)
[View Abstract]
We study the effect of different school choice mechanisms on schools’ incentives for quality improvement. To do so, we introduce the following criterion: A mechanism respects improvements of school quality if each school becomes weakly better off whenever that school improves, i.e., becomes more preferred by students. We first show that neither any stable mechanism nor mechanism that is Pareto efficient for students (such as the Boston and top trading cycles mechanisms) respects improvements of school quality. Nevertheless, for large school districts, we demonstrate that any stable mechanism approximately respects improvements of school quality; by contrast, the Boston and top trading cycles mechanisms fail to do so. Our simulations show that, even for small markets, stable mechanisms almost always respect improvements while the other two mechanisms frequently violate it. Thus, a stable mechanism may provide better incentives for schools to improve themselves than the Boston and top trading cycles mechanisms.
Minimal Envy Efficient Assignment Mechanisms: The Design of New Orleans OneApp
Atila Abdulkadiroglu
(Duke University)
Yeon-Koo Che
(Columbia University)
Parag A. Pathak
(Massachusetts Institute of Technology)
Alvin E. Roth
(Stanford University)
Olivier Tercieux
(Paris School of Economics)
[View Abstract]
The Top Trading Cycles mechanism emerges as a desirable solution in various market design applications. Yet recommendations are made without any rigorous foundation for the role priorities play in assignment. We explain that role by showing that there is a well-defined sense in which the Top Trading Cycle mechanism is (one of) the most stable mechanism among all Pareto-efficient and strategy-proof mechanisms. While, Pareto-efficiency, stability and strategy-proofness are three incompatible criteria, it is known that Gale and Shapley's individual proposing mechanism is the most efficient among stable and strategy- proof mechanisms. Hence, our main result completes the picture and shows that the Top Trading Cycle mechanism is (one of) the most stable among Pareto-efficient and strategy-proof mechanisms.
A Robust Redesign of High School Match
Sam Ilmyoung Hwang
(University of British Columbia)
[View Abstract]
[Download Preview] Many school districts collect students’ preference rankings over schools and assign as many as possible to their ”reported” favorites. However, this well-intended assignment policy, or the Boston mechanism, creates incentives for preference manipulations. I propose a method to partially identify and estimate the preference parameters with manipulated preferences. The method can accommodate flexible forms of heterogeneity in students’ ability to manipulate. Estimates are used to compare the Boston mechanism with a strategy-proof mechanism, Deferred Acceptance. While the ex-ante welfare is higher under the Boston mechanism, naive students are more likely to be assigned to lesser favorite schools than sophisticated students.
Discussants:
Youngwoo Koh
(Hanyang University)
Jinwoo Kim
(Seoul National University)
Yinghua He
(Toulouse School of Economics)
Soohyung Lee
(University of Maryland)
Jan 04, 2016 10:15 am, Parc 55, Balboa
Labor & Employment Relations Association
Assessing the Impact of the Minimum Wage
(J3)
Presiding:
Sylvia Allegretto
(University of California-Berkeley)
Early Evidence on the Impact of Seattle's Minimum Wage Ordinance
Jacob Vigdor
(University of Washington)
[View Abstract]
[Download Preview] This paper provides an overview of Seattle’s 2014 ordinance mandating a gradual increase to a $15 minimum wage. It then outlines a research agenda for a comprehensive evaluation of the effects of this ordinance, to be executed concurrently with the phase-in period. The evaluation is using original data on area prices, and on employer and worker perspectives, as well as secondary survey and state administrative data. This paper presents results from a series of investigations of consumer prices, including intensive field collection from grocery stores and small businesses. Most investigations use difference-in-difference methodology comparing trends in Seattle to those in nearby jurisdictions. Results show no statistically significant impact of Seattle’s initial increase to an $11 minimum wage on consumer prices, though estimates are imprecise enough to be consistent with the small positive effects observed in other studies.
Credible Research Designs for Minimum Wage Studies: A Response to Neumark, Salas and Wascher
Sylvia Allegretto
(University of California-Berkeley)
Arindrajit Dube
(University of Massachusetts-Amherst)
Michael Reich
(University of California-Berkeley)
Ben Zipperer
(Washington Center for Equitable Growth)
[View Abstract]
[Download Preview] We assess the Neumark, Salas and Wascher (NSW) critique of our minimum wage findings. Recent studies, including one by NSW, obtain small employment elasticities for restaurants, -0.06 or less in magnitude. The substantive critique in NSW thus centers primarily upon teens. Using a longer (1979-2014) sample than used by NSW and in our own previous work, we find clear evidence that teen minimum wage employment elasticities from a two-way fixed-effects panel model are contaminated by negative pre- existing trends. Simply including state-specific linear trends produces small and statistically insignificant estimates (around -0.07); including division-period effects further reduces the estimated magnitudes toward zero. A LASSO-based selection procedure indicates these controls for time-varying heterogeneity are warranted. Including higher order state trends does not alter these findings, contrary to NSW. Consistent with bias in the fixed-effects estimates from time-varying heterogeneity, first difference estimates are small or positive. Small, statistically insignificant, teen employment elasticities (around -0.06) obtain from border discontinuity design with contiguous counties. Contrary to NSW, such counties are more similar to each other than to other counties. Synthetic control studies also indicate small minimum wage elasticities (around -0.04). Nearby states receive significantly more weight in creating synthetic controls, providing further support for using regional controls. Finally, NSW’s preferred new matching estimates are plagued by a problematic sample that mixes treatment and control units, obtains poor matches, and shows the largest employment drops in areas with relative minimum wage declines.
The Feasibility of a $12.50 Federal Minimum Wage
Lawrence Mishel
(Economic Policy Institute)
John Schmitt
(Center for Economic and Policy Research)
[View Abstract]
[Download Preview] David Cooper, Lawrence Mishel, and John Schmitt, “The Feasibility of a $12.50 Federal
Minimum Wage”. We assess the feasibility of raising the federal minimum wage to $12.50 per
hour by 2020, using a range of standard of living and wage distribution related benchmarks
with a particular emphasis on making comparisons of 2020 to the high-water mark of the
federal minimum wage in 1968. We focus primarily on the usefulness of the Kaitz index
for setting minimum wages at the federal level. We also demonstrate that there has been
substantial compression since 1968 in the distribution of state median wages, suggesting
that any given federal minimum wage would have less “bite” today than it did in the past.
Discussants:
William Spriggs
(Howard University)
Sylvia Allegretto
(University of California-Berkeley)
Jan 04, 2016 10:15 am, Parc 55, Davidson
Labor & Employment Relations Association
Income and Wealth Inequality: Recent Empirical Research
(J3)
Presiding:
Kevin Hallock
(Cornell University)
Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?
Edward Nathan Wolff
(New York University)
[View Abstract]
I look at wealth trends from 1962 to 2013. Asset prices plunged between 2007 and 2010 but
then rebounded from 2010 to 2013. The most telling finding is that median wealth plummeted
by 44 percent over years 2007 to 2010, almost double the drop in housing prices, and by
2010 was at its lowest level since 1969. The inequality of net worth, after almost two decades
of little movement, was up sharply from 2007 to 2010. Relative indebtedness expanded from
2007 to 2010, particularly for the middle class, though the proximate causes were declining
net worth and income rather than an increase in absolute indebtedness. In fact, the average
debt of the middle class fell by 25 percent in real terms. The sharp fall in median net worth
and the rise in overall wealth inequality from 2007 to 2010 are traceable to the high leverage
of middle class families and the high share of homes in their portfolio. The racial and ethnic
disparity in wealth holdings widened considerably in the years between 2007 and 2010.
Hispanics, in particular, got hammered by the Great Recession in terms of net worth and net
equity in their homes. Young households (under age 45) also got pummeled by the Great
Recession, as their relative and absolute wealth declined sharply from 2007 to 2010. Rather
remarkably, there was virtually no change in median (and mean) wealth from 2010 to 2013
despite the rebound in asset prices, presenting a new puzzle. The proximate cause was
the high dissavings of the middle class. Rela indebtedness fell for the middle class as
outstanding debt continued to drop. Wealth uality and the racial and ethnic wealth gap
also remained largely unchanged, though there was some recovery of the net worth of young
households.
Winner Take All in Baseball? The Effects of Career Interruptions
David Cameron Phillips
(Hope College)
Brennan Mange
(Hope College)
[View Abstract]
[Download Preview] Do superstars receive dramatically larger incomes because they are dramatically more
productive or simply because luck has placed them at the top? Using data on the careers
and productivity of Major League Baseball players subject to the Vietnam War draft, we
find that negative shocks early in a potential superstar’s career dramatically diminish
labor market success. Birthdates chosen in the draft produce 17% fewer players who
eventually make the major leagues. Such effects are strongest at the top: all ten of the
ten most productive players of the era were born on undrafted birthdates. However, the
draft appears to matter precisely because drafted players are less productive. Players
born on drafted birthdates who make it to Major League Baseball produce 44% fewer wins
than those born on undrafted days, a gap that persists throughout their careers. Thus,
the underrepresentation of drafted men among Major League Baseball players reflects
differences in productivity. The large magnitude of the effects we observe, the relatively low
probability that a drafted individual served in the military, the direct effect on productivity
conditional on making the major leagues, a lack of similar effects in a league with a career
structure that shielded players from the draft, and concentration of the effects among junior
college graduates all suggest that career interruptions more generally, rather than military
service per se, drive our results. The similari etween the career paths of baseball players
and other salient superstars, such as investm bankers, suggests that our results have
implications for superstar labor markets more generally. Thus, we find that the identities
of the winners in a superstar labor market appear highly contingent, depending on random
shocks to early career experience, but these shocks matter precisely because the labor
market efficiently sifts for the most productive workers.
Cyclicality in Top Incomes: The Rise of the High-Beta Rich Reconsidered
Kevin W. Capehart
(American University-Paris)
[View Abstract]
Previous studies have claimed that, as top incomes became more concentrated over<br />
recent decades, top incomes also became more cyclical. That concurrent increase in the<br />
concentration and cyclicality of top incomes has been called "the rise of the high-beta<br />
rich" and it suggests that greater rewards to those at the top of the income distribution<br />
may be just deserts for bearing more risk. This paper reconsiders claims of a rise of the<br />
high-beta rich by applying a misspecification perspective to previous studies. The apparent<br />
increase in the cyclicality of top incomes is an artifact of the increase in the concentration<br />
of top incomes, this paper argues. Thus, greater rewards to those at the top of the income<br />
distribution do not appear to be justified by greater risk-bearing.
Union Power and Inequality
Florence Jaumotte
(International Monetary Fund)
Carolina Osorio
(International Monetary Fund)
[View Abstract]
[Download Preview] We look at the role of labor market institutions in explaining the increase in both gross and net income inequality in advanced economies since the early 1980s. Our main finding is a surprisingly strong relation between the decline in union density and the rise in top decile
income shares. The relation appears largely causal and suggests that unionization matters for income distribution through a multiplicity of channels. Our results also suggest that a reduction in the minimum wage relative to the median raises inequality.
Discussants:
David Card
(University of California-Berkeley)
Kevin Hallock
(Cornell University)
Jan 04, 2016 10:15 am, Marriott Marquis, Pacific J
National Association of Forensic Economics
Methods in Forensic Economics
(K1, D1)
Presiding:
Lane Hudgins
(Lane Hudgins Analysis)
Reflections on the Methods of Forensic Economists in Light of the 2015 NAFE Survey Results
Michael Brookshire
(Brookshire Barrett & Associates, LLC)
Michael Luthy
(Bellarmine University)
David Rosenbaum
(University of Nebraska-Lincoln)
David Schap
(College of the Holy Cross)
Frank Slesnick
(Bellarmine University)
[View Abstract]
Reflections on the Methods of Forensic Economists in Light of the 2015 NAFE Survey Results
Maternal Household Services and Children
Charles Baum
(Middle Tennessee State University)
James Rodgers
(Pennsylvania State University)
[View Abstract]
[Download Preview] Forensic economists in wrongful death cases are often asked to calculate the present
value of household services a decedent otherwise would have provided. In this paper,
we calculate the amount of time mothers allocate to provide household services on
average by the age of the youngest child and by the number of children using 2003-
2013 American Time Use Survey (ATUS) data. Our results show that mothers with
younger children and more children generally allocate more time for household
services. We also calculate the extent to which failing to adjust for the age and number
of children may underestimate or overestimate the pecuniary value of maternal
household services. The information we provide will allow economists to adjust for the
age of the youngest household child and for the number of children when calculating
the present value of lost household production in wrongful death cases involving
deceased mothers. This information also allows an assessment of the size of the error,
if any, that arises from using the Dollar Value of a Day tables to estimate the loss of
household services, in comparison to the loss using ATUS data more closely tailored to
the case at hand.
Issues in Using the American Time Use Survey to Value Household Production
Jay Stewart
(U.S. Bureau of Labor Statistics)
[View Abstract]
Issues in Using the American Time Use Survey to Value Household Production
Discussants:
Craig Allen
(Commonwealth Research Group, Inc.)
Robert Thornton
(Lehigh University)
Kevin E. Cahill
(Boston College)
Jan 04, 2016 10:15 am, Hilton Union Square, Van Ness Room
National Economic Association
Issues in African Development
(O1, F5)
Presiding:
Mthuli Ncube
(University of Oxford)
Are Bilateral and Multilateral Aid for Trade Complementary? Accounts from Africa
Bedassa Tadasse
(University of Minnesota-Duluth)
Elias Shukralla
(Qatar University)
Bichaka Fayissa
(Middle Tennessee State University)
[View Abstract]
[Download Preview] Using data on aid for trade (AFT) inflows and a recent comprehensive estimates of bilateral trade costs data, we employ a multi-level mixed effects model and investigate: (1) the effect of AFT on bilateral trade costs, and (2) whether AFT from bilateral and multilateral sources complement each other in increasing the trade performances of recipients. In doing so, we distinguish among three pairs of trading partners: Recipients-and-Recipients, Recipients-and-Donors, and Recipients- and-Non-recipient-non-donor countries. Examining data spanning the years 2002 to 2012, we find a robust evidence indicating that AFT reduces bilateral trading costs of the recipients, more so among themselves than with donors. While we also find evidence indicating AFT from multilateral sources complements AFT from bilateral sources in increasing the trade performances of the recipients, we find considerable differences when comparing the observed effects across recipients in Africa with recipients in other regions. Taking into account these differences, we discuss the broader policy implications of our findings for increasing the effectiveness AFT in developing countries general, and African countries, in particular.
Do Public-Private Infrastructural Investments Promote Long-Run Economic Growth? Evidence from Africa Countries
Christian Nsiah
(Baldwin Wallace University)
[View Abstract]
[Download Preview] This paper addresses whether public and private infrastructure investments promote long-run economic growth using panel data taken from the World Bank’s Economic Indicators (WDI) for a cross-section of 50 African countries spanning from 1995 to 2012. As measures of infrastructure, we use transportation (TRANS), improved access to sanitation (SANI), access to clean water (WATER), communication infrastructure (COMMU), and electricity infrastructure (ELEC) indices each of which ranges from 0 to 100 (with 100 denoting robust infrastructure investments). We employ factor analysis to construct the above listed uncorrelated 5 broad infrastructure indices from a series of factors representing infrastructure investments. The panel unit-root test results show that the economic growth variable and the infrastructure indices are stationary in levels and first difference and they also exhibit long-run stable relationship as revealed by the Westerlund’s (2007) Error-correction model for panel data co-integration tests. Using Panel Fully Modified OLS (PFMOLS) model, we demonstrate that infrastructure investment indices have a positive and significant effect on the economic growth of African countries. Specifically, we find a bi-causal relationship between transportation, sanitation, communication, and electricity infrastructure and economic growth. On the other hand, we find a unidirectional impact of access to clean water on the economic growth of African countries in the sample. Finally, we find positive and significant long-run response of economic growth (elasticity) to all the measures of infrastructure indices in this study, except for the case of electricity generation capacity while controlling for the conventional sources of economic growth.
The Effects of Aid on Foreign Direct Investments in Africa and Other Regions
Tony Addison
(UNU-WIDER)
Mina Baliamoune-Lutz
(University of North Florida)
[View Abstract]
[Download Preview] We explore the effects of foreign aid on FDI in a large number of aid-recipient countries using data since the mid-1980s. We control for the various determinants of FDI and we specifically include the interplay of aid with social cohesion and the interplay of aid with human capital. The empirical results from dynamic GMM estimations indicate that the independent impact of aid on FDI is negative in sub-Saharan Africa (SSA) and Latin America (LAC) and positive in other regions. Aid in countries with high levels of human capital discourages FDI, implying that human capital and FDI are substitutes. The interplay of aid and social cohesion in SSA and LAC has an inverted-U relationship with FDI, implying diminishing returns to social cohesion in these two regions. On the other hand, the effects from the interplay of aid and social cohesion in other regions have a U shape, implying the presence of a threshold effect to social cohesion. Interestingly, once we control for human capital, aid, and social cohesion, we do not find strong evidence of a significant role of governance. We discuss the policy implications of these findings.
Exports, Foreign Ownership and Firm-level Efficiency in Ethiopia and Kenya: An Application of Stochastic Frontier Model
Adugna Lemi
(University of Massachusetts-Boston)
Ian Wright
(Syracuse University)
[View Abstract]
[Download Preview] Using the World Bank Enterprise Surveys data for Ethiopia (2006 and 2011) and Kenya (2007 and 2013), this study empirically investigates the significance of exports and foreign ownership in influencing firm-level efficiency. We estimate a standard Cobb-Douglas production function using Stochastic Frontier Analysis. In addition to the two variables of interest, we control for firm characteristics, including firm size, type of industry, innovation activity, and employees’ characteristics in our efficiency analysis. The results of the study show that, in both Ethiopia and Kenya, exporting helps firms lower technical inefficiency, whereas higher share of foreign ownership has the expected sign but not statistically significant. The results also confirm that, in both countries, smaller firms and firms that employ temporary workers for a longer periods of time tend to be less efficient. For Kenyan firms, experience of managers of a firm helps to lower technical inefficiency, however, innovation activities within a firm tends to raise inefficiency; whereas for the case of Ethiopian firms experience of managers lowers efficiency, albeit weakly, and innovation activities do not appear to affect firm efficiency. Our robustness analysis on the nexus between exporting and productivity confirms that one-size-fits-all causal relationship is not valid. We conclude that policy-makers in Ethiopia and Kenya should look into these key variables in designing appropriate policy to improve firm efficiency in their endeavor for industrialization.
Returns to Controlling a Neglected Tropical Disease: Schistosomiasis Control Program and Education Outcomes in Nigeria
Francis Makamu
(Oklahoma State University)
[View Abstract]
[Download Preview] This paper investigates the impact of the schistosomiasis control program on school-aged children education outcomes. The contribution of the paper is to carefully document the one dimension—education outcomes—of controlling endemic diseases in low income settings. Using the rollout of the schistosomiasis control program in Nigeria as a quasi-experiment, we estimate that children who benefited from the disease control program were 16 percentage points more likely to be enrolled in school and have completed 0.642 more years of education compared to children who have not benefited of the program.
Discussants:
Gbadebo Odularu
(Forum for Agricultural Research in Africa)
Bamidele Adekunle
(University of Guelph & Ryerson University)
Collins A. Koko Ayoo
(Carleton University)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 25
Omicron Delta Epsilon
Omicron Delta Epsilon Graduate Student Session
(A1, E1)
Presiding:
Alan P. Grant
(Baker University)
Aid, Policies and Growth: Revisiting with New Data
Shaomeng Jia
(Mississippi State University)
[View Abstract]
[Download Preview] Burnside and Dollar [BD, 2000] in their work conclude that international aid favors growth in presence of a good policy environment. As influential as this paper, it has been challenged by scholars like Easterly, Levine and Roodman[ELR, 2004] that BD s conclusion is not robust with updated data. To further investigate the inconclusive literature, we collect data from the same resources as BD[2000] and ELR[2004] claim, update the database to 1966-2012, and add up more country observations. With the new dataset, we perform tests under the same specification as BD[2000] and ELR[2004]. Preliminary results from all three periods- 1970-1993|1970-1997, 1990-2012 and 1966-2012 uniformly support ELR that, aid is not effective even in a good policy environment.
Co-Movements Between the Real Economy and Financial Markets
Lyudmyla Kompaniyets
(Washington State University)
[View Abstract]
[Download Preview] In the long term, there is substantial linkage between economic growth and the performance of financial markets. This paper aims to capture such co-movements between the real economy and financial markets in the past decades. It provides long-term investors useful guidance on how to select their investment portfolios based on related economic variables. The investigation of co-movements among financial instruments helps investors with risk hedging by avoiding co-moved instruments in their portfolios. In our paper, we implement a dynamic factor model to capture unobserved co-movements between economic variables and financial benchmark securities over the period of 1987-2014. The results of the multi-factor model show high correlation between the financial market and the real economy. Bond indexes appear highly co-moved with economic variables. The stock market shows significant co-movement both with the economic variables, and within the stock market itself. This study provides a comprehensive evidence of broad long-term co-movement between a set of financial market and macroeconomic variables. Without trying to predict the future, it provides useful information for long-term investors about the past trends in financial market and the amount of risk associated with long-term investments. This study fills the gap in the existing literature and shows the presence of common factor that affects both financial markets and real economy.
The Three Factors of Increasing Income Inequality in the United States
Shirin Mollah
(Claremont Graduate University)
[View Abstract]
This research investigates three important factors of increasing income inequality in the United States. The three factors are globalization, technical change, and education. We investigate each factor to find the major factor of increasing income inequality in the United States. We find that each one contributes to income inequality in different ways. Both globalization and technical change result in a demand for higher educated or skilled individuals in the United States. This has led us to further investigate how education affects income inequality. The factors of education that we investigate are socioeconomic status, inherited genetic ability, credit markets, and incomplete information. All of these factors play a role in educational attainment. We find that socioeconomic status and inherited genetic ability are the most significant factors of educational attainment. In conclusion, this research finds that education is the major factor of increasing income inequality in the United States.
Discussants:
Shirin Mollah
(Claremont Graduate University)
Shaomeng Jia
(Mississippi State University)
Lyudmyla Kompaniyets
(Washington State University)
Jan 04, 2016 10:15 am, Parc 55, Powell I
Peace Science Society International
The Nature of Conflict
(F5)
Presiding:
Solomon W. Polachek
(State University of New York-Binghamton)
The Nature of Conflict
Cemal Eren Arbatli
(NRU Higher School of Economics)
Quamrul H. Ashraf
(Williams College)
Oded Galor
(Brown University)
[View Abstract]
[Download Preview] This research establishes that the emergence, prevalence, recurrence, and severity of intrastate conflicts in the modern era reflect the long shadow of prehistory. Exploiting variations across national populations, it demonstrates that genetic diversity, as determined predominantly during the exodus of humans from Africa tens of thousands of years ago, has contributed significantly to the frequency, incidence, and onset of both overall and ethnic civil conflict over the last half-century, accounting for a large set of geographical and institutional correlates of conflict, as well as measures of economic development. Furthermore, the analysis establishes the significant contribution of genetic diversity to the intensity of social unrest and to the incidence of intragroup factional conflict. These findings arguably reflect the contribution of genetic diversity to the degree of fractionalization and polarization across ethnic, linguistic, and religious groups in the national population; the adverse influence of genetic diversity on interpersonal trust and cooperation; the contribution of genetic diversity to divergence in preferences for public goods and redistributive policies; and the potential impact of genetic diversity on economic inequality within a society.
Export Crops and Civil Conflict
Benjamin Crost
(University of Illinois)
Joseph Felter
(Stanford University)
[View Abstract]
Many developing country governments and international experts see high-value agricultural exports, such as fruits and vegetables, as an important opportunity for economic growth and poverty reduction. Little is known, however, about the effects of agricultural exports in fragile and conflict-affected countries. We exploit movements in world market prices combined with geographic variation in crop intensity to provide evidence that increases in the value of two agricultural export crops – bananas and sugar – led to increases in the intensity of civil conflict in the Philippines. Importantly, we show that market structure matters: the effect is large for bananas of the Cavendish variety, which are grown for highly concentrated export chains, but small and statistically insignificant for varieties that are grown for decentralized domestic markets. Our results are consistent with anecdotal evidence that armed insurgent groups fund themselves by extorting large agricultural export firms, and robust to instrumenting the world banana price with rainfall in Ecuador, the world’s largest banana exporter. We find no evidence that conflict is affected by the value of the country’s two most important staple crops – rice and maize – which are almost entirely consumed in the domestic market.
How Does Stalemate Affect Military Spending? Theory and Evidence
Jun Xiang
(Rutgers University)
Raul Caruso
(Catholic University of the Sacred Heart)
[View Abstract]
The paper utilizes a game theory model to show how negotiation stalemates affect military spending.
Terrorism and Philanthropy: The Effect of Terror Attacks on the Scope of Giving by Individuals and Households
Claude Berrebi
(Hebrew University)
Hanan Yonah
(Hebrew University)
[View Abstract]
Behavioral reactions to terrorism may be displayed in different ways. While some individuals react by holding back on their financial and charitable activities following stressful events, others may express more generosity by increasing their giving due to solidarity and empathy with the victims, or out of heightened nationalism and patriotism. Using a longitudinal analysis of the Israeli-Palestinian conflict as a case study to uncover the relations between terrorism and philanthropic behavior, we find that terror attacks considerably increase the scope of giving by individuals and households. Our empirical approach relies on a unique panel data set of 152,731 tax itemizer philanthropists and terrorism data from 1999 to 2011. The results are statistically significant and robust across a multitude of model specifications. Furthermore, we use a novel instrumental variable approach to identify a causal link and address potential endogeneity concerns. This study is, to the best of our knowledge, the first attempt to empirically identify and quantify the effect of sequential terror attacks on philanthropy over a relatively long period using detailed micro-level information.
Discussants:
Tirthatanmoy Das
(University of Central Florida)
Ritam Chaurey
(State University of New York-Binghamton)
Carlos Seiglie
(Rutgers University)
Ariel Belasen
(Southern Illinois University)
Jan 04, 2016 10:15 am, Hilton Union Square, Union Square 1 & 2
Society for Economic Dynamics
Multiple Equilibria in Models of Sovereign Debt
(F3, G1)
Presiding:
Luigi Bocola
(Northwestern University)
International Reserves and Rollover Risk
Javier Bianchi
(University of Wisconsin)
Juan Carlos Hatchondo
(Indiana University)
Leonardo Martinez
(International Monetary Fund)
[View Abstract]
This paper provides a theoretical framework for quantitatively investigating the optimal accumulation of international reserves as a hedge against rollover risk. We study a dynamic model of endogenous default in which the government faces a tradeoff between the insurance benefits of reserves and the cost of keeping larger gross debt positions. A calibrated version of our model is able to rationalize large holdings of international reserves, as well as the procyclicality of reserves and gross debt positions. Model simulations are also consistent with spread dynamics and other key macroeconomic variables in emerging economies. The benefits of insurance arrangements and the effects of restricting the use of reserves after default are also analyzed.
Maturity and Indeterminacy in Sovereign Debt Models
Mark Aguiar
(Princeton University)
Manuel Amador
(Federal Reserve Bank of Minneapolis)
[View Abstract]
We study the role of bond maturity in generating multiple equilibria in the Eaton-Gersovitz model of sovereign debt. In the case of one-period debt, the Eaton-Gersovitz model features a unique equilibrium, as recently shown by Auclert and Rognlie (15). We show that, when the government is more impatient than foreign financial markets, for intermediate levels of maturity there exist at least two equilibria. One of the equilibria features a high bond price and low level steady state debt. The other features a low bond price and a high level of steady state debt. We discuss how distinct elasticities of the bond price to the quantity of debt issued are key in generating the multiplicity. Relatedly, we show that proposed policy interventions to mitigate the effect of self-fulfilling debt crises can backfire because, although they target the level of the bond price, they also inadvertently change its elasticity.
Sovereign Debt Crises
Mark Aguiar
(Princeton University)
Satyajit Chatterjee
(Federal Reserve Bank of Philadelphia)
Hal Cole
(University of Pennsylvania)
Zachary Stangebye
(University of Notre Dame)
[View Abstract]
In this paper we consider a model of sovereign debt crisis. We take a crisis to mean a large increase in the interest rate spread on government debt. The model features endogenous sovereign default and allows for a variety of shocks including growth, risk premia and belief shocks. We use this model to try and account for a number of key facts in the data including: (1) the relatively weak relationship between growth shocks and debt crises, (2) high and time-varying risk premia, and (3) substantial delivering in response to high spreads. A key component in accounting for the data are the possibility of self-fulfilling liquidity or rollover crisis.
Indeterminacy in Sovereign Debt Market: A Quantitative Analysis
Luigi Bocola
(Northwestern University)
Alessandro Dovis
(Pennsylvania State University)
[View Abstract]
In this paper we use a benchmark model of sovereign debt to quantify the importance of non-fundamental risk in driving interest rate spreads during the euro-area sovereign debt crisis. Our model features debt maturity choices, risk averse lenders and rollover crises a la Cole and Kehoe (2000). In this environment, lenders' expectations of a default can be self-fulfilling, and their beliefs contribute to variation in interest rate spreads along with economic fundamentals. We show that maturity choices of the government are informative about the prospect of a future self-fulfilling crisis. The government can reduce the occurrence of these inefficient runs by lengthening the maturity of its debt. Hence, when rollover problems are pressing, we should observe an increase in debt maturity. After fitting the model to observed maturity choices, we find that rollover risk accounts on average for 23% of Italian interest rate spreads during the episode, 14% in 2012:Q2. Our results have implications for the effects of liquidity provisions like the OMT program announced by the European Central Bank during the summer of 2012.
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra H
Society for the Advancement of Behavioral Economics
Herbert Simon. Commemorating the Centenary of Simon’s Birth
(B3, Y8)
Presiding:
Leslie Marsh
(University of British Columbia)
Towards a Rational Theory of Heuristics
Gerd Gigerenzer
(Max Planck Institute for Human Development)
[View Abstract]
[Download Preview] Herbert Simon asked: how do human beings reason when the conditions for rationality postulated by neoclassical economics are not met? The answer to this question, the study of bounded rationality, has been interpreted as merely descriptive, and sometimes even as constructing a list of reasoning errors. In contrast, I ask whether the study of bounded rationality, understood as the analysis of behavior in situations where optimization is out of reach (i.e., uncertainty, not risk), can be more than just a description of the heuristics people use. Can the study of heuristics and their ecological rationality tell us what we ought to do under uncertainty?
Herbert Simon and Agent-Based Computational Economics
Shu-Heng Chen
(National Chengchi University-Taipei)
[View Abstract]
[Download Preview] A reflection of the recent development of agent-based computational economics (ACE) in light of Simon’s pioneering work on complex system (Simon, 1962). We begin with a review of the essences of Simon’s view of a complex system, and then address what are the essences that have been well demonstrated in the current agent-based economic models, and what have not. Through this review, we shall point out that, the complex system as demonstrate by the agent-based computational economics is not quite the same as Simon’s view of complex system. Among many causes for the existence of this gap, one essential missing ingredient in ACE is near-decomposability or modularity. We then conclude this chapter by addressing the fundamental challenges for bridging the gap.
The Sciences of the Artificial and the Art of Creativity
Subrata Dasgupta
(University of Louisiana-Lafayette)
[View Abstract]
Herbert A. Simon’s The Sciences of the Artificial is to the realm of artifacts (in the widest sense of the word, meaning that which is made) what Thomas S. Kuhn’s The Structure of Scientific Revolutions is to the natural world. If Kuhn’s Structure shaped a new theory about how natural scientists understand the natural world, so also Simon’s Sciences framed a new theory about how ‘scientists of the artificial’ – engineers, technologists, designers, planners, clinicians, policy makers, administrators – make and understand the artificial world. One of the most intriguing consequences of Sciences is that it has offered the nucleus of a paradigm for the study of creativity – not only in the sciences (where Kuhn’s Structure also has deep relevance) but in all realms of creativity. In this essay I discuss how Sciences of the Artificial contribute to this paradigm, the shape of the paradigm itself and how it has gone beyond Sciences, and how it has been (or can be) applied to shed light on human creativity.
Multiple Equilibria, Bounded Rationality, and the Indeterminacy of Economic Outcomes
Morris Altman
(University of Newcastle)
[View Abstract]
In the conventional economic wisdom the notion of unique equilibria that are efficient and Pareto Optimal dominates the modeling discourse. Hebert Simon proposed an alternative analytical framework where the notion of multiple and sustainable equilibria is of critical importance. It is multiple as opposed to unique equilibria that is the crucial stylized fact of economic life that requires better understanding and modeling. Of particular significance, Simon focused on the importance of institutions and differential power relationships in affecting economic outcomes. Simon was especially appreciative of the American institutionalists, with a special focus on the contributions of John Commons. But this modeling approach was not well developed by Simon. Following from the contributions of Herbert Simon, I extend and further develop the notion of multiple equilibria especially in the realm of production with an emphasis on x-efficiency theory. Given the reasonableness of multiple equilibria, I bring to bear the importance of institutional parameters (including power relationships), culture, norms, ethics and moral sentiments to the determination of economic outcomes (which of the possible multiple equilibria set dominates). In the model developed here, individuals are rational decision makers making choices that are contextualized and constrained by complex environmental factors. No choice is inevitable; a function of market forces. Moreover, individual and socially welfare maximizing outcomes are not inevitable. A multiplicity of outcomes is possible. Much depends on individual preferences and institutional design. That sub-optimal outcomes are possible and sustainable from this multiple equilibria modeling framework had important implication for analysis and public policy.
Discussants:
Shabnam Mousavi
(Johns Hopkins University)
Roger Frantz
(San Diego State University)
Jan 04, 2016 10:15 am, Marriott Marquis, Juniper
Society for the Study of Emerging Markets
Can the Chinese Renminbi Rule?: If So, How and When?
(G1, F3) (Panel Discussion)
Panel Moderator:
Ali Kutan
(Southern Illinois University Edwardsville)
Menzie D. Chinn
(University of Wisconsin–Madison)
Eswar S. Prasad
(Cornell University)
Shangjin Wei
(Asian Development Bank and Columbia University)
Wing Thye Woo
(University of California–Davis)
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra I
Society of Government Economists
It’s All about Technology
(O3)
Presiding:
Rachel Soloveichik
(US Bureau of Economic Analysis)
What Medical Conditions Are Driving the Spending Slowdown? An Analysis Using the New Health Care Account from the Bureau of Economic Analysis
Abe Dunn
(U.S. Bureau of Economic Analysis)
Lindsey Rittmueller
(U.S. Bureau of Economic Analysis)
Bryn Whitmire
(U.S. Bureau of Economic Analysis)
[View Abstract]
This year the Bureau of Economic Analysis (BEA) released a new experimental account that tracks national health care spending by medical condition. These statistics improve upon our understanding of the health sector by blending together both medical claims data and survey data to present measures of national spending and cost of treatment by condition. This paper introduces key aspects of this account and uses it to study the spending slowdown over the 2000 to 2010 period. The account reveals that the slowdown is driven by a reduction in cost per case growth, but spending trends can vary greatly across conditions and affect the slowdown differently. Over half of the overall slowdown can be accounted for by circulatory conditions. However, disease categories that include diabetes, back problems, and preventative services see a more dramatic rate of slowdown. In contrast, categories that include migraines, depression, and trauma actually show acceleration in spending.
Aeronautical Patents and Aviation History from 1880-1916
Peter B. Meyer
(U.S. Bureau of Labor Statistics)
Julio Raffo
(U.N. World Intellectual Property Organization)
Intan Hamdan-Livramento
(U.N. World Intellectual Property Organization)
[View Abstract]
[Download Preview] This paper analyzes how global aeronautics and aircraft patent data reflect technological, industrial, and geopolitical events from 1880 to 1916. We examine detailed information on more than 8000 aeronautics and aviation patents, the majority of those granted globally in this period. France, Germany, Britain, and the U.S. had by far the most applications. Trends were similar across these countries. Early inventors, inspired by curiosity, almost never assigned patent rights to firms. Annual aeronautical patents grew gradually through 1907, then rose steeply as an airplane industry emerged. Increasingly patents were held by firms, associated with more formal research and development. The Wright brothers’ patent effectively blocked other U.S. firms and led to legal battles and eventually a patent pool. During World War I, patent filings declined, especially in France and Germany. Trends in technology areas, e.g. balloons, wings, and military applications, were similar across countries. Similar findings are likely in other cases where scientific and technological developments led to the appearance of new industries.
The Impact of Skilled Labor on Technology Adoption and Comparative Advantage
Serge Shikher
(U.S. International Trade Commission)
[View Abstract]
Productivity differences across industries within each country play a major role in explaining international trade. But, what is behind these productivity differences? This paper finds that labor with post-secondary education is the main determinant of productivity because it enables technology adoption. I use a variant of the principal component analysis to decompose productivity differences into country- and industry-specific components. This approach turns out to be successful empirically, in contrast to the previous evidence on the Heckscher-Ohlin model. I consider several candidates to match principal country- industry-specific components of productivity: physical capital, labor with various levels of education, and institutions. I find that labor with tertiary education is the best match. Analysis of the data on foreign technology licensing also leads to the conclusion that it is educated labor rather than institutions that is the main cause of productivity differences. Evidence on occupations, patents, and technology licensing shows that the main function of labor with tertiary education is to enable technology adoption. Based on this evidence, I develop a model in which comparative advantage is endogenous and technology adoption is driven by highly educated labor. I show that this model does a good job explaining comparative advantages.
Finance and Growth at the Firm-Level: Evidence from SBA Loans
John S. Earle
(George Mason University, IZA, and Central European University)
J. David Brown
(U.S. Census Bureau)
[View Abstract]
[Download Preview] We analyze linked databases on all SBA loans and lenders and on all U.S. employers to estimate the effects of financial access on employment growth. Methods combine regressions with matching and with instrumental variables capturing ease of access to SBA lenders. We estimate an increase of 3-4 jobs for each million dollars of loans, consistent with real effects of credit constraints. We also investigate variation in estimated effects by SBA program, over the business cycle, with local credit conditions, and for within-county versus non-SBA county-industry control firms, and we estimate total job creation and the government’s cost per job created.
Discussants:
Amitabh Chandra
(Harvard University)
David Mowery
(University of California-Berkeley)
Jon Samuels
(U.S. Bureau of Economic Analysis)
Traci L. Mach
(Federal Reserve Board)
Jan 04, 2016 10:15 am, Parc 55, Mason
Transportation & Public Utilities Group/American Economic Association
Economic and Political Governance in Public Utilities
(L9)
Presiding:
John W. Mayo
(Georgetown University)
The Regulator Has No Clothes: A Test of the Structural Foundations of U.S. Regulatory Policy Toward the Mobile Services Industry
Glenn Woroch
(University of California-Berkeley)
[View Abstract]
Abstract: The prospect that high concentration will lead to the exercise of market power justifies many regulatory policies toward mobile services including radio spectrum caps, facilities sharing rules, and cross-ownership restrictions; it also plays a central role in antitrust enforcement of telecommunications mergers. This paper tests the validity of a causal relationship between concentration among mobile service providers and the market outcomes for mobile consumers. <br /><br />
A panel dataset was assembled from public sources, covering the FCC’s 172 Economic Areas over the 12 year period 2002-2013. Concentration was measured by the Herfindahl-Hirschman Index (HHI) of carriers’ subscribership and their spectrum holdings. Consumer welfare was measured by subscriber penetration rates, thereby avoiding the many pitfalls of price measurement. Fixed effects regressions relate penetration to concentration controlling for landline and mobile prices, along with an array of demographic variables. We find that consumption of mobile services is directly related to both subscriber and spectrum concentration. The preferred quadratic specification confirms that peak penetration is reached at HHIs that are far below typical concentration levels found in the U.S. markets. These results persist when we instrument for the likely endogeneity of industry concentration. <br /><br />
Policy debates over mobile service regulation have raised concerns that market power is particularly pernicious in low-density rural markets. Adopting the Federal Communications Commission definition of “rural,” we again find penetration rates are positively related to market concentration, though rural markets are more concentrated on average. In addition, we separately test claims that concentration of spectrum held in the lower frequency ranges more likely leads to monopolistic conduct. Specifically, we do not find that HHIs of carrier holdings below 1 GHz are negatively related to mobile penetration rates. <br /><br />
Finally, we explore factors that determine subscriber concentration. Contrary to some claims, we do not find that spectrum concentration translates directly to subscriber concentration. We find, instead, that market concentration is explained, in part, by the quality of mobile services as measured by engineering speed tests, affirming that carriers that deliver good quality service will tend to grow relative to those who do not. In the end, evidence is lacking that would rationalize policies designed to prevent or reverse concentration in mobile services for the purpose of promoting consumer interests.
To Municipalize or to Privatize?: Water Company Governance Form and Service Quality
Thomas P. Lyon
(University of Michigan)
Wren Montgomery
(Queen's University)
Dan Zhao
(University of Michigan)
[View Abstract]
[Download Preview] We explore how changes in governance form affect service quality. We develop hypotheses drawing on political economy and the attention-based view of the firm, and test them using a panel of data on 179,927 water systems in the U.S. from 2006 to 2014. In particular, we study the effect of municipalization and privatization of water systems on their compliance with water quality standards. By combining matching and differences-in-differences methods to construct comparable counterfactual control groups, we present the first large-scale empirical study on the governance form – service quality relationship for US water systems that addresses endogeneity concerns. We also examine how this effect differs for systems of different characteristics and in different socio-economic environments. The results indicate that while privatization does not lead to significant changes in water quality on average, municipalization leads to significant and persistent improvements in performance. These improvements are particularly notable for large systems, systems located in areas with low educational attainment, systems with low poverty levels, and communities with a smaller number of systems. Although privatization has no significant effect on average, it appears to produce an improvement in water quality in the short term, which is reversed within five years.
Assessing Residential Customer Satisfaction for Large Electric Utilities
Lea Kosnik
(University of Missouri-St. Louis)
[View Abstract]
[Download Preview] [Download PowerPoint] Abstract: Electric utilities, like other service organizations, rely on customer surveys to assess the quality of their services and customer relations. With responses to an in-depth survey of 2,216 residential customers, complementary data from geo-coded public sources, aggregate assessments of performance by J.D. Power Associates from their independent surveys, historical records of individual customer usage and bill payments, streams of published media content and records of actual service delivery, we examine how measures of customer satisfaction are interrelated and how they relate to account activity, customer characteristics, and actual service delivery. We test our inferences against published J.D. Power ratings for 16 large Midwestern utilities in the same peer group. We find that ratings on different service dimensions are highly correlated and related to the customers’ total expenditures for electric service. Customer ratings for quality and reliability of service reflect their sentiments about frequency of outages, duration of outages and the communications that customers receive while power is being restored. Relationships with the actual reliability of service delivered to customers’ residences are much weaker. Experiments with automated text mining show some promise for augmenting statistical analysis with information from streams of published media content and social media.
Universal Service in a Wireless World
Olga Ukhaneva
(Georgetown University)
[View Abstract]
[Download Preview] Abstract: In recent years, the federal programs designed to promote universal telecommunications services to low-income households have been expanded to cover wireless as well as wireline services. This has greatly increased the cost of these programs, resulting in calls for reforms. In this paper I utilize a uniquely disaggregated household-level data set from the National Health Interview Survey (NHIS) to examine the effects of the primary low-income program, Lifeline, as well as the effect of its extension to wireless service. The results indicate that the Lifeline program increases the house- hold’s propensity to subscribe to a phone service. However, based on the counterfactual experiments, only one out of eight households that receive the subsidy subscribes to telephone service because of the subsidy. The extension of the Lifeline subsidy to include prepaid wireless service has attracted additional subscribers. However, the counterfactual experiment shows that only one out of twenty households enrolled in the wireless Lifeline subscribes to telephone service because of the subsidy.
Discussants:
James Prieger
(Pepperdine University)
Mark Jamison
(University of Florida)
Scott Wallsten
(Technology Policy Institute)
David Brown
(University of Alberta)
Jan 04, 2016 10:15 am, Marriott Marquis, Nob Hill C & D
Union for Radical Political Economics/American Economic Association
Causes of the Great Recession and the Prospects for Recovery
(E3)
Presiding:
Fred Moseley
(Mount Holyoke College)
Stagnation and Institutional Structures
David M. Kotz
(University of Massachusetts-Amherst)
Deepankar Basu
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] The recovery from the financial crisis and Great Recession of 2008-09 has been sluggish in the United States, and more so in a number of other developed economies. This has given rise to a literature about possible secular stagnation (Eichengreen 2015; Gordon 2014a, 2014b; Krugman 2014; Summers 2013, 2014). This paper argues that the cause of the sluggish recovery in the U.S. is the transformation of the prevailing "free-market," or "neoliberal," institutional structure from a structure that had promoted capital accumulation for some 25 years into an obstacle to further normal expansion following the crisis of 2008-09. The paper cites historical evidence of previous periods in which stagnation gave way to normal long-run expansion only after a new institutional structure had emerged. Drawing on the “social structure of accumulation” theory of accumulation and crisis, the paper argues that the observed pattern of crisis, stagnation, institutional restructuring, and long-lasting normal growth is not an accident but is rooted in the central role in the promotion of normal capital accumulation that is played by a coherent, mutually reinforcing set of economic and political institutions which, however, cannot play that role indefinitely.
Recessions, Depressions, and the Rate of Profit
Robert McKee
(Independent Scholar)
[View Abstract]
[Download Preview] Recessions are common; depressions are rare. This paper argues that there is a distinction between economic recessions and depressions and this distinction helps to explain why economic recovery can be weaker and take longer.
The paper will argue that the ultimate cause of recessions and depressions is a decline in profitability in the business sector of an economy. The Keynesians (supporters of fiscal expansion) and Austerians (supporters of fiscal contraction) deny the role of profitability in recessions and depressions. So their prescriptions for recovery do not work. The paper will offer empirical evidence from the US economy to support this thesis.
But not every depression is the same: each has its own characteristics. The distinctive feature of the current depression is the role of excessive credit or debt. Evidence will be presented to argue that the Federal Reserve quantitative easing programme had little positive effect on US real GDP or investment growth and merely fuelled a new stock and bond market boom.
Understanding the Great Recession: Keynesian and Post-Keynesian Insights
Mario Seccareccia
(University of Ottawa)
Marc Lavoie
(University of Ottawa)
[View Abstract]
Basing themselves on the actual experience of the 1930s, a fundamental insight offered by Keynes, Kalecki and subsequent advocates of what became Post-Keynesian economics is that, when responding to a major crisis, the economic system is not self-adjusting. In a modern monetary capitalist economy, private sector stabilizing forces do exist; but, at best, they can be considered very weak, while the destabilizing elements tend to dominate. This underlying asymmetry would suggest that, in the absence of public sector policies to counteract such instabilities, the inexorable outcome of a deep crisis is long-term stagnation. In contrast to other heterodox economists, especially from the Marxian tradition, Post-Keynesians believe that it is possible even within a capitalist economy to counteract effectively these destabilizing tendencies through appropriate macroeconomic policy actions of the state, as it happened to some extent during the post-World War II “Golden Age”.
The object of the paper will be to explore both theoretically and empirically the properties of these destabilizing factors so as to shed some light on the nature of the present crisis. A significant insight offered by Keynes in the General Theory and explored by some Post-Keynesians historically has to do with the importance of the fundamental interaction between the rentier and non-rentier sectors of the modern capitalist economy, which can both trigger the crisis and abort the recovery. In particular, once a financial crisis occurs, which usually results from the destabilizing actions of the rentier sector, macroeconomic policy often works in such a way as to maintain the economy in a state of high long-term unemployment. Such a scenario of long-term stagnation, characteristic of the 1930s, is being played out again today and we shall explore possible long-term measures to pull economies out of what has clearly become a macroeconomic austerity trap.
Discussants:
Robert J. Gordon
(Northwestern University)
Brad DeLong
(University of California-Berkeley)
David Colander
(Middlebury College)
Jan 04, 2016 10:15 am, Marriott Marquis, Sierra K
Union for Radical Political Economics/International Association for Feminist Economics
Gender and Educational Investment
(I2)
Presiding:
Linda Lucas
(University of South Florida)
Empowered or Not? Exploring the Conundrum of Increasing Female Schooling and Stagnant Female Labor Market Participation in Japan, China and India
Sucharita Sinha Mukerjee
(College of Saint Benedict and Saint John’s University)
[View Abstract]
[Download Preview] Japan, China and India, historically patriarchal societies albeit at different levels of economic development have in common experiences of rapid economic expansion. While consequently female educational opportunities have expanded, a study of recent literature and data on women’s labor market experiences shows parallels of stagnation, non- participation or decline in female paid work in each economy following from reinforced and sustained gender expectations from women. The need for gender sensitive policy is critical not only to avert the wastage of female skills but also to address potential fallouts from rapidly declining marriage and fertility rates especially among highly educated women.
Housing Ownership, Bargaining Power and Educational Investment in Children
Jing Liu
(Central University of Finance and Economics)
Liangshu Qi
(Tsinghua University)
[View Abstract]
This study investigates into how the effect of family housing wealth on the investment in children’s education differs by housing ownership between spouses, taking advantage of an exogenous shock by legal change in Urban China. According to the judicial interpretation of China’s Marriage Law in 2011, family housing purchased before marriage is no longer jointly owned by the couple but belongs to the side with his/her name registered. Based on data drawn from the 2010 and 2012 waves of China Family Panel Survey, we find that the appreciation of house would result in a higher out of school education expenditure. When women’s bargaining power is strengthened by the exogenous law shock to housing property right, the positive education effect of housing appreciation is amplified and strongly biased to girls.
An Early Assessment of Extension of Compulsory School Attendance in Turkey: Evidence from a Natural Experiment
Bilge Erten
(Northeastern University)
[View Abstract]
[Download Preview] We use a change in compulsory schooling law in 2012 in Turkey to estimate the causal effects of high school attendance on prevalence of child labor. The change in the law implied that individuals born after January 1998 were obliged to complete twelve years of schooling whereas those born earlier had the option of dropping out after eight years. Using this discontinuity, we adopt a Regression Discontinuity (RD) design to estimate causal estimates of school attendance. We find that the reform resulted in a 3.7 percent increase in high school attendance on average, which reduced the likelihood of teenagers to participate in paid employment, particularly in non-agricultural sectors and temporary jobs. We find that these effects work through different channels depending on the degree of tightness in child labor markets and regional levels of poverty. For boys, due to the tighter male labor market, the reform resulted in them having a large reduction in child labor, particularly in industrial sector, without any evidence of a significant effect on their inactivity. For girls, due to the presence of underemployment, the reform resulted in them reducing their inactivity significantly, yielding a smaller trade-off between school attendance and child labor in services. For both boys and girls, the reform had a larger impact on their high school attendance and employment decisions in regions that were above the country median prior to the reform's implementation. In these poorer regions, the rise in high school attendance resulted in a reduction in paid employment and, to a lesser extent, an increase in unpaid employment. We interpret these findings as evidence that the empowering effects of education reforms may depend on relative tightness of labor markets and differences in levels of poverty across regions.
The Pre-School Effects: Analyzing the Causal Effects of Pre-School Attendance on Income, Educational Attainment, and Mother's Labor Force Participation
Alyssa Schneebaum
(Vienna University of Economics and Business)
[View Abstract]
This paper studies the causal effects of pre-school attendance on later economic outcomes in Austria. Using 2011 EU-SILC data, which contain a rich amount of information on parental and socioeconomic background of the respondents, the analysis measures the treatment effects of pre-school on later income, educational attainment, and mother's labor force participation. The empirical findings show a clear positive effect of pre-school on income and education, and that higher rates of pre-school attendance promote mothers' labor force participation. These results are highly relevant for political consideration of state-funded pre-school programs.
Discussants:
Linda Lucas
(University of South Florida)
Leanne Roncolato
(Franklin and Marshall College)
Jan 04, 2016 12:30 pm, Hilton Union Square, Continental – Parlor 3
American Economic Association
European Economic Association Lecture
Presiding:
Paola Giuliano
(University of California-Los Angeles)
Helene Rey
(London Business School)
Monetary Policy with Large Financial Flows
Jan 04, 2016 12:30 pm, Hilton Union Square, Continental Ballroom 5 & 6
American Economic Association
Nobel Laureate Luncheon - Fee Event
Presiding:
Robert Shiller
(Yale University)
Roland Benabou
(Princeton University)
Drew Fudenberg
(Harvard University)
Bengt Holmstrom
(Massachusetts Institute of Technology)
Eric Maskin
(Harvard University)
Jan 04, 2016 12:30 pm, Parc 55, Cyril Magnin II & III
American Real Estate & Urban Economic Association
Presidential Luncheon - Fee Event
Presiding:
Edward Coulson
(University of Nevada-Las Vegas)
Stuart Rosenthal
(Syracuse University)
Jan 04, 2016 12:30 pm, Hilton Union Square, Powell A & B
American Society of Hispanic Economists
Health and Hispanic Economic Outcomes
(I1, J1)
Presiding:
Alberto Dávila
(University of Texas-Rio Grande Valley)
Ethnic Attrition, Assimilation, and the Measured Health Outcomes of Mexican Americans
Francisca Antman
(University of Colorado-Boulder)
Brian Duncan
(University of Colorado-Denver)
Steve Trejo
(University of Texas-Austin)
[View Abstract]
[Download Preview] Two puzzles emerge from the literature on the health of immigrants and their descendants. The first is the assimilation puzzle of why Hispanic natives often lag well behind non-Hispanic whites on measures of health. The second, sometimes referred to as the Hispanic Health Paradox, is the puzzle of immigrant advantage, that is, why Hispanic immigrants sometimes appear to be in better health than U.S.-born Hispanics. While numerous studies have offered potential explanations for these patterns, virtually all health studies of the descendants of immigrants rely on subjective measures of ethnic self-identification rather than on more objective measures of lineage. Consequently, “ethnic attrition” occurs whenever a U.S.-born descendant of a Hispanic immigrant fails to self-identify as Hispanic. Using data on children from the 1996-2014 Current Population Survey March Supplement, we show that Mexican ethnic attrition is sizable and highly selective on health, making subsequent generations of Mexican immigrants appear less healthy than they actually are. The mechanism through which selective ethnic attrition occurs is intermarriage, which we show is positively selected on health. As a result, we conclude that the twin puzzles of poor assimilation and immigrant advantage have likely been overstated.
Determinants of Private Health Insurance Coverage Among Mexican American Men 2010-2013
Richard Santos
(University of New Mexico)
Alok Bohara
(University of New Mexico)
David N. van der Goes
(University of New Mexico)
[View Abstract]
Most Americans obtain private health insurance for themselves and their families through the workplace. Using a national sample of adults age 18-64 from the 2010-2013 National Health Interview Survey (NHIS), we estimate that only 40 percent of the Mexican American men in the labor force are covered by private health insurance coverage as compared to 72 percent of other non-Mexican origin men. What accounts for the difference in private insurance coverage between Mexican American men and other workers? Is the difference explained by age, education, nativity, language, or other human capital characteristics which would affect access to private health insurance? In our study, nearly 60% of Mexican American men in the labor force are foreign born, 35% have an educational attainment less than a high school degree, and 40% are likely to have language barriers. Is the insurance disparity caused by these human capital characteristics and is the disparity compounded by discrimination encountered by Mexican American men in the workplace and their access to private health insurance coverage? What if Mexican American men had similar characteristics as those of other workers, would their predicted private health insurance coverage be as favorable as other workers?<br /><br />
To study the determinants of private health insurance among Mexican American men, we use the public use sample data from the 2010-2013 NHIS. The NHIS provides an alternative to other national data surveys (e.g. Current Population Survey, Hispanic Health and Nutrition Examination Survey) which are frequently used to estimate the insurance coverage among Hispanics. Logit equations are estimated separately for the determinants of private insurance coverage among Mexican Americans and other men. A decomposition analysis is used to explain the disparity in insurance coverage. Preliminary results show that age, low educational attainment, being foreign-born, and language barriers diminished the probability of private insurance coverage for Mexican Americans.
Converging to American: Healthy Immigrant Effect in Children of Immigrants
Monica Garcia-Perez
(St. Cloud State University)
[View Abstract]
It has been well-documented the tendency of adult immigrants to converge to unhealthy health status levels through years living in the US. This paper looks at another focus of this topic. We analyze children of immigrants’ healthy immigrant effect using as main indicators parental immigrant cohort and year of arrival together with region of birth. Using data from Integrated National Health Interview Survey 2000-2014, we evaluate children of immigrants’ health status by using BMI levels and the number of visits to the doctor versus their native counterparts. Following the consensus in the literature, I define ‘child of immigrant’ any child who has one or both parents are foreign-born, and ‘child of native’ otherwise.
The hypothesis is that, consistent with their parents, children of immigrant family’s health status declines the longer they, and their parents, remain in the United States. However, we should see an increase in the number of visits to the doctor the more years they, and their parents, have resided in the country. The study uses the current econometric techniques developed in the literature by considering the issue of zero mass accumulation and underline differential distributions to account for selection issues and unobservables.
Ownership of a Checking Account and Health of Older Hispanics
Luisa R. Blanco
(Pepperdine University and RAND)
Emma Aguila
(University of Southern California)
Marco Angrisani
(University of Southern California)
[View Abstract]
[Download Preview] We use data from the Health and Retirement Study (HRS) during the period 2000-2012 (7 waves) to investigate whether ownerships of a checking account is associated with health benefits for different racial and ethinic groups. Because ownership of a checking account shows positive mental health effects for Hispanics, we explore whether the potential health benefits of participation in the formal financial sector for this group are heterogeneous across different socioeconomic status (SES) groups. We explore the impact of ownership of a checking account on health outcomes among Hispanics in the following groups: 1) Survey language (Spanish vs. English), 2) Neighborhood SES, 3) Wealth, and 4) Income. For Neighborhood SES, Wealth and Income we separate Hispanics below and above the median. Our analysis shows that Hispanics in less well-off neighborhoods and with low wealth show larger mental health improvements from having a checking account.
Discussants:
Douglas Almond
(Columbia University)
Alfonso Flores-Lagunes
(Syracuse University)
Mark Lopez
(Pew Research Center)
Ronald Oaxaca
(University of Arizona)
Jan 04, 2016 12:30 pm, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Institutions and the Public Interest: Session in Honor of Harry M. Trebing
(B5, L5)
Presiding:
Robert Loube
(RolkaLoube Associates)
Economics, Ethics, and The Long Arc of Public Utilities: A Paper in Honor of Professor Harry M. Trebing
Rodney Stevenson
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] Harry Trebing has made substantial contributions to the understanding of social control of economic enterprise, and in particular the regulation of public utilities. Imbued with institutional economic ways of knowing, he sustained the construct of Progressive era public interest regulation during a period of neoclassical economic assault on regulatory institutions.
Broadband Policy: Industry Planning and the Public Interest
Robert Loube
(RolkaLoube Associations)
[View Abstract]
[Download Preview] Public interest regulation protects society by constraining private economic power and promotes the construction of essential infrastructure facilities. The FCC’s broadband plan supports the deployment of broadband service and the maintenance of an open Internet. The paper will use the Trebing public interest paradigm to evaluate the FCC’s broadband plan.
The Public Interest in Institutions and Institutional Analysis
William H. Melody
(Aalborg University-Copenhagen)
[View Abstract]
John R. Commons established the basic analytical framework for critically examining institutions, based on his work in designing them on a foundation of economic research. This paper examines how Harry M. Trebing further developed and applied a concept of the “public interest” both in institutional analysis and policy implementation.
Uber and the Persistence of Market Power
David Gabel
(Queens College)
[View Abstract]
[Download Preview] Entry into the taxi industry involves few risks, entrants have lower costs than the incumbents, sunk costs are small, and modern technology makes it easy to hail a cab using the Internet. Despite large-scale entry, and low barriers-to-entry, monopoly power persists. The persistence of monopoly power illustrates that new technologies may not quickly eviscerate monopoly power.
Trouble in Market Paradise: Development of the Regional Transmission Operator
Kenneth Rose
(Independent Consultant)
[View Abstract]
[Download Preview] Regional Transmission Organizations (RTOs) have evolved from “power pool” arrangements between utilities to complex organizations that operate the region’s transmission system and power markets. These RTOs are administered with only peripheral public input. The result is that RTOs have developed very complex market structures that few can or do understand.
Jan 04, 2016 12:30 pm, Marriott Marquis, Pacific B
Association for Social Economics
Institutions, Markets, and Ethics
(G1, D6)
Presiding:
Malcolm Sawyer
(University of Leeds)
The Nature of Institutions: A Computational Perspective
Claudius Gräbner
(University of Bremen)
Wolfram Elsner
(University of Bremen)
[View Abstract]
[Download Preview] Institutions are more and more considered to be one of the essential determinants of economic development.
The claim that they are not only a determinant of the growth level of an economy, but also determine the distribution of income, wealth, and power, has led to an enormous wave of empirical literature on the role of institutions.
Yet, there is still no theoretical consensus about what an institution actually is, how it affects individual decision making, and how it evolves. An important theoretical piece in the puzzle of institutions seems to be missing.
In this article we try to reconcile the most common and promising conceptions of institutions that are currently available in economic theory - institutions as rules, institutions as equilibria, and institutions as constitutive rules - to detect this missing piece.
We argue almost all these existing conceptualizations of economic institutions relate institutions directly or indirectly with computations: institutions are expected to both affect and depend upon individual decision making. And making a decision means to compute something.
This means that if we wish to understand what institutions are and how they work we need to take computation seriously.
Such an approach will result in a general computational approach to study institutions where the latter are understood as particular networks of decision making algorithms.
These algorithms represent the very fundamental computations carried out by any human being when making a decision.
Building the concept of the institution on such a fundamental aspect of economic activity is both scientifically appealing and highly promising.
It will also be useful to answer the long debated question of whether institutions can be fully integrated into the individual decision making process, e.g. as constraints in an individual optimization problem, or whether we need to understand them as ontological objects proper shaping and being shaped by individual agency.
Restoring the Ethical Basis of the Opportunity Society in the Post-Subprime Era: Community Provisioning, the Logic of Reinvestment, and the Circular Economy
Gary Dymski
(University of Leeds)
[View Abstract]
John R. Commons argued that economic value should be defined on the basis of the contribution of individuals to the net wealth of the community. There should be legal protection for activities that expand the commonwealth, and penalties for entities that generate income by capturing a larger share from others in zero-sum exchanges underwritten by positional power. In Commons’ time, much of the value-added in the macroeconomy came from industrial processes generating tradeable goods: trade with other communities. Today the challenge is different; value generation takes a more abstract form, and is centralized in large cities. The challenge then for cities at a distance from such centres is then to develop autonomous – circular – logics of circulation.
How to do this? is a driving question. We explore some alternatives for cities that have been forcefully affected by the subprime crisis in the central valley of California, in communities very distant from the urban engines of California growth.
Following Commons, we attempt to rethink the basis of economic value for these cities, which lack engines of economic growth, with their residents now stripped of homeownership and their local governments lacking fiscal capacity. We use the ideas of provisioning developed by Ben Fine and others, and of the logic of reinvestment (Chiong 2014) to formulate some ideas on creating viable circular economies. The needed reinvestment - in the people, the places, and infrastructures that sustain everyday life - will require the intermixing of non-monetized transactions with financial exchanges.
The Size and Effects of Underwater and Barely-Above-Water Mortgages
Robert H. Scott III
(Monmouth University)
Steven Pressman
(Monmouth University)
[View Abstract]
[Download Preview] This paper studies the economic effects of the weak housing market on households in the United States. Roughly 20% of people in the United States with mortgages owe more than their homes are worth (i.e., underwater). An additional 20% of households are barely above water—they could not sell their homes without incurring a loss (if they could sell their homes at all). As a result, these people are locked into their homes with several effects. First, labor mobility is reduced because many people are tied to their homes; so, they cannot move if a better job opportunity presents itself or if unemployed they cannot move even if offered a job if it is not within commuting distance. Second, small businesses are responsible for almost all net job growth in the United States over the past 20 years, and home equity is a popular source of startup business financing. This relationship accounts for some of the significant reduction in startups over the past several years. Third, consumers have deleveraged some of their consumer debt since the Great Recession, but significant outstanding debt still remains. And debt such as student loans continues to rise. Underwater and barely-above-water mortgages are constraining the United States economy, and based on the size and resiliency it is difficult to imagine this problem being resolved without public policy intervention.
The Case for “Economy Harm Profile” Analysis
George DeMartino
(University of Denver)
[View Abstract]
[Download Preview] It is in the nature of economic practice that economists routinely cause harm as they try to do good. The profession has nevertheless been slow to recognize “econogenic” or economist-induced harm. Those operating on the terrain of mainstream neoclassical theory have typically managed to domesticate economist-induced harm with the mechanical decision rules provided by the Kaldor-Hicks compensation test and related cost-benefit analyses. Moreover, the profession has missed some of the central ways in which its work harms.
Taking a broad view, the paper presents and explores the concept of an “economy harm profile” to assess the harms that arise within a given economy. An economy harm profile is given by the nature of the prevalent, averted and covered harms; the distribution of harms; the rationale for harms; the mechanisms of harm inducement (and distribution); and the degree of coercion that is associated with harm-generating processes. The paper contends that there is much to be gained through the comparison of distinct economy harm profiles—not least, economy harm profile analysis might help the economics profession to design and implement reforms that eliminate gratuitous harms and ameliorate necessary harms.
Jan 04, 2016 12:30 pm, Parc 55, Mason
Association of Indian Economic & Financial Studies
Trade, Finance and Macro Policy
(E2, E2)
Presiding:
Amitrajeet A. Batabyal
(Rochester Institute of Technology)
Creative Capital Accumulation and the Advancement of India’s Creative Economy
Amitrajeet A. Batabyal
(Rochester Institute of Technology)
Hamid Beladi
(University of Texas-San Antonio)
[View Abstract]
[Download Preview] Despite the relevance of Richard Florida’s ideas about the role of creative capital in
promoting the creative economy of developing nations like India, there is no theoretical research on
these topics in the extant literature. Therefore, we focus on an arbitrary region in a developing
country and then analyze the creative capital accumulation decision faced by workers in this region
who aspire to membership in the so called creative class. Specifically, we compute the present
discounted value of a worker’s lifetime earnings as a function of the primitives of the problem. Next,
we solve for the level of education that maximizes the lifetime earnings function. Finally, we
describe how this optimal level of education is affected by changes in the lifespan of workers, the
interest rate, and by the growth rate of the wage function.
Housing Price Indices in India
Charan Singh
(Indian Institute of Management-Bangalore)
[View Abstract]
[Download Preview] The housing activity in the country, high already, is expected to further accelerate in the next few years, mainly because the government has already announced that it is committed to provide a house for all by 2022. The increased activity will impact the housing markets as a change in the house price affects the households’ perceived lifetime wealth and hence influences the spending and borrowing decisions of households. Further, house price gains increase housing collateral and hence housing credits. The potential two-way link between bank lending and house prices give rise to mutually reinforcing cycles in credit and real estate markets. The increasing dominance of the sector necessitated setting up of a mechanism which could track the movement of prices in the residential housing segment. Therefore, it becomes necessary to prepare an accurate measure of aggregate house price, despite limited availability of data, in order to understand the behavior of housing markets and their influence on the economy. To understand about house prices, it is important to understand about housing indices. In India, NHB and RBI construct and release an index each, RESIDEX and HPI, respectively. In case of both the indices there are a number of problems.
Does Keynesian Theory Explain Indian Government Bond Yields?
Tanweer Akram
(Voya Investment Management)
Anupam Das
(Mount Royal University)
[View Abstract]
[Download Preview] [Download PowerPoint] John Maynard Keynes held that the central bank’s actions determine long-term interest rates
through short-term interest rates and various monetary policy measures. His conjectures about
the determinants of long-term interest rates were made in the context of advanced capitalist
economies, and were based on his views on ontological uncertainty and the formation of
investors’ expectations. Are these conjectures valid in emerging markets, such as India? This
paper empirically investigates the determinants of changes in Indian government bonds’
nominal yields. Changes in short-term interest rates, after controlling for other crucial variables
such as changes in the rates of inflation and economic activity, take a lead role in driving
changes in the nominal yields of Indian government bonds. This vindicates Keynes’s theories,
and suggests that his views on long-term interest rates are also applicable to emerging markets.
Higher fiscal deficits do not appear to raise government bond yields in India. It is further argued
that Keynes’s conjectures about investors’ outlooks, views, and expectations are fairly robust in
a world of ontological uncertainty.
Corporate Debt Restructuring, Bank Competition and Stability: Evidence from India
Mostak Ahamed
(Queen Mary University of London)
Sushanta Mallick
(Queen Mary University of London)
[View Abstract]
This paper estimates the causal effect of a unique program of corporate debt restructuring (CDR)
on stability of Indian banks for the period 1992-2012. The banks who participated in the program
were extended regulatory forbearance on asset classification and provisioning on the restructured
corporate loans. We find that banking stability of the participated banks increases substantially after
the implementation of the program. Following the recent development in measuring market
power, we estimate efficiency-adjusted Lerner indices along with conventional one using stochastic
frontier analysis approach (Koetter, Kolari and Spierdijk, 2012), and check for the interactive effect
of CDR on bank stability. The result shows that the positive effect of CDR on stability declines at
the higher degree of market power of the participated banks. To provide unbiased treatment effects
of CDR eliminating any sample selection problem, we confirm our result using a number of
alternative matching estimators including recently developed bias-corrected covariate matching
estimator proposed by Abadie and Imbens (2006). Investigating the ambiguous trade-off between
market power and stability, we find that greater pricing power reduces risk-taking behavior of
banks. It also reveals that although the second phase of deregulation improved overall banking
stability significantly, there is a threshold level of market power below which banks experience a
higher risk of fragility. Our results remain insensitive to an array of robustness tests.
Asean Plus Six and Successful FTAs: Can India Propel Intra-Industry Trade Flows?
Ram Upendra Das
( Research and Information System for Developing Countries (RIS))
Meenakshi Rishi
(Seattle University)
Jay Dev Dubey
( Research and Information System for Developing Countries (RIS))
[View Abstract]
Recent trends suggest that many countries have turned away from the multilateral process in favor of free trade agreements (FTAs). However, whether FTAs increase trade among their signatories or result in efficiencies through the process of trade diversion to more inefficient trading partners has remained a debatable issue. This paper sheds fresh light on FTAs by incorporating new trade theories that take into account Intra-Industry Trade (IIT) flows. The paper also demonstrates—both theoretically and empirically—that combining an FTA in goods among ASEAN+6 countries under the Regional Comprehensive Economic Partnership (RCEP) with greater trade integration, especially with India’s active role in the RCEP, both propels Intra-Industry type trade flows in the region and helps to sustain such trade flows.
Effectiveness of Australian and New Zealand Aid for Trade: Implications for India and Other Developing Countries
Rukmani Gounder
(Massey University)
[View Abstract]
[Download Preview] This paper examines the effectiveness of the Australian and New Zealand aid and trade with the developing countries given that these donors have major Asia-Oceania regional focus in their aid programme. The empirical analysis provides implications on the aid-recipient developing countries in Asia and Oceania in general and for India in particular. To assess the linkages between aid and trade the gravity model specifications indicate the impact of aid and trade based on the donor and recipient factors, utilising the independent variables that affect the decision(s) of donors’ aid-trade relationships. As countries that receive aid and trade with those donors what is the implied return for the donors return on aid. We examine whether the role of aid for trade infrastructure, aid for trade productive capacity building and aid for trade policy regulation enhance the competiveness of developing countries?
Discussants:
K. V. Ramaswamy
(Indira Gandhi Institute of Development Research (IGIDR))
Rajeev Sooreea
(Dominican University of California)
Kusum Mundra
(Rutgers University)
Tanweer Akram
(Voya Investment Management)
Chandana Chakraborty
(Montclair State University)
Keshab Bhattarai
(University of Hull Business School)
Jan 04, 2016 12:30 pm, Marriott Marquis, Sierra J
Chinese Economists Society
China's eCommerce Development
(M1)
Presiding:
Xiaobo Zhang
(Peking University and International Food Policy Research Institute)
The Patterns and Drivers of eCommerce Development in China
Xiaobo Zhang
(Peking University and International Food Policy Research Institute)
Wu Zhu
(Peking University)
[View Abstract]
[Download Preview] In the past several years, China has become the largest e-commerce market. Using a unique e-commerce dataset from Alibaba at the county level from 2011 to 2014, we first examine the spatial patterns of online sales and shopping in China. Next we identify the major drivers behind the observed patterns. We find that online sellers are more likely to be located in existing industrial clusters, where thousands of firms are concentrated in one place and produce one major product. Online shopping has developed more rapidly in less populated areas. E-commerce has enabled people in remote places to access a wider range of commodities which in turn expands the market size of industrial clusters. This creates a winner-takes-all phenomenon -- the growth rate of e-commerce among the top 10% of clusters is much higher than other places.
More Trusting, Less Trust? An Investigation of Early eCommerce in China
Hongbin Cai
(Peking University )
Ginger Zhe Jin
(University of Maryland and NBER)
Chong Liu
(Peking University)
Li-An Zhou
(Peking University)
[View Abstract]
[Download Preview] Trust is vital for market development, but how can trust be enhanced in a marketplace? A common view is that more trusting may help to build trust, especially in less developed economies. In this paper, we argue that more trusting may lead to less trust. We set up a rational expectation model in which a marketplace uses buyer protection to promote buyer trusting. Our results show that buyer protection may reduce trust in equilibrium and even hinder market expansion because it triggers differential entry between honest and strategic sellers and may induce more cheating from strategic sellers. Using a large transaction-level data set from the early years of Eachnet.com (an eBay equivalent in China), we find evidence that is consistent with the model predictions. Stronger buyer protection leads to less favorable evaluation of seller behavior and is associated with slower market expansion. These findings suggest that a trust-promoting policy aiming at buyer trusting may not be effective if it is not accompanied by additional incentives to improve seller trustworthiness.
E-commerce Expands the Bandwidth of Entrepreneurship
Ruochen Dai
(Peking University)
Xiaobo Zhang
(Peking University and International Food Policy Research Institute)
[View Abstract]
[Download Preview] Personal trade is widespread in developing countries. In the absence of formal institutions, strong social networks are often needed to maintain personal trade. However, it is costly to build and maintain social networks. The high cost of social capital imposes an entry barrier on people who lack social networks, such as those from outside local communities. In this paper, using a primary survey in Baigou, one of the largest industrial and e-commerce clusters in China, we show that e-commerce reduces transaction costs and results in vertical disintegration, thereby lowering capital entry barriers. Moreover, the timely payment of e-commerce reduces the reliance on the network-based trade credit that is prevalent in traditional trades, easing the need for social networks. Using an administrative universe firm registry dataset, we show that the spread of e-commerce has enabled many people, who used to lack financial and social capital, to become entrepreneurs.
Reputation Premium and Reputation Management: Evidence from the Largest eCommerce Platform in China
Ying Fan
(University of Michigan)
Jiandong Ju
(Tsinghua University and Shanghai University of Finance and Economics)
Mo Xiao
(University of Arizona)
[View Abstract]
[Download Preview] We study the life-cycle effects of reputation using a panel data set consisting of a 25% random sample of all sellers on China's largest e-commerce platform, Taobao.com. We find a substantial return to reputation, but only for established sellers. New sellers, in contrast, lower their prices to boost transaction volume and ratings, especially when the next reputation level is close. This reputation management by new sellers leads to a decrease in their revenue in the short run and even a decrease in their business' survival likelihood in the longer run. We show that such differential effects at different stages of a seller's business life-cycle can arise when the effect of reputation on future payoffs dominates that on current payoffs.
Discussants:
Ying Fan
(University of Michigan)
Ruochen Dai
(Peking University)
Mo Xiao
(University of Arizona)
Ginger Zhe Jin
(University of Maryland and NBER)
Jan 04, 2016 12:30 pm, Hilton Union Square, Sutter A & B
Economic History Association
Social Mobility and Demography in China and Japan
(N3)
Presiding:
Noam Yuchtman
(University of California-Berkeley)
Social Mobility in China, 1645-2012: A Surname Study
Gregory Clark
(University of California-Davis)
[View Abstract]
This paper estimates intergenerational social mobility rates in China across three eras: the Late Imperial Era, 1644-1911, the Republican Era, 1912-49 and the Communist Era, 1949-2012. Was the economic stagnation of the late Qing era associated with low intergenerational mobility rates? Did the short lived Republic achieve greater social mobility after the demise of the centuries long Imperial exam system, and the creation of modern Westernized education? The exam system was abolished in 1905, just before the advent of the Republic. Exam titles brought high status, but taking the traditional exams required huge investment in a form of "human capital" that was unsuitable to modern growth (Yuchtman 2010). Did the end of the exam system result in a period of rapid social mobility with the rise of a new western-educated elite? And did the turmoil of the Communist era radically disrupt the old social order, and bring an entirely new class of people to positions of education, prosperity, and power? In particular was there a comeback of the old elites in the post-Mao era, 1978-2012?
The Engine and the Reaper: Industrialization and Mortality in Early Modern Japan
John Tang
(Australian National University)
[View Abstract]
[Download Preview] Economic development leads to improved health over time due to increased access to medical treatment, sanitation, and income, but in the short run the relationship may be negative given disease exposure from market integration. Using a panel dataset of vital statistics for Meiji Japan, I find mortality rates increased during the country's early industrialization, with railroad access accounting for over five percent of average mortality between 1886 and 1893. Estimates from a triple-differences framework indicate that communicable disease mortality accounts for 91 percent of the additional incidence, which suggests that improved transport may have operated as a vector for transmission.
Civil Service Exams and Social Mobility: Jinshiâ’s Exam Performances and Official Careers in Ming China (1368-1644)
Se Yan
(Peking University)
[View Abstract]
Civil service exam system, as one of the fundamental institutions of late imperial China, selected officials through exams. Is the exam "the ladder of success" for commoners, or no more than an elite reproduction of wealth and family background? The big question has been answered by several descriptive studies from a historical view, but only a few of them collect micro data and analyze it with the methods of statistics and econometrics. Our research can contribute in three aspects. First of all, we can replicate existing work by using a better dataset. Our sample includes 14112 jinshi and 3,234 officials from 52 exam years in Ming dynasty, from 1371 to 1610. Secondly, since existing work focuses on the Qing dynasty, our study will fill the research gap by using data from the Ming dynasty. Lastly, since our dataset covers more than 200 years, we can study the change of social mobility in the long period, which will be a complement for current studies on intergenerational mobility in the long term. For further motivation, the question of the relationship between the civil service exam and social mobility can be also attached to other big issues. For example, the civil service exam may impact China's industrialization, by providing upward opportunity and attracting people away from studying science and technology. (Lin, 1995)
Discussants:
Noam Yuchtman
(University of California-Berkeley)
Chiaki Moriguchi
(Hitotsubashi University)
Ruixue Jia
(University of California-San Diego)
Jan 04, 2016 12:30 pm, Hilton Union Square, Union Square 23 & 24
Industrial Organization Society
New Empirical Findings in Platform Economics
(L1, M1)
Presiding:
Shane Greenstein
(Harvard Business School)
Exit, Tweets, and Loyalty
Joshua Gans
(University of Toronto)
Avi Goldfarb
(University of Toronto)
Mara Lederman
(University of Toronto)
[View Abstract]
[Download Preview] At the heart of industrial organization is the belief that markets act to discipline firms for poor performance. As such, the role of markets – and market structure – in influencing firm behavior has been extensively studied. However, while consumers may withdraw demand from a firm when quality falls, in his famous book Exit, Voice, and Loyalty, Hirschman highlights an alternative mechanism that has received considerably less attention: voice. Hirschman argues that, rather than withdrawing demand from a firm, consumers may choose to communicate their dissatisfaction to the firm. In this paper, we develop a formal model of the ideas in Exit, Voice and Loyalty and undertake the first large-scale empirical analysis of the relationship between quality, voice, and market structure. Combining data on tweets about major U.S. airlines with data on on-time performance and market structure, we document that the quantity of tweets is correlated with flight delays. Furthermore, we find that this relationship is stronger when an airline has a greater degree of market power in a city.
Cooperation in a Peer Production Economy: Experimental Evidence from Wikipedia
Jerome Hergueux
(ETH Zurich )
Yann Algan
(Sciences Po)
Benkler Yochai
(Harvard University)
Mayo Fuster Morell
(Autonomous University of Barcelona)
[View Abstract]
[Download Preview] We experimentally elicit social motives among Wikipedia contributors to extend the literature on public goods provision beyond its current focus on explaining individual contributions. We highlight the heterogeneity of contributors, analyze the determinants of their level of collaborativeness and study the policing activities of platform administrators. Reciprocity, altruism and social image motives all strongly relate to field contributions, but differently for “casual” and “super” contributors. More reciprocal and altruistic subjects are more cooperative when contributing, while subjects who reveal social image concerns start relatively more editing conflicts. Decreased experimental trust is associated with increased policing activity among Wikipedia administrators.
The Empirical Economics of Online Attention
Andre Boik
(University of California-Davis)
Shane Greenstein
(Harvard Business School)
Jeffrey Prince
(Indiana University)
[View Abstract]
[Download Preview] Despite an immense literature on Internet adoption and, to some extent, usage, there is still limited knowledge of how households consume information on the Internet. In this paper, we intend to add to this knowledge at a very basic level, by measuring and classifying Internet information consumption along time and space. Specifically, we aim to characterize household web surfing “types” according to the amount of time they spend online and how they distribute this time across different web domains. We plan to define these types according to the following dimensions of Internet use (or subset thereof): Number of days online per week, total time online per week, time per domain, and concentration of domains visited according to time and views. The last of these dimensions indicate whether a household’s visits across N domains are concentrated among just a few or more evenly spread across all N, as measured by time or visit frequency. Using these dimensions to partition the usage space, examples of types that would emerge include the “tourist,” who infrequently visits a handful of sites for a relatively short period of time, and the “lingerer,” who spreads a great deal of time online across a few domains.
Competing with Complementors: An Empirical Look at Amazon.com
Feng Zhu
(Harvard University)
Qihong Liu
(University of Oklahoma)
[View Abstract]
Platform owners sometimes enter complementors’ product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: Platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms’ overall quality. Using data from Amazon.com, we analyze the patterns of Amazon’s entries into its third-party sellers’ product spaces. We find evidence consistent with the former explanation: that the likelihood of Amazon’s entry is positively correlated with the popularity and customer ratings of third-party sellers’ products. Amazon’s entry reduces the shipping costs of affected products and hence increases their demand. Results also show that third-party sellers affected by Amazon’s entry appear to be discouraged from growing their businesses on the platform subsequently.
Discussants:
Judith Chevalier
(Yale University)
Marit Hinnosaar
(Collegio Carlo Alberto)
Scott Savage
(University of Colorado)
Steven Tadelis
(University of California-Berkeley)
Jan 04, 2016 12:30 pm, Parc 55, Divisadero
International Association for Energy Economics
Economic Implications of New Energy Technologies
(Q4)
Presiding:
Anastasia Shcherbakova
(University of Texas-Dallas)
An Evaluation of the Toxicity of Hydraulic Fracturing Injectants
Timothy Fitzgerald
(Montana State University)
Charles F. Mason
(University of Wyoming)
[View Abstract]
[Download Preview] In the past decade, innovations in hydraulic fracturing and horizontal drilling have fueled a boom in the production of natural gas (as well as oil) from geological formations – primarily deep shales – in which hydrocarbon production was previously unprofitable. Impacts on U.S. fossil fuel production and the U.S. economy more broadly have been transformative, generating important benefits to consumers and producers alike. The widespread use of this new extractive technique also has great potential to expand the role of natural gas in U.S. energy markets, which presents an opportunity to curtail the use of coal, and thereby lower greenhouse gas emissions. Working against these benefits are concerns about negative externalities, including impacts to air and water associated with the chemicals used as injectants during the fracking process. In this paper, we discuss information on the role played by these injectants, their toxicity, and issues linked to “produced water,” which flows back from the well after the deposit is fracked. We find a pattern of more efficient use of water over time, which is likely to be broadly beneficial. On the other hand, we find a high correlation between the toxicity of reported injectants and the number of injectants whose identity is withheld under the “trade secrets” provision. The data allow us to separately evaluate the tendency to withhold information across the three major service firms (Baker-Hughes, Halliburton and Schlumberger). We find that Halliburton is the most secretive service firm and Baker-Hughes is the least secretive firm. In light of the impending acquisition of Baker-Hughes by Halliburton, this firm-specific information has particular implications for the likelihood of greater withholding going forward. One policy implication of our analysis is that benefits will accrue from slackening firms ability to withhold information concerning the ingredients used in the frack job.
Costs Assessments of European Environmental Policies
Simona Bigerna
(University of Perugia)
Carlo Andrea Bollino
(University of Perugia)
Silvia Micheli
(Guglielmo Marconi University)
Paolo Polinori
(University of Perugia)
[View Abstract]
The evolution of energy production in the European Union (EU) is going through a big change in recent years: the incidence of traditional fuels is diminishing gradually for increasing renewable energy sources (RES), due to international concerns over climate change and for energy security reasons. The aim of this paper is to construct a simulation model that identifies and estimates costs that may arise for a community of negotiating countries from opportunistic behavior of some country when defining environmental policies. In this paper, the model is applied specifically to the new 2030 Framework for Climate and Energy Policies (COM(2014) 0015) (EC, 2014) on the promotion of RES that commits EU governments to a common goal to increase the share of RES in final consumption to 27% by 2030. Costs faced by EU countries to achieve the RES target are different due to their endowment heterogeneity, the availability of RES, the diffusion process of cost improvements and the different instruments to support the development of the RES technologies. Given the still undefined participation agreement to reach the new overall RES target by 2030, we want to assess the potential cost penalty induced by free riding behavior. This could stem from some EU country, which avoids complying with the RES Directive. Our policy simulation exercise shows that costs increase more that proportionally with the non-participating country size, measured with GDP and CO2 emissions. Furthermore, we provide a model to analytically assess the likelihood each EU country may have to behave opportunistically within the negotiation process of the new proposal on EU RES targets (COM(2014) 0015).
Learning-Based Welfare Effects in Oil and Natural Gas Lease Negotiations
Andrew Kleit
(Pennsylvania State University)
Anastasia Shcherbakova
(University of Texas-Dallas)
[View Abstract]
Negotiations for oil and natural gas leases are a crucial part of the energy industry. There have been many theoretical models of what should happen in these negotiations (see, for example, Summers 1925, King 1948, Lowe 1985, Hinton 1985, and Hendricks et al. 1993). There is, however, almost no empirical information about what the results of the negotiations are, and what factors drive the conclusions to negotiations. One reason for this empirical gap is that oil and gas leases have until recently existed only in paper form and were housed in respective counties’ courthouses. This made it very difficult to aggregate and extract useful information. Recent efforts to digitize leases, however, have enabled researchers to engage in a thorough and systematic analysis of lease-related questions, aided by innovations in algorithmic data reading techniques and textual analysis methods (see, for example, Moszoro et al., 2014), as well as Geographic Information Systems (GIS) mapping capabilities.<br />
<br />
In this study we use a dataset of approximately 100,000 oil and gas lease contracts in Tarrant County, Texas, between 2007 and 2011 along with information contained in geological maps of the relevant geographic region, and associated drilling and production records kept by the Texas Railroad Commission to examine the economics of contracting in the U.S. oil and gas industry. In particular, we are interested in to what extent learning leads to changes in lease terms and associated inter-temporal changes in distribution of rents from mineral development. Results are forthcoming.
Stochastic Technological Learning and Electricity Investments
Jennifer F. Morris
(Massachusetts Institute of Technology)
Mort D. Webster
(Pennsylvania State University)
John M. Reilly
(Massachusetts Institute of Technology)
[View Abstract]
This work applies stochastic dynamic programming methods to a small computable general equilibrium (CGE) model to investigate near-term electricity investment decisions under uncertainty in future technology costs and policy. Most studies that include technological learning utilize deterministic learning curves in which a given amount of investment, production or capacity leads to a given cost reduction. We investigate technological learning in a stochastic framework in which a given amount of capacity investment changes the 'probabilities' of future technology costs.
Results show that without technological learning, cost uncertainty has a weak or no impact on optimal near-term investment strategy for the scenarios explored. However, cost uncertainty with stochastic technological learning can have a significant impact. Depending on the rate of technological learning, as well as the expectations about future policy, the value of reducing expected future costs can provide strong motivation for additional non-carbon investment in the near-term. If technological learning is deterministic instead of stochastic, less non-carbon investment is optimal in the near-term.
As the learning rate increases, more non-carbon investment is optimal in the near-term. With higher learning rates, near-term non-carbon investments are more valuable as they impact probabilities of future costs more and result in larger reductions in expected cost. Learning rates lower than those found in the literature can lead to significant additional near-term investment in non-carbon technology being optimal in order to lower expected future cost of technology.
In a realistic industry structure with competition, and assuming technological learning benefits spillover to competitors or are not fully captured by the private sector investors, there may be underinvestment in non-carbon technologies compared to what is socially optimal. Government policy may be needed to encourage private investment in non-carbon technologies to help lower expected cost of those technologies in the future.
Discussants:
Matthew Oliver
(Georgia Institute of Technology)
Sevil Acar
(Istanbul Kemerburgaz University)
Martin Stuermer
(Federal Reserve Bank of Dallas)
Nadejda Victor
(Booz Allen Hamilton and National Energy Technology Laboratory)
Jan 04, 2016 12:30 pm, Marriott Marquis, Sierra B
International Association for Feminist Economics
Gendered Responses to Upheaval and Recession
(F6)
Presiding:
Joyce Jacobsen
(Wesleyan University)
What are the Implications of Austerity Policy Chosen by the Government of Canada in the Midst of the Great Depression 2008-2009 for Women Workers in the Medium to Long-Run? Gender Analysis of the Socio-Economic Status of Canadian Women Workers and Policy Prescriptions for Select Case Studies
Ana Androsik
(New School )
[View Abstract]
This article is aimed at creating a theoretical foundation for the debates between neoliberalism and feminist critique of the gender blindness of austerity measures chosen by Canadian government to mitigate the affect of the Global Crisis of 2008-2009[i] on women workers. Feminist economic theory contributes to understanding the long-run effects of the Great Depression of 2008 on well-being of male and female workers[ii]and moves heterodox macroeconomic studies from examining income and employment effects[iii] to a different level, i.e. disaggregating these effects by gender and also “frames the issue in a broader conception of well-being and nonmarket dimensions of the economy.”[iv]Following feminist and heterodox economists, it is possible to underline that the costs of spending cuts will be reflected by worker’s weaker health, more expensive education, and lack of other welfare programs in the medium run that will also impact future generations of workers in the long run.
There is no much analysis of the Canadian federal government policy overall and in particular from heterodox and feminist economic perspective. I would like to make a pitch for more embedded feminist economic analysis of the government policies in Canada in order to understand the approach of Canadian federal government for economic policy formulation prior and post Great Depression of 2008. I would like to bring a big frame of analysis – not just focusing on policy documents, but understand the policy through the lens of feminist and heterodox economic thought.
Gender, Class and the Crisis
Marcella Corsi
(Sapienza University of Rome)
Carlo D’Ippoliti
(Sapienza University of Rome)
[View Abstract]
[Download Preview] Several scholars have addressed the narrative of a two-stage European crisis. In a first stage, the “he-cession”, men would have been hit the most by the economic recession. Shortly thereafter, in the “she-austerity” stage, women would have suffered the heaviest burdens of the fiscal retrenchment measures. If that were the case, the policy response to the crisis would be producing an increase in the – already high pre-existing – gender inequality.
In this work we analyse the European Union Statistics on Income and Living Conditions (EU-SILC) micro-data, covering 620,017 households in 27 EU countries for three years (2007, 2010, 2013). Building on a Classical political economy approach, we aim to explore the link between households’ sources of income (rents, profits, wages and State transfers) and income changes during the crisis. As it turns out, the crisis and the policy response to it have impoverished several European households and increased income inequality in Europe. However, there is no strong evidence to support or reject the abovementioned narrative on the gendered impact of the crisis yet. Thus, it may be necessary to wait for further evidence before taking the two-stage narrative for granted, while stronger emphasis on pre-existing structural gender equality may be warranted.
The Impact of the Financial Crisis on Gender Inequalities: Evidence from Europe
Esther Jeffers
(University of Paris 8)
Carole Brunet
(University of Paris 8)
[View Abstract]
[Download Preview] This paper examines the evolution of labor market gender gaps during the Great Recession in Europe. We have focused on participation and unemployment gender gaps, and estimated fixed effects models that incorporate social, economic and institutional features of the fifteen European Union member states from 2003 to 2013. Our results indicate that gender gaps have decreased during this time span, and particularly so during the recession years. Generally speaking, economic growth seems to foster gender inequalities while labor market institutions, such as unionization and employment protection legislation, tend to favor convergence for female and male workforce participation as well as for unemployment rates.
Gender, Socieconomic Status, Time-Use, and the Great Recession in the U.S.
Ebru Kongar
(Dickinson College)
Mark Price
(Keystone Research Center)
[View Abstract]
Using data from the 2003-2013 American Time Use Surveys, this study examines whether and the extent to which the gendered impact of the 2007-9 recession on time use of married co-habiting mothers and fathers varied by socioeconomic status. Recent findings in the literature show that the recession widened the gender difference in total (paid and unpaid) work hours of married co-habiting mothers and fathers. We examine whether and to the extent which these results varied by socioeconomic status (parents’ education and household income levels). Given the previous findings in the literature that the gender difference in the time spent on housework is smaller among highly educated women and men, and women in poor households but not men, spend more time doing unpaid work, we expect the burden of the recession to be distributed more gender equitably among mothers and fathers with high socioeconomic status. In other words, we expect that mothers in low socioeconomic status households to be not only hit harder by the recession but also to have shouldered disproportionate burden of household adjustment during the crisis.
Discussants:
Joyce Jacobsen
(Wesleyan University)
Olagoke Akintola
(University of KwaZulu Natal)
Jan 04, 2016 12:30 pm, Marriott Marquis, Sierra H
International Banking, Economics and Finance Association
Mortgage Markets and the Macroeconomy
(G2, E3)
Presiding:
John V. Duca
(Federal Reserve Bank of Dallas)
Helping the Middle-Class: How Interest Rates Affect the Distribution of Housing Wealth
Isaac Hacamo
(Indiana University)
[View Abstract]
[Download Preview] This paper documents that economy-wide declines in interest rates cause middle-income neighborhoods to experience large gains in house prices, while high- and low-income neighborhoods experience no gains. I use a novel identification strategy that exploits minor incidental differences in the distribution of the metropolitan population to estimate a measure of latent demand for small neighborhoods. A 1.2% decline in mortgage interest rates leads to an average increase of 6% to 7% in housing wealth for middle-income homeowners, which translates to an average monetary in- crease of $7,600 to $8,900 in housing wealth.
An Agency Problem in the MBS Market and the Solicited Refinancing Channel of Large-Scale Asset Purchases
John P. Kandrac
(Federal Reserve Board)
Bernd Schlusche
(Federal Reserve Board)
[View Abstract]
[Download Preview] In this paper, we document that mortgage-backed securities (MBS) held by the Federal Reserve exhibit faster principal prepayment rates than MBS held by the rest of the market. Next,
we show that this stylized fact persists even when controlling for factors that affect prepayment behavior, and thus determine the MBS that are delivered to the Federal Reserve. After ruling out several potential explanations for this result, we provide evidence that points to an agency problem in the secondary market for MBS, which has not previously been documented, as the most likely explanation for the abnormal prepayment behavior of Federal Reserve-held MBS. This agency problem|a key feature of the MBS market|arises when originators of mortgages that underlie the MBS no longer share in the prepayment risk of the securities, thereby increasing incentives to solicit refinancing activity. Therefore, Federal Reserve MBS holdings acquired from originators as a result of large-scale asset purchases can help stimulate economic activity through a so-called "solicited refinancing channel." Finally, we provide an estimate of the additional refinancing activity resulting from the solicited refinancing channel in the years after the Federal Reserve's first MBS purchase program, demonstrating that this channel conveyed savings on monthly mortgage payments to homeowners.
Holes in the Dike: The Global Savings Glut, U.S. House Prices, and the Long Shadow of Banking Deregulation
Matthias Hoffmann
(University of Zurich)
Iryna Stewen
(Johannes Gutenberg University Mainz)
[View Abstract]
[Download Preview] How did capital inflows into and financial deregulation within the United States interact in driving the recent boom and bust in U.S. housing prices? To account for the potential endogeneity of financial deregulation, we focus on the history of interstate-banking deregulation during the 1980s, i.e. roughly a decade before the global savings glut emerged in the second half of the 1990s. Our results suggest a long shadow of deregulation: in states that opened their banking markets to out-of-state banks earlier, house prices were more sensitive to aggregate U.S. capital inflows during 1990-2012. We show that this was because capital inflows relaxed the value-at-risk constraints of geographically diversified ('integrated') U.S. banks more than those of local banks. Integrated banks therefore absorbed a larger share of the savings glut and expanded their lending more than local banks.
Episodes of Exuberance in Housing Markets: In Search of the Smoking Gun
Enrique Martinez-Garcia
(Federal Reserve Bank of Dallas)
Efthymios Pavlidis
(Lancaster University)
Alisa Yusupova
(Lancaster University)
Ivan Paya
(Lancaster University)
David Peel
(Lancaster University)
[View Abstract]
[Download Preview] In this paper, we examine changes in the time series properties of three widely used housing market indicators (real house prices, price-to-income ratios, and price-to-rent ratios) for a large set of countries to detect episodes of explosive dynamics. Dating such episodes of exuberance in housing markets provides a timeline as well as empirical content to the narrative connecting housing exuberance to the global 2008 −09 recession. For our empirical analysis, we employ two recursive univariate unit root tests recently developed by Phillips and Yu (International Economic Review 52(1):201–226, 2011) and Phillips et al. (2015). We also propose a novel extension of the test developed by Phillips et al. (2015) to a panel setting in order to exploit the large cross-sectional dimension of our international dataset. Statistically significant periods of exuberance are found in most countries. Moreover, we find strong evidence of the emergence of an unprecedented period of exuberance in the early 2000s that eventually collapsed around 2006 −07, preceding the 2008 −09 global recession. We examine whether macro and financial variables help to predict (in-sample) episodes of exuberance in housing markets. Long-term interest rates, credit growth and global economic conditions are found to be among the best predictors. We conclude that global factors (partly) explain the synchronization of exuberance episodes that we detect in the data in the 2000s.
Discussants:
Wenlan Qian
(National University of Singapore)
Scott Frame
(Federal Reserve Bank of Atlanta)
Allen Berger
(University of South Carolina)
Joshua Gallin
(Federal Reserve Board)
Jan 04, 2016 12:30 pm, Marriott Marquis, Sierra C
International Network for Economic Method
Thought Experiments in Economics, Past and Present
(B4, B2)
Presiding:
John B. Davis
(Marquette University)
Thought Experiments and the Nature of Economic Theory
Julian Reiss
(Durham University)
[View Abstract]
[Download Preview] As compared to other methods such as mathematical modeling, regression, laboratory and field experimentation, the ‘method of imaginary constructs’ — or thought experimentation — is employed rather rarely in economics, certainly in contemporary ‘mainstream economics’. The aim of this paper is to examine two instances of this rare species and use them to cast a light on different ways of economic theorizing. While both thought experiments purport to explain the origin of money, they do so in dramatically different ways. Certainly the nature and function of money are understood very differently. More importantly, money appears as an unintended consequence and separate from most other central socio-economic phenomena with the exception of exchange in one, but as a deliberate invention and closely connected to phenomena such as freedom, property, debt, interest rates, and innovation in the other. It is no accident, then, that contemporary ‘mainstream economics’, which essentially accepts the results of the former thought experiment, has separate explanations for all of these. I will argue that to the extent that we want good scientific theories to reduce the number of independent phenomena, the latter thought experiment is more successful in helping to establish a good scientific theory.
On Delimiting the Extent of Thought Experiments in Economics
Margaret Schabas
(University of British Columbia)
[View Abstract]
[Download Preview] In contemporary mainstream economics, everything is a model, or so it would appear. There are many kinds of models, theoretical, empirical, econometric, material, game theoretic, behavioral, stochastic, and so forth. There are also many kinds of experiments in economics: laboratory, field, natural, quasi, and accidental. There are also rare appeals to thought experiments (TEs), and some that were clear candidates before the term was coined, especially in the early modern period.
If the puzzle about TEs stems from the belief that we can learn something new about the world just by engaging a train of thought without appealing to any new empirical findings, then economics seems a promising candidate. As the early neoclassical economists emphasized, economics is a science of the mind. The way that we know and understand the pathway of economic agency is by introspection on the supposition that we can extrapolate from our own deliberations to other minds.
This paper will demarcate TEs from models in economics, and argue that TEs and models are distinct types of conceptual tools. They differ more by degree than by kind, and fall on a continuum. There are some models that are near cousins to thought experiments, and vice versa. I will argue that thought experiments are in fact quite rare in economics, past or present. They are launched by a strong if not jarring counterfactual to a distant rather than proximate other world, and the journey the mind then takes back to this world is a familiar one. The paradigmatic case is Hume’s sudden doubling of the money supply, or Friedman’s helicopter drop. But the current rash of TEs in environmental economics, as posited by for example Weitzman or Keohane, is a misnomer. We would be the better for finding a different name for models that speculate well into the future.
Armchair Theorizing in Economics: A Reassessment of Samuelson’s Consumption-Loan Model
Harro Maas
(Centre Walras-Pareto)
[View Abstract]
[Download Preview] In a 1978 JEL article, Paul Samuelson wrote of Malthus and other classical economists that they “lived during the industrial revolution, but scarcely looked out from their libraries to notice the remaking of the world.” Yet it was Samuelson himself who was faulted by Daniel Hausman and the late Terence Hutchison for scorning the ‘hard work of the social scientist” and contriving elegant mathematical models without any real world correlates. They appear to be as guilty as Malthus for not looking out of the window and for theorizing the world from the armchair. “Armchair theorizing” is, of course, a pejorative metaphor for a practice in which economists seem to be unconcerned with “data” and “evidence”, whether statistical or otherwise, and yet make claims about the world.<br />
This paper will reconsider Hausman’s assessment of Samuelson’s 1958 JPE article An Exact Consumption-Loan Model. My argument is that Samuelson’s modelling exercise should not be considered as capable of being tested against statistical data. Rather, Samuelson performed a thought experiment that tested a generic intuition held by the economics profession, that markets are capable of serving the common good, without this being the individual agents’ intention. Just as in the case of Malthus, Samuelson’s thought experiment serves to debunk utopian thinking that fails to specify the productive mechanisms of its ideal state.<br />
I argue that it is exactly such debunking exercises that belong to the province of the social scientists, including the economists. As Margaret Schabas notes, in contrast with models that have a representational function, thought experiments challenge “deep-rooted” intuitions about the world. Such a strategy serves the role Thomas Kuhn attributed to thought experiments: to change our worldview by pinpointing the paradoxical nature of our present ontological commitments. Because Hausman misconceived Samuelson’s modelling exercise as representational, he failed to thresh out this important message.
Imagination Rather Than Observation in Econometrics: The Case of Ragnar Frisch’s Hypothetical Experiments
Catherine Herfeld
(Ludwig Maximilians University Munich)
[View Abstract]
In economics, the methodological value of thought experiments is frequently justified by referring to the difficulty of conducting controlled experiments. It has also been argued that thought experiments serve other functions in economics, such as establishing causal facts, isolating tendencies, justifying social institutions and their persistence, or bridging the gap between mathematical models and reality. In this paper, I argue that thought experiments have yet another function in economics. In the case of econometric modeling, thought experiments have been employed to bridge the gap between theoretically established relationships and the process of empirical testing. More specifically, thought experiments have served to explicate and operationalize some of the entities in the theory so as to facilitate the next state of empirical tests.<br />
In support of my argument, I will offer a historical case study, namely the “hypothetical experiments” of the Norwegian economist Ragnar Frisch. As I will show, Frisch used thought experiments to justify his axioms of consumer choice theory in his paper Sur un Problème d’Economie Pure, as well as in a series of lectures of the early 1930s. Frisch aimed at eliminating introspection and subjective utility, vestiges of the Austrian school. At the same time, he sought to equip economic theories with acceptable behavioral foundations from which quantitative economic reasoning could be derived. In so doing, Frisch followed in the tradition of Fisher and Pareto. While impressed by their developments of utility analysis, Frisch aimed at taking one step further towards freeing consumer choice theory from psychological concepts, such as utility, while nevertheless arriving at quantitative measurements of utility. Towards this end, Frisch used thought experiments to justify the set of choice axioms he introduced into consumer choice theory. Thereby, Frisch circumvented the problem of directly observing utility via actual experiments without purging the concept of utility from economic altogether.
Discussants:
John B. Davis
(Marquette University)
Jan 04, 2016 12:30 pm, Marriott Marquis, Nob Hill C & D
International Trade & Finance Association
The Saga of Trans-Pacific Partnership Negotiations
(F1, F5) (Panel Discussion)
Panel Moderator:
Joseph Pelzman
(George Washington University)
Alan V. Deardorff
(University of Michigan)
Michael G. Plummer
(Johns Hopkins University)
Sven Arndt
(Claremont McKenna College)
Joseph Pelzman
(George Washington University)
Robert E Scott
(Economic Policy Institute)
Jan 04, 2016 12:30 pm, Hilton Union Square, Union Square 1 & 2
Korea-America Economic Association/American Economic Association
Advances in Behavioral Economics
(C9, D9)
Presiding:
Yeon-Koo Che
(Columbia University)
When Fair Isn't Fair: Time-Inconsistency in Social Preferences
James Andreoni
(University of California-San Diego)
Deniz Aydin
(Stanford University)
Blake Barton
(Stanford University)
Douglas Bernheim
(Stanford University)
Jeffrey Naecker
(Wesleyan University)
[View Abstract]
How do people think about fairness in settings with uncertainty? One view holds that fairness requires equality of opportunity; another holds that it requires equality of outcomes. Relative to the resolution of uncertainty, the first view takes an ex ante perspective, while the second takes an ex post perspective. In this paper, we conduct a laboratory experiment designed to determine which perspective people adopt, and under what conditions. We find that most people view fairness from an ex ante perspective when making decisions ex ante, and from an ex post perspective when making decisions ex post. As a result, they exhibit the hallmark of time-inconsistency: after making an initial plan (ex ante all uncertainty) that is fully state-contingent, they revise it upon learning that certain states will not occur (that is, ex post the resolution of some uncertainty, and ex ante the resolution of residual uncertainty). These patterns are robust and persist even when people are aware of their proclivities. Indeed, subjects who switch from ex ante fair to ex post fair choices, and who are aware of this proclivity, generally avoid precommitments and intentionally retain the flexibility to manifest time inconsistency.
Dynamic Inconsistencies: A Revealed Preference Approach
Syngjoo Choi
(Seoul National University)
Shachar Kariv
(University of California-Berkeley)
Wieland Müller
(University of Vienna)
Daniel Silverman
(Arizona State University)
[View Abstract]
We report an experiment where subjects from a large representative sample make choices from a series of budget sets involving tradeoffs of incomes between two payment dates. The budget sets vary widely with respect to interest rates and endowments. This allows us to use revealed preference analysis at the individual level to test for consistency with utility maximization as well as stationarity of intertemporal choices. Our data suggests that lack of consistency with economic rationality may be more important than non-stationarity in flow utilities or time discount rates. We relate inconsistencies over time and non-stationarity with socioeconomic information.
Asset Pricing with Experience Effects
Ulrike Malmendier
(University of California-Berkeley)
Demian Pouzo
(University of California-Berkeley)
Victoria Vanasco
(Stanford University)
[View Abstract]
How does the experience of a financial crisis and other macroeconomic shocks alter the dynamics of financial markets?
Recent evidence suggests that individuals overweight personal experiences of macroeconomic shocks when forming beliefs about risky outcomes and making investment decisions.
We propose a simple OLG model as the theoretical underpinning of experience-based learning. Risk averse investors invest in a 'Lucas tree' and a risk-free asset. They form beliefs based on data observed during their lifetimes so far. We show that, in equilibrium, prices depend on past dividends, but only those observed by the generations that are alive, and they are more sensitive to more recent dividends. Younger generations react more strongly to recent experiences than older generations and, hence, have higher demand for the risky asset than the old in good times, and lower demand in bad times. The model generates predictions for stock price dynamics and trading volume: First, the more agents in an economy rely on recent observations, the more volatile are prices and the higher is the autocorrelation of prices. Second, the stronger the disagreement across generations (e.g. after a recent shock), the higher is the trade volume. Third, a recent crisis will increase the average age of stock market participants, while periods of stock-market boom have the opposite effect.
Endogenous Paternalism and Pseudo-Rationality
Itzik Fadlon
(Harvard University)
David Laibson
(Harvard University)
[View Abstract]
Equilibrium behavior is jointly determined by the actions of households and social planners. In this paper we highlight the distinction between planner rationality and household rationality. We show that planner rationality is a partial substitute for household rationality and that this is true even when there are information asymmetries, so that households know more about their preferences than planners. Our analysis illustrates a potential misattribution in economic analysis. Is optimal behavior caused by optimizing households, or is (seemingly) optimal behavior caused by planners who paternalistically manipulate households that would not optimize on their own? We show that widely studied optimality conditions that are implied by household rationality also arise in an economy with a rational planner who uses default savings and Social Security to influence the choices of non-optimizing households. Classical optimization conditions do not resolve the question of household rationality.
Discussants:
Daniel Silverman
(Arizona State University)
James Andreoni
(University of California-San Diego)
Lawrence Jin
(California Institute of Technology)
Emir Kamenica
(University of Chicago)
Jan 04, 2016 12:30 pm, Parc 55, Balboa
Labor & Employment Relations Association
Broken Promises or a Lifeline to the Future: Perspectives on the Multiemployer Pension Reform Act of 2014
(J5)
Presiding:
Charles Jeszeck
(United States Government Accountability Office)
The Long Road to Here: Recent Trends in the Multiemployer Plan System
Eli Greenblum
(Segal Consulting)
[View Abstract]
This discussion will outline the recent history of the multiemployer plans, in particular the
recent trends in and current status of the financial condition of multiemployer plans, with a
breakout by different industry groups. With insights derived from in-depth knowledge of a
significant segment of the multiemployer plan universe, the discussion will also cover the
outlook for major factors driving plan’s financial health, such as investment returns, industry
health, employment levels, and demographic patterns. Finally, it will highlight the necessity
of the historic December 2014 reform legislation that significantly expanded troubled plans’
ability to reduce accrued retirement benefits
Grabbing the Lifeline: A Look at How Plans Have Responded to the New Tools under the MPRA
Randy DeFrehn
(National Coordinating Committee on Multiemployer Plans)
[View Abstract]
This session will explain and explore the features of the Multiemployer Pension Reform
Act and the resulting regulations that are designed to enable eligible “critical and declining
plans” to avoid inevitable insolvency and examine which plans are among the first to
exercise these new options. It will also review proposed creative new plan designs that are
intended to enhance retirement security for workers by removing incentives for contributing
employers to withdraw from plans and the disincentives to new employers from joining.
Reducing Earned Retirement Benefits: A Grim Precedent with Ominous Implications
Norman Stein
(Drexel University)
[View Abstract]
The recent reform legislation permitted some multiemployer plans to waive one of the key
principles of American retirement law--namely, that once benefits are earned, retirement
plans may not reduce them for any reason. This discussion will outline the impacts this
provision may have on workers and retirees, and will highlight several considerations to
minimize the burden imposed on them.
The Fraying Safety Net: PBGC’s Endangered Insurance Program
Michael Hartnett
(United States Government Accountability Office)
Sharon Hermes
(United States Government Accountability Office)
[View Abstract]
Beneficiaries of insolvent multiemployer pension plans rely on PBGC-supported insurance
benefits that are typically much lower than the original pension benefit payment. This
presentation will outline PBGC’s role as insurer of last report for insolvent multiemployer
plans, and describe how the challenges to the multiemployer system came to threaten
this underlying insurance protection. The discussion will also describe the prospects for
this program under the December 2014 reform legislation, and consider additional steps
that might be taken to ensure the program’s effectiveness in protecting workers’ pension
benefits.
Discussants:
Teresa Ghilarducci
(New School)
Heather Grob
(Saint Martin's University)
Jan 04, 2016 12:30 pm, Parc 55, Davidson
Labor & Employment Relations Association
Mass Incarceration of African Americans and Its Economic Consequences
(J7)
Presiding:
Jeannette Wicks-Lim
(University of Massachusetts-Amherst)
Racial Disparities and the Criminal Justice System: What Have We Learned?
Samuel Myers
(University of Minnesota)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper reviews the past 30 years of research examining the causes and consequences
of racial disparities in the criminal justice system. It explores the various methodological
issues, the measurement problems, the data availability, and the robustness of results
relating to disparities in arrests, incarceration and post-prison recidivism. Partly relevant
in the review are the various assertions made about the consequences of criminal justice
involvement, particularly for labor market participation and family formation. Also discussed
is the literature about criminal justice involvement and such factors as the returns to early
childhood education and the effects of schoo scipline policies.
Civil Rights Legislation and Legalized Exclusion: Mass Incarceration and the Masking of Inequality
Becky Pettit
(University of Texas-Austin)
[View Abstract]
Civil rights legislation in the 1960’s promised greater racial equality in a variety of domains
including education, economic opportunity, and voting. Yet those same laws were coupled
with exclusions from surveys used to gauge their effects thereby affecting both statistical
portraits of inequality and our understanding of the impact of civil rights legislation. This
paper considers how growth in the American criminal justice affects assessments of equal
opportunity more than half a century after the enactment of historic legislation meant to
redress racial inequities in America.
The Effect of Incarceration on Health Over the Life Course
Robynn Cox
(Spelman College)
[View Abstract]
Health can have both direct and indirect effects on labor market outcomes (e.g., the ability
to obtain employment, maintain employment, and earn a living), which can lead to an even
greater decline in the quality of life for the individual affected and any dependent family
members. Therefore, this study investigates the link between incarceration and health over
the life course using data from the National Longitudinal Survey of Youth. Theory and prior
research suggests an ambiguous relationship between health and incarceration. On the
one hand, incarceration may increase exposure to certain communicable diseases, and
may lead to chronic illnesses related to poor living conditions and stress. On the other
hand, incarceration may provide protective benefits to the individual incarcerated (e.g.,
decreases in mortality due to homicide, accidental death, etc.), and it may offer opportunities
to make health investments through greater access to health care. The relationship between
incarceration and health is further confounded by endogeneity, resulting from the fact that
the incarcerated population is highly selected. Various causal inference techniques are used
in this analysis to disentangle the relationship between health and incarceration.
Old-Age Security? Private Pensions, Social Security and Ex-Offenders
Ngina Chiteji
(New York University)
[View Abstract]
That incarceration has numerous collateral consequences for ex-offenders and their families<br /><br />
is undisputed. Existing research has documented the effects of having a prison record on<br /><br />
a wide range of outcomes post-release, including an ex-offender's employment prospects,<br /><br />
earnings, ability to vote, and marriage proba . This paper examines the effect of past<br /><br />
incarceration on the likelihood of having an e oyer-provided pension, retirement savings,<br /><br />
and the likelihood of being eligible for Social Security during old age. It uses data from the<br /><br />
Survey of Inmates in Federal Correctional Facilities (SIFCF) and the National Longitudinal<br /><br />
Survey of Youth (NLSY) as part of its analysis. The goal is to anticipate the future needs<br /><br />
of the cohort of individuals that has endured the mass incarceration that the United States<br /><br />
experienced during the 1980s and 1990s.
Discussants:
William A. Darity, Jr.
(Duke University)
Patrick Mason
(Florida State University)
Jan 04, 2016 12:30 pm, Hilton Union Square, Plaza A
Middle East Economic Association/American Economic Association
Violent Conflicts and Economic Development in the Middle East: Is there a Way Out?
(J6) (Panel Discussion)
Panel Moderator:
Hassan Aly
(Doha Institute for Graduate Studies and Ohio State University)
Hadi Salehi Esfahani
(University of Illinois)
Social Order, Violence, and Socio Economic Change in the Middle East
Ibrahim El Badawi
(Dubai Economic Council)
The Arab Spring: Much Violence, Little Democracy
Tarek Massoud
(Harvard University)
Overall Distinguishing Factors Contributing to the Violent Conflict in the Middle East
Jan 04, 2016 12:30 pm, Hilton Union Square, Continental – Parlor 2
National Association of Economic Educators
Improving the Learning in Economics Courses
(A2)
Presiding:
Carlos J. Asarta
(University of Delaware)
Art of Econ: A Guide to Differentiated Assessment of Students' Learning in Principles Level Couses
Abdullah Al-Bahrani
(Northern Kentucky University)
Kim Holder
(University of West Georgia)
Darshak Patel
(University of Kentucky)
Jadrian Wooten
(Pennsylvania State University)
[View Abstract]
Research has shown that, at the principles level, economic education relies mainly on exams for assessment. Introducing differentiated assessment in economic education through active learning provides a way for economic educators to increase the level of learning and to assess a higher level of understanding. In this paper, we provide instructors with low-cost active learning assignments. These assignments rely on creative art projects and require students to create economic content by first determining necessary information, then organizing their thoughts and finally using economic language clearly and precisely. We believe that these assignments better assess deeper levels of learning and we advocate for using the active learning assignments in conjunction with traditional testing. Multiple instruments of assessment and learning provide a more inclusive educational environment for today's students.
The Effect of Financial Incentives on Instructional Resource Allocation: A Framed Field Experiment
Austin S. Jennings
(University of Delaware)
[View Abstract]
[Download Preview] [Download PowerPoint] Within a principal-agent framework, educational policymakers have the greatest access to the financial incentives necessary to provide extrinsic motivation for teachers’ compliance with educational reforms. Contemporary, longitudinal research on financial incentives indicates methods of bonus compensation do not significantly affect student achievement in the United States. However, such studies are unable to directly capture the effect of financial incentives on teachers’ existing instructional practices. I develop a framed field experiment to explore pre-service teachers’ response to financial incentives and the effect thereof on instructional resource allocation. Aligned therewith, I use a three-level hierarchical generalized linear model to predict the probability a pre-service teacher allocates at least one instructional resource to a given student. Findings suggest pre-service teachers behave strategically based on financial incentive structures, allocating instructional resources to students for whom the expected compensation is greatest. These findings indicate the design of educational policy may affect the distribution of instructional resources and, as a consequence, academic opportunities for students with diverse learning profiles.
The Economic Impact of Prior Exam Performance on Current Effort Investment Decisions
Tin-Chun Lin
(Indiana University North West)
[View Abstract]
[Download Preview] We developed three hypotheses and a case study involving a sample of 203 students enrolled in four introductory microeconomics classes during the spring semesters of 2007 and 2009 to examine the effects of prior exam performance on increments for current in- and out-of-classroom efforts toward future exams. We found that students' prior exam performance is an important and significant signal of students' decisions to invest more or fewer efforts on the next exam. These findings also indirectly imply that many students behave like producers in evaluating their previous production outcomes and then deciding on a level of effort to invest in current production. In addition, we found that weaker students relative to stronger students invest lower effort when they received poor exam grades. Comparing weaker students with stronger students, weaker students are more likely to behave like producers.
Are You More Economic Than A First Grader?: A Mixed Methods Approach In A Common Pool Resource Experiment
Amanda Brooke Jennings
(University of Delaware)
[View Abstract]
[Download Preview] [Download PowerPoint] The purpose of this mixed methods study is to investigate the similarities and differences between children, lay adults, and economics experts in a common pool resources game, thereby providing initial insight into children’s naïve economic theories. Quantitative data is drawn from participation in an artifactual field experiment adapted from Knapp & Murphy’s (2010) common pool resource game. Qualitative data is drawn from semi-structured interviews. By incorporating mixed methods within the framework of a common pool resources game, I capture both behaviors during the game and insight into reasons for those behaviors. I use a binary logistic model to predict participants’ choices to play the game vs. take an allocation of a resource. The sample, N=47, consists of three purposefully selected groups: children, novice adults (no advanced economics knowledge), and expert adults (graduate level economics knowledge). Consistent with the literature, males are more likely to play the game and females are more likely to take the allocation. While the literature is mixed with respect to how children behave when compared to novice adults, this study finds children are significantly more likely to play the game than novice adults and equally likely to play the game as expert adults. Qualitative data provides possible explanations for these findings. Findings have implications for economic education curriculum design and instruction.
The Invisible Paw: Teaching Economics Using The Berenstain Bears
Erin A. Yetter
(Federal Reserve Bank of St. Louis)
[View Abstract]
Over the past fifty-pus years, Stanley and Janice Berenstain published 403 board books, chapter books, and early readers about a lovable family of bears called the Berenstain Bears. With so many Berenstain Bears titles available, and the popular pedagogical practice of teaching economics through children's literature, one would believe that a host of economic education resources utilizing this popular series exists. This is not the case, and I conjecture it is due to a lack of documented economic concepts covered in the popular children's books. Thus, this research seeks to provide such a list, along with discussion of the prevalent concepts found, background information on the Berenstains, and a discussion of the importance of cultivating interest and motivation in economics, specifically via the use of children's literature. To date, I have examined 46 of the Berenstain Bears titles and found economic and/or personal finance topics in 31, or 67%, of the titles. I anticipate having examined over half of the 203 titles when the study is completed in Fall 2015.
Discussants:
Amanda Brooke Jennings
(University of Delaware)
Kim Holder
(University of West Georgia)
Austin S. Jennings
(University of Delaware)
Erin A. Yetter
(Federal Reserve Bank of St. Louis)
Helen H. Roberts
(University of Illinois-Chicago)
Jan 04, 2016 12:30 pm, Hilton Union Square, Yosemite A
Society of Policy Modeling
Growth Prospects for Developing Countries
(F4, F4)
Presiding:
Fred Campano
(Fordham University)
Finance and Shared Prosperity: On How Finance Affects the Growth and Stability of Income of the Bottom Forty
David Gould
(World Bank)
[View Abstract]
[Download Preview] Finance might help mobilize greater resources for investment, improve allocation efficiency, and boost economic growth, but since the global economic crisis this relationship has come under increased skepticism. Particularly, the often used indicator of financial depth—private credit to GDP—has been questioned as a robust and reliable contributor to economic growth. Moreover, little research has been undertaken on the broader income distribution effects of finance and economic growth. This paper builds on the literature examining the relationship between finance and growth, inequality, and poverty. It investigates how financial development, broadly defined to include depth, efficiency, stability, and inclusion, influence the growth of aggregate income and the income of people in the bottom 40 percent of the income distribution (B40). It also examines how these relationships vary through banking crises. A key contribution of this study is to empirically unpack the multiple effects of financial development on growth across different income groups and finds, interestingly, that firm inclusion is perhaps the most important contributor to B40 long-run income growth though the allocative efficiency channel.
Export Quality in Advanced and Developing Economies: Evidence from a New Data Set.
Christian Henn
(International Monetary Fund)
Chris Papageorgiu
(International Monetary Fund)
Nikola Spatafora
(International Monetary Fund)
[View Abstract]
This paper develops new estimates of export quality, far more extensive than previous efforts, covering 178 countries and hundreds of products during the period 1962-2010. It finds that quality upgrading is particularly rapid during the early stages of development, with the process largely completed as a country reaches upper middle-income status. There is significant cross-country heterogeneity in the growth rate of quality. Within any given product line, quality converges over time to the world frontier. Institutional quality, liberal trade policies, FDI inflows, and human capital all promote quality upgrading, although their impact varies across sectors. The results suggest that reducing barriers to entry into new sectors can allow economies to benefit from rapid quality convergence over time.
Trade Slowdown and Economic Growth
Michele Ruta
(World Bank)
[View Abstract]
This paper investigates the impact of the global trade slowdown on economic growth. In particular, two channels will be investigated. On the demand side, sluggish world imports may reduce opportunities for individual countries’ exports. On the supply side, slower trade growth diminishes the scope for productivity growth through specialization and diffusion of technologies. Specifically, a slower pace of expansion of global value chains may imply diminishing scope for productivity growth through a more efficient international division of labor and knowledge spillovers.
Capturing the Effects of Changing Capital-Intensity on Long-Term Growth in Developing Countries
Fred Campano
(Fordham University)
Dominick Salvatore
(Fordham University)
[View Abstract]
As developing countries move to higher levels of production one would expect that the product mix would contain more goods (and services as well) which require the adoption of newer technologies. This process is reflected in higher capital-output ratios. If we use per-capita income as a proxy for development and the change in the incremental capital-output ratio (ICOR) as a measure of capital intensity, we can simulate long-term trends in GDP by changing a country's ICOR to the norms of other countries which have reached that level of development. We assume that the change occurs when the country's potential GDP shifts.Therefore the changes in the ICORs will occur in discrete intervals.
Discussants:
Dominick Salvatore
(Fordham University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra C
Agricultural & Applied Economics Association
Frontiers in the Economics of Food Labeling
(Q1)
Presiding:
Xiaoyong Zheng
(North Carolina State University)
Can Voluntary Nutrition Labeling Lead to a Healthier Food Market?
Xiaoou Liu
(Renmin University of China)
Chen Zhu
(China Agricultural University)
Rigoberto A. Lopez
(University of Connecticut)
[View Abstract]
[Download Preview] This article reviews approaches to voluntary nutrition labeling (VNL), such as front-of-package (FOP) labels, that emerged in the 2001-2014 period to provide simplified nutrition information, thus lowering the search cost for nutritional information. We present a market model to assess consumer and producer responses to changes in information search cost brought about by VNL. We specifically focus on the introduction of VNL in the ready-to-eat cereal (RTEC) market and illustrate trends in labeling and the overall healthfulness of RTEC products. Both the conceptual and empirical evidence suggest that VNL has been instrumental in attaining a healthier RTEC market. Finally, we suggest a research agenda to further theory development and empirical (experimental and big data) research to better comprehend the role of VNL in relation to market healthfulness.
Measuring the Informational Value of Interpretive Shelf Nutrition Labels to Shoppers
Chen Zhen
(University of Georgia)
Xiaoyong Zheng
(North Carolina State University)
[View Abstract]
[Download Preview] We use the voluntary adoption of the NuVal shelf nutrition labels by a grocery retailer to estimate the value of these labels to shoppers in the yogurt category. Using an incomplete quadratic almost ideal demand system to represent consumer demand, we found a statistically significant positive effect of these shelf labels on demand for yogurt with above-average NuVal scores. The coefficients on the NuVal treatment variable in the demand equations for yogurt with below-average NuVal scores and unlabeled yogurt are not statistically significant. The value of nutrition information brought by NuVal labels is estimated to be 3.1% of consumer expenditures on yogurt at the store that uses the labels.
The Impact of Nutritional Supplement Choices on Diet Behavior and Obesity Outcomes
Sven Anders
(University of Alberta)
Christiane Schroeter
(California Polytechnic State University-San Luis Obispo)
[View Abstract]
[Download Preview] Despite decades-old efforts to inform and educate consumers about healthier lifestyles through established dietary guidelines, diet-related diseases are on the rise. At the same time, consumers have developed more favorable attitudes towards nutritional supplements as a perceived alternative way to improve diet quality. Thus, there is a need to understand the role of nutritional supplements in U.S. consumers’ diets, given that supplements might serve as a possible policy tool to improve dietary behavior. We use data from the National Health and Nutrition Examination Survey (NHANES) to estimate the impact of nutritional supplements intake on respondent’s body weight outcomes, while controlling for diet quality based on individual Healthy Eating Index (HEI-2010) scores. Our analysis applies a set of innovative Propensity Score Matching (PSM) estimators that account for potential selection bias and endogeneity of the self-reported behavior and diet-health outcomes. The empirical analysis demonstrates a negative association between nutritional supplement intake and BMI. Our findings suggest that health-conscious individuals overinvest in health by taking nutritional supplements instead of improving diet quality through more appropriate food choices. Nutritional supplements have been discussed as a disease-preventative input that may enhance the diets and health of at-risk populations. The analysis in this paper suggests that consuming supplements should not be thought of as a replacement for a healthy food-based diet. Our study provides an important contribution to the literature on a key food policy issue and contributes new insight with regard to the relationship between dietary choices and health behavior.
Socially Responsible Products: What Motivates Consumers to Pay a Premium?
Leslie J. Verteramo Chiu
(Cornell University)
Miguel Gómez
(Cornell University)
Jura Liaukonyte
(Cornell University)
Harry M. Kaiser
(Cornell University)
Jubo Yan
(Cornell University)
[View Abstract]
[Download Preview] The motivation to pay a premium for socially responsible products is partly an expression of consumer concern for the well-being of those involved in the production process. Thus, choosing to buy a product with a socially responsible label and choosing to donate to a charity are similarly motivated actions. While there is an extensive literature on the economics of charitable giving that examines motivations to donate as well as on the impacts of labeling on consumer demand, there is very little overlap between the two literatures. In this paper we attempt to bridge these two literatures by investigating whether consumers have heterogeneous motivations for paying a premium. We design a lab experiment that auctions coffee with hypothetical socially responsible labels that put different weights on in-kind vs. cash transfers. We find that those consumers who prefer to restrict most of the premium to be an in-kind transfer (and are classified as paternalistic altruists) are willing to pay a 52.5% price premium over standard coffee. Those who prefer that most of the premium is paid as cash to the recipient (strong altruists) are willing to pay a 42.5% premium. Finally, those who are indifferent to how the premium is spent by the recipient (warm-glow givers) are willing to pay only a 19.2% premium. We discuss the implications of our results and future research directions.
Jan 04, 2016 2:30 pm, Hilton Union Square, Yosemite C
American Economic Association
AEA Committee on Economic Education Poster Session
(A2) (Poster Session)
Presiding:
Steven Cobb
(University of North Texas)
Developing Large-Scale Interactive Online Gateway Courses for Undergraduate Economics
Dmitriy V. Chulkov
(Indiana University-Kokomo)
Surekha Rao
(Indiana University-Northwest)
[Download Preview] The Use of a Collective Bargaining Simulation and its Impact on Student Perceptions and Critical Thinking Skills
Rod D. Raehsler
(Clarion University)
Using Musical Theatre Songs to Teach Economics
Matthew C. Rousu
(Susquehanna University)
The Greatest Hits of Rock-o-nomix: Discovering Pop Econ for your Classroom
Kim Holder
(University of West Georgia)
Team-Building Experiment in Application of Economic Concepts in the Series of On-Line Discussions Imitating Real-Life Simulations, as Compared with WIKI Team Projects
Sylwia E. Starnawska
(State University of New York-Empire State College)
[Download Preview] Experiments with an Open Source E-Homework and Exam System
Richard G. Anderson
(Lindenwood University)
Areerat Kichkha
(Lindenwood University)
[Download Preview] The Big Bang Game Theory
Simon Medcalfe
(Georgia Regents University)
Using Screen Recording Technology to Teach Economics Courses and Conduct Research
Jennjou Chen
(National Chengchi University)
Tsui-Fang Lin
(National Taipei University)
Integration of Undergraduate Research in UW-S Economics General Education Courses
Zamira S. Simkins
(University of Wisconsin-Superior)
Rubana Mahjabeen
(University of Wisconsin-Superior)
Sakib Mahmud
(University of Wisconsin-Superior)
Instagraph: Using Instagram in Economics Courses
Kristen L. Zaborski
(State College of Florida-Venice)
Creating, Using, and Sharing Dynamic Graphs
Aaron Swoboda
(Carleton College)
Cost-Benefit Analysis for Incorporating Community Partners Into Economics Education (Convincing Them to Help Teach your Students)
William Alan Bartley
(Transylvania University)
[Download Preview] Use of Survey Research Methods in Undergraduate Economics Classes
Veronika Dolar
(Long Island University)
In-Depth Learning in Principles of Microeconomics and Elementary Statistics: Independent Courses versus Learning Communities
Robin Lovgren
(Belmont University)
Kara D. Smith
(Belmont University)
Defining Sustainable Consumption-An Applied Activity
Madhavi Venkatesan
(Bridgewater State University)
The Ultimate Field Trip: Using a Country as Your Economics Classroom
Howard H. Cochran
(Belmont University)
Marieta V. Velikova
(Belmont University)
Bradley D. Childs
(Belmont University)
[Download Preview] The Challenges of Teaching “Health Economics” (to Students Who Have Only Had Introductory Microeconomics)
Ranganath Murthy
(Western New England University)
Utilizing Behavioral Economics in the Economics of Health
Hangameh Hosseini
(Pennsylvania State University)
Investigating Store Financing
Kathryn Birkeland
(University of South Dakota)
Importing STEM Evidence-Based Teaching Methods into a Large Macro Principles Course
William L. Goffe
(Pennsylvania State University)
[Download Preview] Jan 04, 2016 2:30 pm, Hilton Union Square, Franciscan D
American Economic Association
Alternative Views of the Business Cycle: Quantitative Analyses
(E3)
Presiding:
Vincent Sterk
(University College London)
Coordinating Business Cycles
Edouard Schaal
(New York University)
Mathieu Taschereau-Dumouchel
(University of Pennsylvania )
[View Abstract]
[Download Preview] We develop a quantitative theory of business cycles with coordination failures. As firms seek to coordinate production because of a demand externality, multiple equilibria arise. We use a global game approach to select a unique equilibrium that exhibits two steady states. After a large temporary shock, coordination may fail pushing the economy in a quasi-permanent recession. Our calibrated model accounts for features of the 2007-2009 recession and its aftermath. Government spending, while generally harmful, can increase welfare when the economy is about to transition to the bad steady state. Simple subsidies implement the efficient allocation.
Reviving the Limit Cycle View of Macroeconomic Fluctuations
Franck Portier
(Toulouse School of Economics)
Paul Beaudry
(University of British Columbia)
Dana Galizia
(University of British Columbia)
[View Abstract]
[Download Preview] Limit cycles play very little role in the modern theory of business cycles. In this paper we present a general structure, a particular model and a DSGE extension with the hope of giving new life to this mostly dismissed view of fluctuations. In particular, we begin by showing why models with demand complementarities, which are quite ubiquitous in macroeconomics, can give rise to limit cycle under rather simple conditions. The key elements that induce limit cycles are the presence of a demand complementarity related to an accumulable good and that the demand complementarities be locally strong but globally limited. We then present a fully specified model dynamic equilibrium model where unemployment risk and precautionary savings interact to induce a limit cycle driven by the type of forces outlined in our general structure. In this model, the economy goes through expansion periods where agents accumulate durable goods and/or housing more quickly when unemployment is low because borrowing is perceived as being less risky. Subsequently the economy goes though a recession phase when agents pull back on their purchases because unemployment increases thereby causing borrowing to become more risky. While this process is shown to be recurring and compatible with rational expectation, it does not involve any indeterminacy: fundamentals fully pin-down equilibrium behavior. We then show that in macroeconomic U.S. data, there is nontrivial variability at frequencies which are lower than the ones traditionally looked at by the business cycle literature, that could well be interpreted as a medium frequency limit cycle perturbed with shocks. We complete the analysis by showing how a DSGE version of our model can be estimated to have a limit cycle, and how it can shed new light on interesting features of the data once it is augmented to include some randomness.
Self-Fulfilling Credit Cycles
Leo Kaas
(University of Konstanz)
Costas Azariadis
(University of Washington-St. Louis)
Yi Wen
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] In U.S. data 1981-2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. In this paper we develop a tractable dynamic general equilibrium model in which unsecured firm credit arises from self-enforcing borrowing constraints, preventing an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation which is a forward-looking variable. We argue that self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated sunspot shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity and output. We show that these sunspot shocks are quantitatively important, accounting for around half of output volatility.
The Dark Corners of the Labor Market
Vincent Sterk
(University College London)
[View Abstract]
[Download Preview] Standard models predict that episodes of high unemployment are followed by recoveries. This paper shows, by contrast, that a large shock may set the economy on a path towards very high unemployment, with no recovery in sight. First, I estimate a reduced-form model of flows in the U.S. labor market, allowing for the possibility of multiple steady states. Next, I estimate a non-linear search and matching model, in which multiplicity of steady states may arise due to skill losses upon unemployment, following Pissarides (1992). In both cases, estimates imply a stable steady state with around 5 percent unemployment and an unstable one with around 10 percent unemployment. The search and matching model can explain observed job nding rates remarkably well, due to its strong endogenous persistence mechanism.
Discussants:
Alp Simsek
(Massachusetts Institute of Technology)
Ryan Chahrour
(Boston College)
Jianjun Miao
(Boston University)
Regis Barnichon
(CREI and Universitat Pompeu Fabra)
Jan 04, 2016 2:30 pm, Hilton Union Square, Plaza A
American Economic Association
Attitudes, Markets and Oligarchs in Russia
(O5)
Presiding:
Avner Greif
(Stanford University)
Attitudes towards Markets and Democracy: Russia and United States Compared 25 Years Later
Maxim Boycko
(Brown University and Harvard University)
Robert J. Shiller
(Yale University)
[View Abstract]
[Download Preview] We repeat a survey we did in the waning days of the Soviet Union (Shiller, Boycko and Korobov, AER 1991) comparing economic attitudes towards free markets between Moscow and New York. Additional questions are added about attitudes towards democracy (Gibson Duch and Tedin, J. Politics 1992). Two comparisons are made: between countries, and through time, to explore the existence of international differences in allegiance to democratic free-market institutions, and the stability of these differences.
War, Inflation, and Social Capital
Sergei Guriev
(Sciences Po)
Nikita Melnikov
(New Economic School)
[View Abstract]
[Download Preview] We use high-frequency (weekly) data from 79 Russian regions to measure the impact of economic shocks and proximity to war in the Eastern Ukraine on social capital in Russian regions. We proxy social capital by the number of internet searches for the most salient dimensions of pro-social behavior such as “donate blood”, “orphanage”, “charity”, “adopt a child” and other. Controlling for other socio-economic characteristics, the principal component of the number of such searches is correlated with survey-based measures of generalized social trust. We find that social capital measured through the number of such searches responds negatively to the spikes of inflation and decreases in real income. It is also positively correlated with the intensity of the conflict in East Ukraine. Our identification strategy is based on the difference-in-differences approach where we interact the weekly measures of the conflict intensity with the distance to the conflict zone – controlling for region and week fixed effects.
Russia’s Oligarchs
Daniel Treisman
(University of California-Los Angeles)
[View Abstract]
[Download Preview] Using the data on billionaires and their wealth collected by Forbes since the 1990s, as well as the Ekspert.ru database on Russia’s largest enterprises, I establish some facts about the super-wealthy in Russia and how they compare to their counterparts elsewhere. Contrary to conventional wisdom, the greatest concentration of billionaires is not in the oil and gas sector but in metals production. The largest increase in the number of the super-wealthy and in their assets occurred not in the 1990s or the early 2000s but between 2005 and 2008. Unlike in Brazil, where despite the global financial crisis the total wealth of billionaires nearly tripled after 2008, the wealth of Russia’s billionaires fell by 29 percent in this period, and had decreased even before the imposition of Western sanctions. The paper examines the volatility of extreme wealth in Russia, comparing it to that in China, India, Brazil and other emerging economies.
Discussants:
Luigi Zingales
(University of Chicago)
James L. Gibson
(Washington University-St. Louis)
M. Steven Fish
(University of California-Berkeley)
Jan 04, 2016 2:30 pm, Hilton Union Square, Continental – Parlor 3
American Economic Association
Behavioral Finance
(G1)
Presiding:
Brigitte Madrian
(Harvard University )
Unleashing Animal Spirits - Self-Control and Overpricing in Experimental Asset Markets
David Schindler
(University of Munich)
Martin Georg Kocher
(University of Munich)
Konstantin Lucks
(University of Munich)
[View Abstract]
[Download Preview] One possible explanation for overpricing on asset markets is a lack of self-control abilities of traders. Self-control is the individual capacity to override or inhibit undesired behavioral tendencies such as impulses and to refrain from acting on them. We implement the first experiment that is able to address a potential causal relationship between self-control abilities and systematic overpricing on financial markets by introducing an exogenous variation of self-control abilities. Our experimental treatments seek to detect some of the channels through which individual self-control problems could transmit into irrational exuberance on the aggregate level. We observe a strong effect of inhibited self-control abilities on market overpricing. Our findings are furthermore robust to reducing self-control abilities only for a moderate share of traders in a market. Low self-control traders engage in more speculative behavior early on, but because others imitate their trading patterns, they do not end up earning less and thus are not driven out of the market.
Hedge Fund Flows and Performance Streaks: How Investors Weigh Information
Guillermo Baquero
(European School of Management and Technology)
Marno Verbeek
(Erasmus University)
[View Abstract]
[Download Preview] We examine the relative weights hedge fund investors attach to past information in the fund selection
process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund
returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to performance streaks despite their limited predictive power regarding fund performance. Further, allocations based on forecast
models’ out-of-sample predictions beat investor allocations by a significant margin, which suggests that
the latter are suboptimal and reflect overreaction to certain types of information. Our findings do not
support the notion that sophisticated investors have superior information or superior information
processing abilities.
Household Wealth and Portfolio Choice when Tail Events are Salient
Ali Lazrak
(University of British Columbia)
Murray D. Carlson
(University of British Columbia)
[View Abstract]
[Download Preview] Robust experimental evidence of expected utility violations establishes that individuals overweight
utility from low probability gains and losses. These findings motivated development of
rank dependent utility (RDU). We characterize optimal RDU portfolios for investors facing dynamic,
binomial returns. Our calibration shows optimal terminal wealth has signicant downside
protection, upside exposure, and a lottery component. Optimal dynamic trades require higher
risky share after good returns and, possibly, nonparticipation when returns are poor. RDU
portfolios counterfactually exhibit excessive elasticity of risky share to wealth and momentum
rebalancing. Our results suggest a puzzling inconsistency between behavior inside and outside
the laboratory.
Examining the Effect of Social Distance on Financial Decision-Making
Hal Hershfield
(University of California-Los Angeles)
Lisa Kramer
(University of Toronto)
[View Abstract]
We build on social psychology theory that implies individuals draw on more cognitive, less emotional thought processes when engaging in activities separated by time, space, or social distance from the here and now. Specifically, we examine whether individuals are less vulnerable to the influence of emotions on their financial decisions when deciding for others versus themselves. We find individuals are less vulnerable to the influence of emotions as an increasing function of the social distance between the decision maker and the decision target. Individuals were significantly more risk-seeking and discounted future rewards more when investing on behalf of themselves than for a family member, co-worker, or client. The findings are robust to use of both hypothetical and incentive-compatible tasks and are evident based on both between-subjects and within-subjects designs. In Study 1, individuals made investment decisions on behalf of themselves, a family member, or a co-worker. Risk-seeking differed across the conditions, and tests indicated that participants making a choice for themselves were significantly more risk-seeking than participants deciding for a family member or co-worker. In Study 2, participants made choices between smaller-sooner rewards and larger-later rewards for themselves, a family member, and a co-worker (within-subjects). Participants discounted future rewards significantly more for self than for a family member or co-worker. In Studies 3a and 3b, participants made choices for rewards that were incentive compatible rather than hypothetical. We employed a within-subjects design where participants made choices for rewards that would accrue to themselves, a family member, a co-worker, or a client. Participants chose fewer larger-later rewards for themselves than they did for the family member, co-worker, and client. These findings have implications for the investment management industry, policy makers, and individuals saving for retirement, all of which often involve situations in which decision-makers make choices for themselves or others.
Decision-Making under the Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires
Daniel Chen
(Toulouse Institute for Advanced Studies)
Tobias Moskowitz
(University of Chicago)
Kelly Shue
(University of Chicago)
[View Abstract]
[Download Preview] We find consistent evidence of negative autocorrelation in decision-making that is unrelated to the merits of the cases considered in three separate high-stakes field settings: refugee asylum court decisions, loan application reviews, and major league baseball umpire pitch calls. The evidence is most consistent with the law of small numbers and the gambler’s fallacy – people underestimating the likelihood of sequential streaks occurring by chance – leading to negatively autocorrelated decisions that result in errors. The negative autocorrelation is stronger among more moderate and less experienced decision-makers, following longer streaks of decisions in one direction, when the current and previous cases share similar characteristics or occur close in time, and when decision-makers face weaker incentives for accuracy. Other explanations for negatively autocorrelated decisions such as quotas, learning, or preferences to treat all parties fairly, are less consistent with the evidence, though we cannot completely rule out sequential contrast effects as an alternative explanation.
Can Individual Investors Time Bubbles?
Jussi Keppo
(National University of Singapore)
Tyler Shumway
(University of Michigan)
Daniel Weagley
(Georgia Institute of Technology)
[View Abstract]
[Download Preview] We document significant persistence in the ability of individual investors to time the stock market, including during periods that people describe as bubbles. Using data on all trades by individual Finnish investors over more than 14 years, we show that investors who successfully time the market in the first half of the sample are more likely to successfully time in the second half. We further show that investors who time the market during the run-up and crash around 2000 are more likely to time the run-up and crash around 2008. Our evidence suggests that it is possible to use the trading patterns of these smart investors to anticipate market movements, lending some credibility to the view that market bubbles are identifiable in real time.
Jan 04, 2016 2:30 pm, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Competition, Hospitals' Negotiated Prices, and Health Care Spending
(I1, L1)
Presiding:
Zack Cooper
(Yale University)
Why is Health Care Spending on the Privately Insured in Grand Junction, Colorado so High?
Zack Cooper
(Yale University)
Martin Gaynor
(Carnegie Mellon University)
Stuart Craig
(Yale University)
John Van Reenen
(London School of Economics)
[View Abstract]
[Download Preview] We use insurance claims data for more than 88 million individuals with employer sponsored insurance in the United States to analyze the variation in health care spending for the privately insured. Our data includes the transaction prices that private insurers negotiate with health care providers for care at the claims level. This allows us to analyze the variation in health care providers’ prices within and across markets and determine the role that prices play in driving spending variation for the privately insured. This work has four key findings. First, there the between total spending per beneficiaries on Medicare recipients and total spending per beneficiary on the privately insured is 14.0%. Second, we find that the quantity of care provided and the price of care provided each account for approximately half of the spending variation among the privately insured. Third, we then document expansive variation in the providers’ private-payer prices within and across markets. Across the nation, hospitals’ inpatient private-payer prices vary by over a factor of 10. Within markets, on average, two hospitals drawn at random have a difference in average inpatient price that is 42% of the mean price within that market. Fourth, we find that higher hospital market power, greater adoption of technology, and being ranked as a top performing hospital by the US News and World Report are all associated with high prices.
Insurer Competition in Health Care Markets
Kate Ho
(Columbia University)
Robin S. Lee
(Harvard University)
[View Abstract]
[Download Preview] We analyze the impact of insurer competition on health care markets using a model of
premium setting, hospital-insurer bargaining, household demand for insurance, and individual
demand for hospitals. Increased insurer competition may lead to lower premiums; it may also
increase health providers' leverage to negotiate higher prices, thereby mitigating premium reductions.
We use detailed California admissions, claims, and enrollment data from a large benefits
manager to estimate our model and simulate the removal of an insurer from consumers' choice
sets. Although premiums rise and annual consumer surplus falls by $50-120 per capita, hospital
prices and spending fall in certain markets as remaining insurers negotiate lower rates. Overall,
the impact on negotiated prices is heterogeneous, with increases or decreases of up to 15% across
markets. We conclude that insurer competition can increase consumer surplus but also generate
a redistribution of rents across hospitals and greater medical spending in certain markets.
How Does Competition Impact the Quality of Health Care? A Case Study of the U.S. Dialysis Industry
David Cutler
(Harvard University)
Leemore Dafny
(Northwestern University)
Chris Ody
(Northwestern University)
[View Abstract]
[Download Preview] We examine whether and to what extent consolidation in the largely for-profit U.S. dialysis industry has affected patient outcomes and clinical practices. We make use of detailed facility data for the period 2000-2009, during which the market share of the two industry leaders increased from just over one-third to nearly two-thirds. We exploit the differential impact of two large national acquisitions on local market concentration to estimate the causal effect of concentration on a broad set of measures, including mortality rates, dialysis adequacy, and staffing ratios. We find no statistically or economically significant effects of competition on any measure. Preliminary analysis suggests consolidation may have led to higher prices for privately-insured patients.
What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics
Zarek Brot-Goldberg
(University of California-Berkeley)
Amitabh Chandra
(Harvard University)
Benjamin Handel
(University of California-Berkeley)
Jonathan Kolstad
(University of Pennsylvania)
[View Abstract]
[Download Preview] Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer price responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear high deductible insurance plan with markedly higher cost sharing. We find that the switch caused a 16.45% reduction in total yearly medical expenditures at the firm, leading to approximately $123 million less medical spending per year. We break down this total spending reduction into the three components of (i) provider price inflation (ii) consumer price shopping and (iii) quantity reductions and find that almost all of the overall drop in spending is due to quantity reductions. We investigate the reduction in spending as a function of (i) consumer demographics (ii) consumer health status and (iii) types of medical services consumed. We also investigate how consumers respond to the complex structure of the non-linear high-deductible contract, and find that the majority of incremental spending reductions at any point in the calendar year come from consumers who are under the deductible. We investigate whether consumers respond to (i) expected end-of-year marginal prices (ii) spot prices at the time of care and (iii) ex ante average prices, and find that consumers respond to both expected end-of-year marginal prices and spot prices.
Jan 04, 2016 2:30 pm, Hilton Union Square, Continental Ballroom 4
American Economic Association
Digitization and Innovation
(D2, L8)
Presiding:
Shane Greenstein
(Northwestern University)
Data in Action: Data-Driven Decision-Making in U.S. Manufacturing
Erik Brynjolfsson
(Massachusetts Institute of Technology)
Kristina McElheran
(University of Toronto)
[View Abstract]
[Download Preview] Manufacturing in America has become significantly more data-intensive. We investigate the adoption, performance effects and organizational complementarities of data-driven decision making (DDD) in the U.S. Using data collected by the Census Bureau for 2005 and 2010, we observe the extent to which manufacturing firms track and use data to guide decision making, as well as their investments in information technology (IT) and the use of other structured management practices. Examining a representative sample of over 18,000 plans, we find that adoption of DDD is earlier and more prevalent among larger, older plants belonging to multi-unit firms. Smaller single-establishment firms adopt later but have a higher correlation with performance than similar non-adopters. Using a fixed-effects estimator, we find the average value-added for later DDD adopters to be 3% greater than non-adopters, controlling for other inputs to production. This effect is distinct from that associated with IT and other structured management practices and is concentrated among single-unit firms. Performance improves after plants adopt DDD, but not before – consistent with a causal relationship. However, DDD-related performance differentials decrease over time for early and late adopters, consistent with firm learning and development of organizational complementarities. Formal complementarity tests suggest that DDD and high levels of IT capital reinforce each other, as do DDD and skilled workers. For some industries, the benefits of DDD adoption appear to be greater for plants that delegate some decision making to frontline workers.
Copyright Enforcement in Stock Photography
Hong Luo
(Harvard University)
Julie Mortimer
(Boston College)
[View Abstract]
[Download Preview] Effective dispute resolution is important for reducing private and social costs. This paper studies the effects of price differences and communication style on copyright infringement settlement. We use a novel dataset of infringement incidences by businesses generated from two field experiments run by a stock-photography agency. We find that a substantial reduction in the requested amount generates a small increase in settlement rate; given the same reduced request, a message informing infringers of the price reduction and acknowledging possible unintentionality generates a large increase; and including a deadline further increases the response. The small price effect (when compared to the large message effect) can be explained as the result of two effects that counteract each other: price inducement to settle early, but a lower threat of escalation. Furthermore, acknowledging possible unintentionality may encourage collaborative behavior due to the typically inadvertent nature of these incidences. The resulting higher settlement rate avoids additional legal action and reduces social costs.
Agglomeration of invention in the Bay Area: Not just ICT
Chris Forman
(Georgia Institute of Technology)
Avi Goldfarb
(University of Toronto)
Shane Greenstein
(Northwestern University)
[View Abstract]
[Download Preview] We document that the Bay Area rose from 4% of all successful US patent applications in 1976 to 16% in 2008. This is partly driven by the increase in the prevalence of information and communication technology; however, even for patents unrelated to information and communication technology, we see a disproportionate increase in the share of all US patents from the Bay Area. We interpret this to suggest that there has been a trend to coagglomeration in invention across technologies. We explore several possible explanations for this trend, and conclude that the size of firm or simple measurement error cannot explain it.
Discussants:
Kathryn Shaw
(Stanford University)
Megan MacGarvie
(Boston University)
Maryann Feldman
(University of North Carolina)
Jan 04, 2016 2:30 pm, Hilton Union Square, Golden Gate 5
American Economic Association
Environmental Controls and Effects
(Q5)
Presiding:
Rebecca Judge
(St Olaf College)
When do Firms Go Green? Comparing Price Incentives with Command and Control Regulations in India
Ann Harrison
(University of Pennsylvania)
Ben Hyman
(University of Pennsylvania)
Leslie A. Martin
(University of Melbourne)
Shanthi Nataraj
(RAND Corporation)
[View Abstract]
[Download Preview] India has a multitude of environmental regulations but a history of poor enforcement. Between 1996 and 2004, India's Supreme Court required 17 cities to enact Action Plans to reduce air pollution through a variety of command-and-control (CAC) environmental regulations. We compare the impacts of these regulations with the impact of changes in coal prices on establishment-level pollution abatement, coal consumption, and productivity growth. We find that higher coal prices reduced coal use within establishments, with price elasticities similar to those found in the US. In addition, higher coal prices are associated with lower pollution emissions at the district level. CAC regulations did not affect within-establishment pollution control investment or coal use, but did impact the extensive margin, increasing the share of large establishments investing in pollution control and reducing the entry of new establishments. For reducing SO2 emissions, our results suggest that higher coal prices were more effective in improving environmental outcomes than command and control measures.
When Power Plants Leave Town: Environmental Quality and the Housing Market in China
Guoying Deng
(Sichuan University)
Manuel Alejandro Hernandez
(IFPRI)
Shu Xu
(Southwestern University of Finance and Economics)
[View Abstract]
Air pollution is a major environmental issue in China resulting in widespread health and ecological problems. This paper exploits the relocation of two major power plants in Chengdu, China as a quasi-natural experiment to examine the effect of changes in the quality of the environment on the housing market. We use an extensive transaction dataset of new apartment units to analyze variations in housing prices and volume of transactions in the affected areas compared to neighboring areas. The estimation results are consistent with the predictions of a hedonic price model. We find that the closure of the power plants is associated with over a 6% increase in prices and a 65-108% rise in the volume of weekly transactions. We further observe a higher increase in prices among more expensive houses. The estimated gross value of the closures is close to 89 million US dollars over the first ten months after the relocation of the two plants.
Impact Assessment of Habitat Restoration Policies: Empirical Evidence the River Restoration Policy in Switzerland
Michele Baggio
(University of Connecticut)
Charles Towe
(University of Connecticut)
[View Abstract]
In this paper we execute a rigorous assessment of the impact of restorations of rivers and streams on recreational fishing, a well-known ecosystem service. This question is addressed by investigating whether there is any statistical evidence that river restorations led to significant effects on outcomes related to recreational fishing, that is, whether restorations had any effects on catch per trip and the number of fishing trips in streams and rivers. The analysis is based on an empirical application to recreational fishing on the streams in the canton of Graubünden, Switzerland using a uniquely rich and detailed dataset including historical data on river restorations, eco-morphology and connectivity, fish stocking, individual fishing trips and anglers’ characteristics, and stocking all at the stream section level for the period 2002-2012 for around 25,000 anglers. Combining matching techniques and panel data analysis, our preliminary analysis suggests that an improvement of the environmental good, i.e., stream restorations, leads to more frequent and larger catches of brown trout and other desirable fish. Thanks to the available information on the restorations and the eco-morphological state of each section we are able to pinpoint which types of restoration are necessary to induce an observable effect on fishing behavior. This research project provides initial empirical evidence of the effects of restorations of rivers. Furthermore, it delivers valuable indications to policy makers and practitioners on how to design restoration projects in order to increase both the quantity and the quality of an ecosystem service such as recreational fishing.
Conservation Versus Competition? Environmental Objectives in Government Contracting
Evan Herrnstadt
(Harvard University)
[View Abstract]
[Download Preview] Government contracts with private firms increasingly incorporate environmental objectives or preferences for sustainable products and producers. At the same time, the government often solicits competitive bids to reduce the rents captured by the firms due to private information. In this paper, I show how environmental objectives can influence equilibrium contract bids through changes to firm costs, strategic bidding behavior, and bidder participation decisions. Using data from Michigan state logging contracts, I find that conservation objectives reduce bidder participation in the contract auctions by up to 35 percent and depress winning bids by up to 17 percent. To disentangle compliance costs from logger margins, I estimate a structural model of the auctions. Simulations based on the estimates imply that the policy imposes economically and statistically significant compliance costs. Loggers are able to completely pass these costs on to the government because compliance costs do not substantially affect the dispersion of private values. However, the use of optimal reserve prices partially mitigates the revenue disparity between more- and less-restricted contracts. Finally, loggers capture a larger share of total auction surplus for restricted contracts, indicating that the policy undermines the state’s ability to harness competition to capture surplus.
Electricity Market Failure under High Renewable Generation
Joao Pereira
(Universidade Nova de Lisboa)
Vasco Pesquita
(Universidade Nova de Lisboa)
[View Abstract]
Electricity markets in many countries are following two trends. First, governments are fostering the growth of renewable electricity generation to respond to environmental concerns and to increase energy independence. Second, many countries are implementing competitive wholesale electricity markets.
This paper shows that these two goals are incompatible. Large amounts of renewable generation will not be able to survive in competitive wholesale electricity markets without subsidies. Specifically, if the installed capacity of zero marginal cost renewable generation becomes sufficiently large, the optimal behavior of each individual producer will drive market prices to values that are too low to compensate for their own fixed costs. In the limit, if all electricity was generated by competitive wind and solar producers, market prices would always be zero, which would clearly lead to a market failure.
To illustrate this effect, we simulate a simple model of electricity demand and supply with three types of generators: wind, solar, and traditional thermal generation. The model is calibrated to data from Germany and Spain. These two countries are examples of large electric systems where renewables already represent a significant part of the total load. The results show that the revenues obtained by solar and wind generators will quickly drop to insufficient levels in a competitive market setting without subsidies.
Jan 04, 2016 2:30 pm, Hilton Union Square, Imperial A
American Economic Association
Estate Taxation and the Intergenerational Transmission of Wealth
(H2, J1)
Presiding:
James Poterba
(Massachusetts Institute of Technology and NBER)
Comparing Capitalized Income Estimates to Estate Multiplier Estimates for Wealth Inequality
Emmanuel Saez
(University of California-Berkeley)
Gabriel Zucman
(London School of Economics)
[View Abstract]
This paper compares wealth inequality estimates using the capitalized income method vs. estimates using the estate multiplier method for the United States since 1976. We show that there has been a widening mortality differential across wealth groups that explains why the traditional estate multiplier method does not find an increase in wealth concentration. Linking estate and income tax data, we show how to obtain corrected estate multiplier weights that makes the sample of decedents representative. With such corrected weights, the estate multiplier method shows a sharp increase in wealth concentration since the late 1970s, of comparable magnitude to the capitalized income method.
The Role of Bequest in Shaping Wealth Inequality: Evidence from Danish Wealth Records
simon Halphen Boserup
(University of Copenhagen)
Claus Thustrup Kreiner
(University of Copenhagen)
Wojciech Kopczuk
(Columbia University)
[View Abstract]
[Download Preview] Using Danish administrative data, we estimate the impact of bequests on wealth inequality. We employ an event study design where we follow the distribution of wealth over time of people who are 45-50 years old, and divided into treatment group and control group depending on whether a parent dies or not. Bequests account for 26 percent of the average post-bequest wealth 1-3 years after parental death and significantly affect wealth throughout the distribution. We find that bequests increase measures of absolute wealth inequality (variance), but reduce relative inequality (top wealth shares). Following the receipts of bequests, variance of the distribution censored at the top/bottom 1% increases by 33 percent, but the top 1% share declines by 5 percentage points from an initial level of 30 percent and the top 10% share declines by 10 percentage points from a base of around 80 percent.
Choosing Between the Estate Tax and Basis Carryover Regimes: Evidence from Taxpayer Behavior in 2010
Robert N. Gordon
(Twenty-First Securities)
David Joulfaian
(U.S. Department of the Treasury)
James Poterba
(Massachusetts Institute of Technology and NBER)
[View Abstract]
[Download Preview] Executors of wealthy individuals who died in 2010 were not required to file estate tax returns, but if they chose not to do so, beneficiaries of the estate received assets with carryover rather than stepped up basis. The tax returns filed by executors who chose the carryover basis regime provide new insights on the importance of unrealized capital gains on assets transferred at death. These gains represented 44 percent of the aggregate fair market value of estates that chose the carryover basis regime, and an even larger share of the value of closely held stock, real estate, and corporate stock holdings. Most of the gains were accounted for by assets that the decedents held for at least two decades.
Discussants:
Danny Yagan
(University of California-Berkeley)
Kathleen McGarry
(University of California-Los Angeles)
Jon M. Bakija
(Williams College)
Jan 04, 2016 2:30 pm, Hilton Union Square, Franciscan C
American Economic Association
Experimental Gender Economics
(C9, D8)
Presiding:
Muriel Niederle
(Stanford University)
Affirmative Action and Stereotype Threat
Anat Bracha
(Federal Reserve Bank of Boston)
Alma Cohen
(Harvard University)
Lynn Conell-Price
(Carnegie Mellon University)
[View Abstract]
This paper provides experimental evidence on the effect of affirmative action (AA). In particular, we investigate whether affirmative action has a ”stereotype threat effect” – that is, whether AA cues a negative stereotype that leads individuals to conform to the stereotype and adversely affects their performance. Stereotype threat has been shown in the literature to be potentially significant for individuals who identify strongly with the domain of the stereotype and who engage in complex stereotype-relevant tasks. We therefore explore this question in the context of gender-based AA for a complex math task. In this context, the stereotype is most relevant for women with high math ability, and the stereotype threat effects can be expected to work in the opposite direction to AA’s competition effect that encourages women to compete. We find that, consistent with the presence of a stereotype threat, AA has an overall negative effect on the performance of high-ability women performing complex math tasks.
Risk in the Background: How Men and Women Respond
Alexandra van Geen
(Erasmus University)
[View Abstract]
Many decisions take place in the presence of unrealized risk, frequent income fluctuations, and realizations of risk, but the effect of these factors is poorly understood. This study is the first to experimentally test the gender-specific effect of risk in the decision environment on subsequent risk taking. Specifically I estimate the effect of both realized risk and unrealized risk, using moderate stake lottery-based risk attitude elicitation tasks. I find stark differences in how females and males take risks in response to these stimuli. Females increase risk taking after an increase in income and in the presence of an unrealized risk with strictly positive potential outcomes; males on the other hand display a winning effect and increase risk taking after winning a lottery. These effects are robust to the inclusion of a wide set of controls.
After You: Gender and Group Decision-Making
Pedro Bordalo
(Royal Holloway)
Katherine Coffman
(Ohio State University)
Nicola Gennaioli
(Bocconi University)
Andrei Shleifer
(Harvard University)
[View Abstract]
We use a controlled laboratory experiment to explore how gender and gender stereotypes impact team decision-making. Teams face problems from a variety of domains, both male and female-typed, and are rewarded when right answers are contributed. We focus on an individual’s willingness to contribute her answers, varying the gender composition of the teams. While men respond to the gender-type of the category, contributing more often in male-typed categories than female-typed categories, they do not respond to the gender of their partner. Men are equally likely to provide their answers to their group whether they are paired with a man or a woman. Women, on the other hand, do respond to the gender of their partner. Conditional on how many answers they know and how confident they are in these answers, women are less willing to contribute their answers to the group when they are paired with men than when they are paired with women. This is particularly true in male-typed domains. Women fail to contribute 24% of their correct answers in male-typed categories when paired with women and 43% of their correct answers in male-typed categories when paired with men. We also find that having a male partner has a negative impact on the probability that a woman answers a male-typed question correctly. Conditional on a baseline measure of knowledge collected before the assignment of a partner, women are 8.4 percentage points less likely to answer a male-typed question correctly after they are paired with a man than after they are paired with a woman. We document how these behaviors impact the efficiency of team decision-making.
Bursting the Bubble: Gender Differences in Financial Bubbles with Anonymous Traders
Catherine Eckel
(Texas A&M University)
Sascha Füllbrunn
(Radboud University)
[View Abstract]
Our previous research indicates a sharp reduction in the probability and extent of a financial bubble as the proportion of women traders increases (Eckel and Füllbrunn, AER 2015). In this paper we examine one potential channel for this difference: gender-based beliefs about the behavior of other traders. We develop an experimental protocol that disguises the fact that traders are in single-gender markets, and observe the impact on the gender difference in trading behavior. The data suggest that extreme gender differences in bubble formation found in our previous study may disappear when the gender of the other traders is unknown.
Discussants:
Johanna Mollerstrom
(George Mason University)
Maria Recalde
(International Food Policy Research Institute)
Anya Samek
(University of Southern Califiornia)
Olga Shurchkov
(Wellesley College)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 22
American Economic Association
Experimental Impacts of Vocational Education in Low and Middle Income Countries
(J1, O1)
Presiding:
Adriana Debora Kugler
(Georgetown University)
The Demand for, and Impact of, Youth Internships: Evidence from a Randomized Experiment in Yemen
David McKenzie
(World Bank)
Ana Paula Cusolito
(World Bank)
Nabila Assaf
(World Bank)
[View Abstract]
[Download Preview] This paper evaluates a youth internship program in Yemen. We examine the demand for the program, and find an oversupply of graduates in science, technology, engineering, and mathematics, and a relative undersupply of graduates in marketing and business. Conditional on the types of graduates firms were looking to hire, applicants were then randomly chosen for the program. Receiving an internship resulted in an almost doubling of work experience in 2014, and a 73 percent increase in income. A follow-up survey shows that internship recipients had better employment outcomes than the control group in the first five months after the program.
Long-Term Direct and Spillover Effects of Job Training: Experimental Evidence from Colombia
Adriana Debora Kugler
(Georgetown University, NBER, CEPR, and IZA)
Maurice David Kugler
(IMPAQ)
Juan Saavedra
(University of Southern California)
Luis Omar Herrera
(Inter-American Development Bank)
[View Abstract]
We use administrative data to examine medium and long-term formal education and labor market impacts among participants and other family members of a randomized vocational training program for disadvantaged youth in Colombia. In the Colombian program, vocational training and formal education are complementary investments: relative to non-participants, randomly selected participants are more likely to complete secondary school and to attend and persist in tertiary education eight years after random assignment. Complementarity is strongest among applicants with high baseline educational attainment. Training also has educational spillover effects on participants’ family members, who are more likely to enroll in tertiary education. Between three and eight years after randomization, participants are more likely to enter and remain in formal employment, and have formal sector earnings that are at least 11 percent higher than those of non-participants.
Vocational Education Voucher Delivery and Labor Market Returns: A Randomized Evaluation Among Kenyan Youth
Joan Hammory Hicks
(Center for Effective Global Action)
Michael Kremer
(Harvard University)
Isaac Mbiti
(University of Virginia)
Edward Miguel
(University of California-Berkeley)
[View Abstract]
This report describes the ongoing Technical and Vocational Vouchers Program (TVVP) in Kenya and provides early results from the intervention. Implementation began in 2008 with the recruitment of approximately 2,160 out-of-school youths (ranging in age from roughly 18 to 30). Study participants were drawn from the Kenya Life Panel Survey, an unusual on-going panel dataset of detailed educational, health, and cognitive information for over 7,000 adolescents in western Kenya. Of the 2,160 youths that applied to the TVVP, a random half were awarded a voucher for vocational training, while the other half served as the control group. Of the voucher winners, a random half were awarded a voucher that could only be used in public (government) institutions, while the other half received a voucher that could be used in either private or public institutions. The project also included a cross-cutting information intervention, which exposed a randomly selected half of all treatment and control individuals to information about the actual returns to vocational education. This paper focuses on program take-up, the demand for vocational training and the impacts of the information intervention on institution and course selection, participant attendance, the short-term impacts of training on labor market expectations and outcomes for a representative subset of program participants, and training center characteristics. The paper also provides some suggestive evidence on the supply-side impacts of the program.
Returns to Vocational Education in Mongolia
Erica Field
(Duke University)
Leigh Linden
(University of Texas-Austin)
Daniel Rubenson
(Ryerson University)
Shing-Yi Wang
(University of Pennsylvania)
[View Abstract]
We estimate the effect of admission to 1, 2, and 2.5 year vocational education programs in Mongolia on both academic and labor-market outcomes. Out of a pool of ‘qualified’ applicants, students’ admission was randomly assigned, and admitted students were randomly assigned among the set of available trades. This allows us to assess the effects of both admissions to vocational training as well as the effects of being trained in specific trades. The sample includes 12,806 students applying to 10 different schools in three annual cohorts between 2010 and 2012. Subjects were surveyed annually after random assignment to track their educational and employment decisions and approximately one-year after their scheduled graduation date, students also completed a skills test to evaluate the effects on their understanding of their assigned trade.
Discussants:
Ofer Malamud
(University of Chicago)
Erica Field
(Duke University)
Rebecca Thornton
(University of Illinois-Urbana-Champaign)
Ahmed Mushfiq Mobarak
(Yale University)
Jan 04, 2016 2:30 pm, Hilton Union Square, Continental – Parlor 2
American Economic Association
Information, Expectations, and Education Choices II
(D8, I2)
Presiding:
Basit Zafar
(Federal Reserve Bank of New York)
Peer Networks and College Choice: Evidence from New Administrative Data
Eleanor W. Dillon
(Arizona State University)
Nathaniel Hilger
(Brown University)
[View Abstract]
Much remains unknown about how students choose colleges. The structure of student preferences is critical to understanding how greater competition or better-informed students would affect college quality, amenities, and tuition costs. We shed light on these questions with new administrative data from a large online college application platform. We observe applications, acceptances, and matriculation choices for hundreds of thousands of U.S. high school graduates since 2011. We document how students trade off college attributes such as quality, price, distance to home, admission risk, and academic, racial, and social match with the student body. Because we observe the set of colleges that students consider along with their applications we can identify student preferences over multiple college characteristics. We document substantial differences in preferences and application strategies across socio-economic groups and across high schools. The placement history at a student’s high school is a key determinant of his own application behavior.
Occupational Choice under Credit and Information Constraints
Adam Osman
(University of Illinois-Urbana Champaign)
[View Abstract]
Credit and information constraints can affect not only participation levels in different occupations, but also the types of individuals found in those occupations. I develop a model of occupational choice which shows how new information alters expectations and thus occupational choice. Credit and information constraints also interact with each other: the same information can have opposing impacts on occupational choice depending on the presence of credit constraints. Using a survey and information experiment in seven vocational high schools in Egypt, I find support for the model’s predictions, including a key compositional prediction: risk averse individuals respond more to changes in expectations of risk at both the intensive (variance of income) and extensive (probability of finding a job) margins. This differential response leads highly risk averse individuals to shift towards "safer" occupations on average, and out of using credit to start a small enterprise. Because those who are risk averse report lower returns to credit in general (by favoring lower risk/lower return investments), the average expected income for those utilizing credit rises by 12% relative to the no information case.
Intended College Attendance: Evidence from an Experiment on College Returns and Costs
Zachary Bleemer
(Federal Reserve Bank of New York)
Basit Zafar
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Despite a robust college premium, college attendance rates in the US have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps – specifically, incomplete information about college benefits and costs – as a potential explanation for these patterns. For this purpose, we conduct an information experiment about college returns and benefits, embedded within a nationally representative survey of US household heads. We show that, at the baseline, perceptions of college costs and benefits are severely and systematically biased: 70 percent of our respondents underestimate true college benefits (defined as average earnings of a college graduate relative to a non-college worker in the population), while 61 percent report net public college costs that exceed actual net costs. There is also substantial heterogeneity in beliefs, with evidence of larger biases for the more disadvantaged groups, lower-income and non-college households. We also elicit respondents’ intended likelihood of their (own or friend’s pre-college age) child attending college, the main behavioral outcome of interest. Respondents are then randomly exposed to one of two information experiments, which provide objective information about true college returns and true costs, respectively. For individuals treated with objective college returns information, the child’s intended college attendance increases significantly, by about 0.2 of the standard deviation in the baseline intended likelihood. Importantly, as a result of the information intervention, gaps in intended college attendance by household income or parents’ education persist but decline by 20-30 percent. We find no impact of the cost intervention on intended college attendance. We are in the process of collecting data on medium-term impacts of the information, which will allow us to investigate whether the impacts are persistent.
The Dynamic Complementarity of Information: Human Capital Investment over the Life Cycle
Christopher A. Neilson
(Princeton University)
Francisco Gallego
(Universidad Catolica de Chile)
Oswaldo Molina
(Universidad del Pacifico)
[View Abstract]
In this paper we study how students from 5th grade through high school in Peru develop their preferences across different fields of study, their beliefs regarding their own talents, the feasibility of reaching college and how these beliefs affect their decisions to invest in specific areas of human capital. We focus on the math/science and reading/humanities and look at the effects of an information intervention that covers the returns to education levels, returns to specific majors and occupations as well as the availability of newly introduced financial aid policies. Using a large household survey we document how treatment affects beliefs and document how this affects elicited expectations and educational plans and investment in specific skills. <br /><br />
<br /><br />
Discussants:
Arnaud Maurel
(Duke University)
Nathaniel Hilger
(Brown University)
Francisco Gallego
(Universidad Catolica de Chile)
Matthew Wiswall
(Arizona State University)
Jan 04, 2016 2:30 pm, Hilton Union Square, Yosemite A
American Economic Association
New Evidence on Lifecycle Models of Retirement Saving
(D1, D9)
Presiding:
Olivia S. Mitchell
(University of Pennsylvania)
Save More Later? The Effect of the Option to Choose Delayed Savings Rate Increases on Retirement Wealth
John Beshears
(Harvard University)
Hengchen Dai
(Washington University-St. Louis)
Katherine L. Milkman
(University of Pennsylvania)
Shlomo Benartzi
(University of California-Los Angeles)
[View Abstract]
Prior research in economics and psychology has documented that individuals exhibit time-inconsistent preferences when faced with the opportunity to take an action that involves immediate costs in return for future benefits – the notion of implementing such an action now is unappealing, but the notion of implementing the same action later is attractive. Because increasing contributions to a retirement savings plan requires a reduction in current consumption (an immediate cost) in order to increase consumption in old age (a future benefit), individuals may be more likely to agree to a contribution rate increase if they have the option to have the increase implemented at a delay. We conducted a field experiment with several universities to test whether the option to choose a delayed contribution rate increase boosts savings. Relative to employees who are offered a convenient mechanism for increasing their contribution rates immediately, employees who are offered a convenient mechanism for increasing their contribution rates immediately or at a delay are no more likely to agree to an increase. In fact, the latter group exhibits lower savings rates over the coming months, as the delayed option attracts some employees. However, when the delayed option is framed as being implemented after a psychologically meaningful moment, such as an employee’s next birthday, the negative effect of offering a delayed option is undone.
The Role of Time Preferences and Exponential-Growth Bias in Retirement Savings
Gopi Shah Goda
(Stanford University)
Matthew R. Levy
(London School of Economics)
Colleen Manchester
(University of Minnesota)
Aaron Sojourner
(University of Minnesota)
Joshua Tasoff
(Claremont Graduate University)
[View Abstract]
[Download Preview] There is considerable variation in retirement savings within income, age, and educational categories. Using a broad sample of the U.S. population, we elicit time preference parameters from a quasi-hyperbolic discounting model, and perceptions of exponential growth. We find that present bias (PB), the tendency to value utility in the present over the future in a dynamically inconsistent way, and exponential-growth bias (EGB), the tendency to neglect compounding, are prevalent and distinct latent variables. PB, EGB, and the long-run discount factor are all highly significant in predicting retirement savings, even while controlling for measures of IQ and general financial literacy as well as a rich set of demographic controls. We find that lack of self-awareness of these biases has an additional independent negative impact on retirement savings. We assess potential threats to a causal interpretation of our results with a hypothetical choice experiment and several robustness exercises. Finally, we explore potential mechanisms for our findings. If the relationship we estimate is causal, our estimates suggest that eliminating PB and EGB would be associated with an increase in retirement savings of 12%, or as high as 70% using estimates that account for classical measurement error.
Evaluating the Impact of Workplace Financial Education Using a Life Cycle Model
Annamaria Lusardi
(George Washington University)
Pierre-Carl Michaud
(ESG Université du Québec à Montréal)
Olivia S. Mitchell
(University of Pennsylvania)
[View Abstract]
[Download Preview] We use a stochastic life cycle model which incorporates endogenous knowledge accumulation to evaluate the effectiveness of workplace financial education. We show that our model explains a number of important features of financial education programs. For example, we show that it is frequently optimal for individuals to fail to invest in knowledge, as it is expensive to acquire and will not benefit everyone. Nevertheless, providing employees with financial knowledge can be valuable, depending on when it is offered and how much follow up is undertaken. Using conventional program evaluation econometric techniques married with simulated data, we can explicitly take into account selection and treatment effects: this allows us to measure how such programs shape wealth accumulation, financial knowledge, and participation in sophisticated assets (e.g. stocks) across heterogeneous consumers. We show that more effective programs are those which embed follow-up (or are continued over time) so as to help employees retain knowledge acquired via the program. In this case, financial education delivered to employees around the age of 40 will optimally enhance savings at retirement by close to 10%. By contrast, a program that provides only a one-shot intervention can generate short-term but few long-term effects. Finally, we evaluate how important it is to account for selection in program participation. We conclude that comparing participants and non-participants, even in a difference-in-difference framework, can deliver misleading estimates of program effectiveness.
Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection
Vanya Horneff
(Goethe University)
Raimond Maurer
(Goethe University)
Olivia S. Mitchell
(University of Pennsylvania)
Ralph Rogalla
(Goethe University)
[View Abstract]
[Download Preview] This paper assesses optimal life cycle consumption and portfolio allocations when households have access to Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuities over their adult lifetimes. Our contribution is to evaluate demand for these products which provide access to equity investments with money-back guarantees, longevity risk hedging, and partially-refundable premiums, in a realistic world with uncertain labor and capital market income as well as mortality risk. Others have predicted that consumers will only purchase such annuities late in life, but we show that they will optimally purchase GMWBs prior to retirement, consistent with their recent rapid uptick in sales. Additionally, many individuals optimally adjust their portfolios and consumption streams along the way by taking cash withdrawals from the products. These products can substantially enhance consumption, by up to 10% for those who experience highly unfavorable experiences in the stock market.
Discussants:
Alessandro Previtero
(University of Texas-Austin)
David Laibson
(Harvard University)
Robert Clark
(North Carolina State University)
Jeffrey R. Brown
(University of Illinois-Urbana-Champaign)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 13
American Economic Association
New Theory and Evidence on the Dynamics of Multinational Corporations
(F1, F6)
Presiding:
Stefania Garetto
(Boston University)
The Dynamics of Multinational Activity: Evidence from the U.S.
Stefania Garetto
(Boston University)
Lindsay Oldenski
(Georgetown University)
Natalia Ramondo
(University of California-San Diego)
[View Abstract]
[Download Preview] This paper examines how the activities performed by multinational firms change over time. Using a panel of US multinational firms over 25 years from the US Bureau of Economic Analysis, we classify affiliate sales as horizontal, vertical, or export platform based on their destination, and we trace the evolution of these three types of affiliate sales within firms over time. We establish two stylized facts. First, affiliate sales, both to the local market to other countries, grow very little over the life cycle of the affiliate. Second, affiliates of U.S. multinational firms specialize in a core activity at birth, which persists as the main activity during the life cycle. Some diversification is observed later in life, particularly from horizontal to export activities. Informed by these facts, we propose a dynamic model of multinational production that is consistent with these facts. The model can be calibrated to shed light on the nature of the costs of multinational activity, which are essential ingredients to quantify the gains from openness arising from multinationals’ operations.
Multinational Firms and Exporters Dynamics
Anna Gumpert
(University of Munich)
Andreas Moxnes
(University of Oslo)
Natalia Ramondo
(University of California-San Diego)
Felix Tintelnot
(University of Chicago)
[View Abstract]
[Download Preview] This paper provides new evidence on the dynamics of multinational firms and exporters based on
firm-level panel data for Norway, France, and Germany: First, exit rates for new exporters almost triple the ones for new affiliates of multinational firms, while multinational firms with previous export experience show the lowest exit rates. Second, new affiliates of multinational firms have flatter sales growth profiles than exporters. Finally, firms that transition from exporting to FDI are larger than continuing multinational firms, consistent with the idea of inertia due to sunk costs of FDI. We further provide a simple dynamic extension of a model in which firms choose to serve a foreign market through exports or affiliate sales facing a "proximity-concentration tradeoff", as in Helpman, Melitz, and Yeaple (2004). Such a model captures these patterns qualitatively and also reasonably well quantitatively.
The Impact of Innovation in the Multinational Firm
Kamran Bilir
(University of Wisconsin-Madison)
Eduardo Morales
(Princeton University)
[View Abstract]
What is the private return to innovation? When firms operate production sites in multiple countries, improvements developed at one site may be shared across others for efficiency gain. We develop a dynamic model that explicitly accounts for such transfer within the firm, and apply it to measure innovation returns for a comprehensive panel of U.S. multinationals during 1989–2009. We find that the data, which include detailed measures of affiliate-level production and innovation, are consistent with innovation generating returns at firm locations beyond the innovating
site. Accounting for cross-plant effects of innovation, our most conservative estimates indicate the average firm realizes 30 to 40 percent of the return to U.S. parent R&D abroad, suggesting single-plant estimates may understate firms’ gain from innovation.
Multinationals, Offshoring and the Decline in U.S. Manufacturing
Christoph Boehm
(University of Michigan)
Aaron Flaaen
(Federal Reserve Board)
Nitya Pandalai-Nayar
(University of Michigan)
[View Abstract]
[Download Preview] We provide three new stylized facts that characterize the role of multinationals in the U.S. manufacturing employment decline, using a novel microdata panel from 1993-2011 that augments U.S. Census data with rm ownership information and transaction-level trade. First, over this period, U.S. multinationals accounted for 41% of the aggregate manufacturing decline, disproportionate to their employment share in the sector. Second, U.S. multinational-owned establishments had lower employment growth rates than a narrowly-defined control group. Third, establishments that became part of a multinational experienced job losses, accompanied by increased foreign sourcing of intermediates by the parent firm. To establish whether imported intermediates are substitutes or complements for U.S. employment, we develop a model of input sourcing and show that the employment impact of foreign sourcing depends on a key elasticity -- of firm size to production efficiency. Structural estimation of this elasticity finds that imported intermediates substitute for U.S. employment. In general equilibrium, our estimates imply a sizable manufacturing employment decline of 13%.
Discussants:
Stephen Yeaple
(Pennsylvania State University)
Javier Cravino
(University of Michigan)
Andres Rodriguez-Clare
(University of California-Berkeley)
Kei-Mu Yi
(Federal Reserve Bank of Minneapolis)
Jan 04, 2016 2:30 pm, Hilton Union Square, Golden Gate 8
American Economic Association
Occupations of the Past and Future
(J1)
Presiding:
Peter McHenry
(College of William and Mary)
Green Skills
Francesco Vona
(OFCE SciencesPo and SKEMA Business School)
Giovanni Marin
(IRCrES-CNR, Italy and OFCE-SciencesPo)
Davide Consoli
(Ingenio CSIC-UPV)
David C. Popp
(Syracuse University and NBER)
[View Abstract]
[Download Preview] The catchword ‘green skills’ has been common parlance in policy circles for a while, yet there is little systematic empirical research to guide public intervention for meeting the demand for skills that will be needed to operate and develop green technology. We present a data-driven methodology to identify occupational skills that are relevant for environmental sustainability. We find that these green skills are mostly engineering and technical know-how related to the design, production, management and monitoring of technology. We also evaluate the effect of environmental regulation on the demand of green skills exploiting exogenous geographical variation in regulatory stringency for a panel of US metropolitan and non-metropolitan areas over the period 2006-2014. Our results suggest that, while these recent changes in environmental regulation have no impact on overall employment, they create significant gaps in the demand for some green skills, especially those related to technical and engineering skills.
Is Occupational Licensing a Barrier to Interstate Migration?
Janna E. Johnson
(University of Minnesota)
Morris Kleiner
(University of Minnesota)
[View Abstract]
Occupational licensure, the legal process establishing qualifications to practice a trade or profession, has become one of the most significant labor market regulations in the US. The percent of the workforce licensed at the state level grew from around 5% in the 1950s to almost 23% in 2008, with a 28% increase since 1980. Migration rates within the United States have fallen dramatically, with a decline in between-state migration of 50% over the last 20 years. We examine to what extent occupational licensing may be a contributing factor to the decline in interstate migration. Occupational licensing adds a significant barrier to moving between states, as often an individual must fulfill new licensing requirements in order to practice their occupation in another state. Our analysis of five licensed occupations shows that, after controlling for demographic characteristics, individuals in these occupations have lower interstate migration rates than their peers in other occupations, while the rate at which they move within states is similar. To establish whether or not licensing is behind these differences, we perform a difference-in-difference analysis using changes in state licensing laws. State policies on accepting those who fulfill licensing requirements in other states as qualified to practice in their state (called endorsement) and on forming agreements with other states on establishing licensing requirements (called reciprocity) are amended often. Our analysis for lawyers shows that lawyers in states that adopt these policies have increased migration rates after the adoption of these policies compared to lawyers in states with no such policies. We will repeat this analysis for additional occupations. Our results show that the additional costs occupational licensing places on migration has restricted the movement of individuals in licensed occupations, accounting for part of the decrease in overall migration in the US.
The Long Run Effects of Labor Migration on Human Capital Formation in Communities of Origin
Taryn Dinkelman
(Dartmouth College)
Martine Mariotti
(Australian National University)
[View Abstract]
[Download Preview] Many economists recognize that labor migration is one of the most direct strategies for escaping poverty. Yet, considerable debate remains over whether and how migration affects communities of origin over the long run. This paper provides new evidence of one channel through which circular labor migration has lasting effects on origin communities: by raising human capital formation of the next generation. We estimate the net effects of labor migration from Malawi to the South African mines using a difference-in-differences strategy, along with newly digitized Census and administrative data on access to mine jobs, and two plausibly exogenous shocks to the option to migrate. Twenty years after these shocks subsided, human capital is 4.8-6.9% higher among cohorts who were eligible for schooling in those communities of origin with the easiest access to migrant jobs.
Learning New Technology: The Polarization of the Wage Distribution
Benedetto Molinari
(University Pablo Olavide)
Manuel Alejandro Hidalgo
(University Pablo Olavide)
[View Abstract]
By applying a counterfactual quantile regression analysis to historic U.S. data, we show that the evolution of wage inequality in the lower echelon of the wage distribution was due entirely to a reduction of within-group wage inequality, which was determined, in turn, by more homogeneous remuneration paid to workers performing routine tasks. Changes in the differential between the remuneration paid to technology-complementary and technology-substitute tasks had only a negligible impact on wage inequality among low-wage workers, which casts some doubt on the validity of basing a theory of wage inequality on routinization-biased technical change operating through a labor demand channel.<br />
To reconcile the routinization hypothesis with the data, we develop a model in which skill-heterogeneous workers face endogenous occupational choices and learning costs in connection with operating a new technology.<br />
Even in the absence of changes in wage differentials, the model argues that technical change can generate an empirically consistent non-monotone effect on wage inequality by affecting the average level of skills within different groups of workers.
The Labor Market Effects of Occupational Regulation: Evidence from the Nurse Licensure Compact
Kevin Stange
(University of Michigan)
Christina DePasquale
(Emory University)
[View Abstract]
[Download Preview] There is concern that state licensure requirements impede efficient mobility of licensed professionals to areas of high demand. Nursing has not been immune to this criticism, especially in the context of perceived nurse shortages and large expected future demand. The Nurse Licensure Compact (NLC) was introduced to solve this problem by permitting registered nurses to practice across state lines without obtaining additional licensure and making licensure easier to obtain for nurses moving between member states. We exploit the staggered adoption of the NLC across states and over time to examine whether a reduction in licensure-induced barriers alters the nurse labor market. Using data on over 1.8 million nurses and other health care workers from the 1990 and 2000 Census and the 2001-2012 American Community Surveys, we estimate the effects of NLC adoption on labor supply, migration, and commuting outcomes. We find no evidence that the labor supply or mobility of nurses increases following the adoption of the NLC, even among the residents of counties bordering other NLC states who are potentially most affected by the NLC. This suggests that nationalizing occupational licensing will not substantially reduce the labor market frictions caused by occupational regulation.
Jan 04, 2016 2:30 pm, Hilton Union Square, Continental – Parlor 1
American Economic Association
Public Economics: Education
(H8, I2)
Presiding:
Terra G. McKinnish
(University of Colorado-Boulder)
The Impact of Authorization on the Schooling and Labor Market Outcomes of Undocumented Immigrants: Evidence from the Deferred Action for Childhood Arrivals Program
Francisca Antman
(University of Colorado-Boulder)
Catalina Amuedo-Dorantes
(San Diego State University)
[View Abstract]
[Download Preview] This paper explores the labor market and schooling effects of the Deferred Action for Childhood Arrivals (DACA) initiative, which provides work authorization to eligible immigrants along with a temporary reprieve from deportation. The analysis relies on a difference-in-differences approach that exploits the discontinuity in program rules to compare eligible individuals to ineligible, likely undocumented immigrants before and after the program went into effect. To address potential endogeneity concerns, we focus on youths that likely met DACA’s schooling requirement when the program was announced. We find that DACA reduced the probability of school enrollment of eligible higher-educated individuals, as well as some evidence that it increased the employment likelihood of men, in particular. Together, these findings suggest that a lack of authorization may lead individuals to enroll in school when working is not a viable option. Thus, once employment restrictions are relaxed and the opportunity costs of higher-education rise, eligible individuals may reduce investments in schooling.
Cities Drifting Apart: Heterogeneous Outcomes of Decentralizing Public Education
Zelda Brutti
(European University Institute)
[View Abstract]
[Download Preview] I focus on the decentralized provision of public education in a middle income country, and provide original empirical evidence on heterogeneous impacts of autonomy, depending on the levels of development characterizing local authorities. Colombian municipalities were assigned to administer their public education service autonomously solely on the basis of whether they exceeded the 100 thousand inhabitants threshold. Exploiting this discontinuity, I look at the heterogeneous impact that autonomy has had on student test scores across municipalities using a regression discontinuity design and fixed-effects regression on a discontinuity sample. I find a test score gap arising between autonomous municipalities in the top quartile and those in the bottom quartile of the development range, in a trend that reinforces over time. From analysis of detailed municipal balance sheet data, I show that top-quartile municipalities are wealthier and invest in education more than the ad hoc transfers they receive, supplementing these with own financial resources. Significant differences that help explaining outcome patterns are also found in indicators of municipal administration quality.
Information Matters: Salient Student Loan Information Affects College Students’ Behavior
Carly Urban
(Montana State University)
Maximilian Schmeiser
(Federal Reserve Board)
Christiana Stoddard
(Montana State University)
[View Abstract]
[Download Preview] The rapid increase in the number of college students with student loan debt and the amount of debt borrowed to finance post-secondary education have attracted increasing attention as potential threats to the financial well-being of young adults and to the broader economy. However, little research has focused on pre-graduation interventions that may change the subsequent student loan choices and academic performance of college students. We exploit a natural experiment that sent “Know Your Debt” letters to raise awareness of students’ education debt levels and provided incentivized offers of one-on-one financial counseling. The letters warned students that their debt levels were high relative to their standing in class and the projected salaries for their majors. This intervention was targeted at Montana State University students reaching a specific debt threshold, where a separate threshold existed for freshmen, sophomores, juniors, and seniors; the University of Montana provided no comparable intervention. We use a difference-in-difference-in-differences (DDD) identification strategy to compare students above and below the thresholds, across campuses, and before and after the intervention to determine how the letters affected students’ academic and loan choices in the subsequent semesters. Employing a never-before-used rich administrative dataset that contains detailed individual-level information on all Montana University System students, their academic records, and detailed financial aid packages, we find that students receiving the letters take out an average of $1,450 less in the subsequent semester—almost one-third less than students in the comparison group. If the slower pace of debt accumulation is due to these students working part-time jobs, it does not adversely affect their academic performance. In fact, those who receive the intervention take more credits and have higher GPAs in the subsequent semester. For freshmen, the intervention increases the probability of declaring a STEM major and improves one-year college retention probabilities by 5 percent.
STEM Training and Early Career Outcomes of Female and Male Graduate Students: Evidence from UMETRICS Data linked to the 2010 Census
Catherine Buffington
(U.S. Census Bureau)
Benjamin Cerf Harris
(U.S. Census Bureau)
Christina Jones
(American Institutes for Research)
Bruce A. Weinberg
(Ohio State University, IZA, and NBER)
[View Abstract]
Women are underrepresented in science and engineering, with the underrepresentation increasing in career stage. We analyze gender differences at critical junctures in the STEM pathway – graduate training and the early career – using UMETRICS administrative data matched to the 2010 Census and W-2s. We find strong gender separation in teams, although the effects of this are ambiguous. While no clear disadvantages exist in training environments, women earn 10% less than men once we include a wide range of controls, most notably field of study. This gap disappears once we control for women’s marital status and presence of children.
Discussants:
Kelly Bedard
(University of California-Santa Barbara)
Caroline Hoxby
(Stanford University)
Sarah Turner
(University of Virginia)
Paula Stephan
(Georgia State University)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 21
American Economic Association
Public Finance and Intergovernmental Relations
(H7, H2)
Presiding:
David R. Agrawal
(University of Kentucky)
Cross-Border Shopping and Use Tax Evasion: Theory and Evidence
David R. Agrawal
(University of Kentucky)
Mohammed Mardan
(ETH Zurich)
[View Abstract]
[Download Preview] Sales taxes are due at the point of sale for brick-and-mortar transactions, while use taxes are due on goods purchased in neighboring jurisdictions and on Internet sales. We develop a model where jurisdictions competitively set both sales and use taxes. When expected fines for tax evasion are sufficiently high, the optimal use tax rate is always equal to the sales tax rate. However, when expected fines are low, the optimal use tax rate does not necessarily equal the sales tax rate when asymmetric governments maximize social welfare. The divergence of the sales and use tax is likely when cross-state tax avoidance opportunities due to tax differentials are large. In most states, towns are allowed to levy local sales and use taxes. We assemble the first ever panel dataset of use tax rates for every town in the United States at the monthly frequency over the last eight years and merge this to previously assembled panel data on sales tax rates. We document that approximately 15% of towns have a use tax rate that is lower than the town's total sales tax rate. We then exploit changes in the sales and use tax rates over time to identify factors that induce a municipality to levy a use tax rate that is different than its sales tax rate. In response to exogenous increases in state-level policies that incentivize cross-border shopping, the results of the empirical model suggest that local sales tax rates are more likely to be equal to the local use tax rate.
Heterogeneous Vertical Tax Externalities, Capital Mobility, and the Fiscal Advantage of Natural Resources
Fidel Perez-Sebastian
(University of Alicante)
Ohad Raveh
(Hebrew University of Jerusalem)
Yaniv Reingewertz
(University of Haifa)
[View Abstract]
[Download Preview] How do state tax rates respond to federal tax shocks? This paper presents a novel mechanism of heterogeneous vertical tax externalities across levels of fiscal advantage, showing that tax increases can be expansionary -- even without their reinvestment. States rich with natural resources have a fiscal advantage in the inter-state competition over production factors which allows them to respond better to changes in federal taxes and, consequently, attract capital from other parts of the nation. We add heterogeneity in fiscal advantage levels to an otherwise standard model of vertical tax externalities and horizontal tax competition; the model shows that, irrespective of federal redistribution, the contractionary effect of a federal tax increase can be overturned in states with high fiscal advantage, through an increase in their tax base. Using the case of the U.S., and narrative-based measured federal tax shocks a-la Romer and Romer (2010), we provide empirical evidence for the various aspects of this mechanism. Specifically, our lower-bound estimates indicate that, controlling for federal transfers, a 1% increase in the GDP share of capital-related federal taxes at the beginning of a year increases the growth in the per capita tax base by approximately 1.6% in high fiscal advantage states at the end of it, on average.
Political Alignment and Intergovernmental Transfers in Parliamentary Systems: Evidence from Germany
Thushyanthan Baskaran
(University of Siegen)
Zohal Hessami
(University of Konstanz)
[View Abstract]
[Download Preview] We study partisan favouritism in the allocation of intergovernmental transfers. Our dataset combines local council election data with fiscal data on grant allocations in the German state of Hesse. To identify a causal effect, we apply a regression discontinuity design with a perturbation procedure to classify close elections. Left-wing state governments favoured aligned municipalities; right-wing state governments favoured unaligned municipalities. Only few local councils had absolute right-wing majorities during the tenure of the right-wing state governments. Therefore, right-wing state governments had to use transfers to "buy off" unaligned municipalities, while left-wing state governments used transfers to enhance their electoral prospects.
Identifying The Vertical Tax Externality: Evidence from Narrative Federal Tax Shocks
Yaniv Reingewertz
(University of Haifa)
[View Abstract]
[Download Preview] Do federal taxes compete with state taxes over the same tax base, creating a vertical tax externality? The results presented in this paper suggest that the answer to this
question is positive, at least for corporate income taxes. We use plausibly exogenous narrative tax shocks (Romer and Romer 2010) to assess the effect of federal tax shocks on state tax revenues. We find that federal tax shocks negatively affect state corporate tax revenues. This decline in state corporate tax revenues is not a result of lower tax rates but stems from a decline in the tax base, as investment and firm-level activity take a hit.
Public Employees as Politicians: Evidence from Close Elections
Ari Hyytinen
(University of Jyväskylä)
Jaakko Meriläinen
(Stockholm University)
Tuukka Saarimaa
(VATT Institute for Economic Research)
Otto Toivanen
(KU Leuven)
Janne Tukiainen
(VATT Institute for Economic Research)
[View Abstract]
[Download Preview] We analyze the effect of municipal employees’ political representation in a municipal council on local public spending. We use close elections in a proportional election system in Finland, which has the largest public sector in the OECD and the second most indebted local government. One more councilor employed by the local public sector increases spending by about one percent. The effect comes largely through the largest party. It also is specific to the employment sector of the municipal employees.
Discussants:
Yaniv Reingewertz
(University of Haifa)
Thushyanthan Baskaran
(University of Goettingen)
Ohad Raveh
(Hebrew University of Jerusalem)
David R. Agrawal
(University of Kentucky)
Janne Tukiainen
(VATT Institute for Economic Research)
Jan 04, 2016 2:30 pm, Hilton Union Square, Plaza B
American Economic Association
Quantitative Modeling of the Financial Crisis
(E3, E4)
Presiding:
Mark Gertler
(New York University)
Two Responses to the Financial Crisis: Germany Versus the United States
Patrick J. Kehoe
(University of Minnesota)
Virgiliu Midrigan
(New York University)
Elena Pastorino
(University of Minnesota)
[View Abstract]
We use the different experiences of Germany and the United States during the Great Recession to discuss alternative mechanisms for how financial crises lead to drops in real activity.
A Simple Model of Subprime Borrowers and Credit Growth
Alejandro Justinano
(Federal Reserve Bank-Chicago)
Giorgio Primiceri
(Northwestem University)
Andrea Tambalotti
(Federal Reserve Bank-New York)
[View Abstract]
Abstract. The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi, 2009). We present a simple model with prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Due to their low income, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on disproportionately more debt than their prime counterparts, who are not subject to that constraint.
Anticipated Banking Crises
Mark Gertler
(New York University)
Nobu Kiyotaki
(Princeton University)
Andrea Prestipino
(Federal Reserve Board)
[View Abstract]
[Download Preview] We develop a macroeconomic model with banking and bank runs, where the probability a run occurs is an endogenous function of the fundamentals of economy, including the health of bank balance sheets. The model is meant to capture key aspects of the recent financial crisis, where a gradual weakening of the banking system in the wake of the onset of the sub-prime crisis, culminated in an overall collapse following the Lehmann Brothers bankruptcy. As we show, anticipations of a bank run have harmful effects even if the run does not actually occur as it induces a kind of slow run on the system, characterized by a steady withdrawal of deposits. Slow runs, in turn, can set the stage for fast runs, where withdrawals are sudden and the system collapses, inducing harmful effects on the economy. This kind of slow run leading to fast run was a key feature of the recent crisis as described by both Bernanke and Gorton. We also describe the appropriate regulatory and policy responses.
Bank Leverage over the Business Cycle
Lawrence Christiano
(Northwestern University)
Daisuke Ikeda
(Bank of Japan)
[View Abstract]
"We construct a simple, tractable business cycle model in which the financial sector is characterized by variations in risk, consistent with observed variations in the TED spread. The model is also consistent with observations on the cyclical pattern of the cross-sectional variance of equity returns on financial firms. Financial firm risk varies endogenously as a result of interactions between an agency problem and bank leverage. We show that because of a pecuniary externality, the unregulated banking system can result in socially excessive bank leverage. We use the model to ask various policy questions: how should leverage restrictions be varied over the business cycle?; how should monetary policy be conducted when, for various reasons, banking regulations are not optimal?
"
Discussants:
Ali Shourideh
(University of Pennsylvania)
Simon Gilchrist
(Boston University)
Pablo Kurlat
(Stanford University)
Juliane Begenau
(Harvard Business School)
Jan 04, 2016 2:30 pm, Hilton Union Square, Imperial B
American Economic Association
Social Signaling
(D8, Z1)
Presiding:
John List
(University of Chicago)
Estimating Social Preferences and Gift Exchange at Work
Gautam Rao
(Harvard University)
Stefano DellaVigna
(University of California-Berkeley)
John List
(University of Chicago)
Ulrike Malmendier
(University of California-Berkeley)
[View Abstract]
We design a model-based field experiment to estimate the nature and magnitude of workers' social preferences towards their employers. We test whether workers are motivated to work harder due to altruism or warm glow towards their employer, and how this motivation responds to the employer's generosity towards them. The 446 workers hired for a one-time task face experimental variation in (i) piece rates; (ii) whether the work has payoffs only for the worker, or also for the employer; and (iii) the return to the employer. Following this within-subject variation, we introduce between-subjects variation in (positive or negative) `gifts' from the employer. Using measures of productivity across the rounds and treatments, we estimate baseline social preferences, as well as reciprocal responses to surprises in employer generosity. The results indicate that workers have substantial baseline social preferences towards their employers, even in the absence of repeated game incentives. Consistent with models of warm glow but not pure altruism, workers exert substantially more effort when their work is consequential to their employer, but are insensitive to the precise return to the employer. Turning to reciprocity, we find little evidence of a response to unexpected positive (or negative) gifts from the employer. In particular, if anything, positive reciprocity may be larger than negative reciprocity. We relate these results to previous field experiments on gift exchange.
Partisan Interactions: Evidence from a Field Experiment in the United States
Ricardo Perez-Truglia
(Microsoft Research)
Guillermo Cruces
(National University of La Plata)
[View Abstract]
[Download Preview] Since campaign contributions reveal the actor’s party leanings, they take place in a domain of social observation and are likely to be subject to social effects. We conducted a field experiment to identify some of these social effects. We sent letters to 92,000 contributors from all U.S. states during the 2012 presidential election campaign. We randomized subtle details in those letters to create non-deceptive experimental variation in the probability that the recipient’s contributions were observable to her neighbors, and in the recipient’s perception of the contributions of others. We use administrative data to measure the effects of these variations on the recipients’ subsequent contributions. We show that making an individual’s contributions more visible to her neighbors increases the contributions of supporters of the local majority party, and decreases those of supporters of the minority party. This evidence is consistent with a model of partisan signaling in which individuals treat supporters of their own party favorably and supporters of the opposite party unfavorably. Additionally, we show that individuals contribute more when they perceive higher average contributions from own-party supporters in their area, but not do not react to contributions from opposite party neighbors, which is consistent with social norm theories. Last, individuals contribute lower amounts when they perceive a higher share of own-party contributors, which can be interpreted as free-riding. Taken together, the evidence suggests that partisan interactions play an important role in shaping political participation.
Changing Societal Norms and Optimal Privacy
Nageeb Ali
(Pennsylvania State University )
Roland Benabou
(Princeton University)
[View Abstract]
[Download Preview] We study a Principal interacting with image-conscious agents in a general public-goods pro-
vision context. Agents have private signals about the quality of the public good which, when
suitably aggregated, precisely reveal its social value. Each chooses how much to contribute,
based on his own mix of public-spiritedness and reputational concern for appearing prosocial.
The Principal can amplify or dampen these reputational payoffs by making individual behavior
more or less visible to the community. While this entails no direct cost, it entails an endogenous,
informational one: because societal preferences evolve, the Principal knows only imperfectly the
social value of the public good and the importance attached by agents to social esteem or sanctions. Learning about public good quality is important for choosing her own contribution, matching rate or other policy (e.g., law). If the Principal suppresses image motivations by making contributions or compliance anonymous, she can precisely infer quality from agents aggregate behavior. However, each of them will free-ride to a greater extent, leaving her with a greater burden in achieving optimal provision. If she leverages social image to encourage prosocial behavior, on the other hand, she faces a signal-extraction problem, not knowing whether to attribute compliance to image concerns or to information. We analyze how the socially optimal degree of privacy/publicity and Principals matching rate vary with her and agents' information structures, as well as with the variability of aggregate and individual preferences. We show in particular that in a fast-changing society (greater variability in the fundamental or the image-motivated component of average preferences), privacy should be greater than in a more static or traditional one, where preferences over public goods vary mostly across individuals.
Social Image and Status Goods: Experimental Evidence from Platinum Credit Cards in Indonesia
Leonardo Bursztyn
(University of California-Los Angeles)
Bruno Ferman
(Sao Paulo School of Economics)
Stefano Fiorin
(University of California-Los Angeles)
Martin Kanz
(World Bank)
Gautam Rao
(Harvard University)
N/A
Discussants:
Markus Mobius
(Microsoft Research and University of Michigan)
Stefano DellaVigna
(University of California-Berkeley)
James Andreoni
(University of California-San Diego)
Justin M. Rao
(Microsoft Research)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 14
American Economic Association
Sovereign Debt Contracts
(F3)
Presiding:
Chris Meissner
(University of California-Davis)
Collective Action Clauses in International Sovereign Bond Contracts and Their Effect on Spreads at Issuance
Catalin Stefanescu
(Indiana University)
[View Abstract]
[Download Preview] This paper analyzes the impact of collective action clauses on the cost of borrowing for sovereigns. Specifically, the thesis focuses on majority restructuring provisions, which define the qualifying majority of bondholders that can modify the financial terms of the bonds. The 2012 Greek restructuring and the ruling in U.S. courts against Argentina's appeal to avoid paying holdout creditors have reignited the interest over the use and design of these clauses. I find that countries perceived to be less corrupt and countries more exposed to exogenous shocks, such as countries with high dependency on commodity exports, are more likely to have lower voting thresholds. I then document that voting requirements have, on average, a statistically significant positive effect on spreads at issuance. However, this effect is not uniform across different categories of borrowers, with lower-rated sovereigns benefiting the most. Additionally, I show that these lower rated issuers benefit incrementally more after 2003. From a policy perspective, the results imply that market participants favor these contractual changes and that the current push for further contractual reforms will likely be beneficial.
Multilateral Loans and Interest Rates – further Evidence on the Seniority Conundrum
Sven Steinkamp
(Osnabrueck University)
Frank Westermann
(Osnabrueck University and CESifo)
Katharina Mersmann
(Osnabrueck University)
[View Abstract]
Public rescue policies in the Euro Area largely rest on the assumption that multiple equilibria existed at the onset of the crisis and were responsible for the surge of government bond spreads. In this study, we challenge the multiple equilibria hypothesis put forward by De Grauwe and Ji (2013), and recently also Saka et al. (2015). Building on earlier work by Steinkamp and Westermann (2014), we argue that standard interest rate specifications in this literature miss out on a statistically and economically significant explanatory variable: The share of public debt that is held by multilateral creditors. In the early crisis period, official creditors insisted on a preferred full repayment of their rescue loans in the case of a sovereign default. This lowered expected recovery rates for private market participants and made them demand higher marginal interest rates. The present paper extends the earlier findings by further analyzing the direction of causality. We follow three different identification approaches to account for a possible endogeneity of emergency lending and interest rates: First, we use a set of IV regressions where the differences between sovereign ratings serve as instruments. Second, we analyze a new panel-survey dataset on seniority and interest rate expectations. In both approaches, we find evidence for the seniority conundrum – i.e., a positive impact of multilateral loans on interest rate spreads. Third, we analyze the events surrounding the announcement of the OMT. Making use of a novel data set from a large private prediction market, we are able to attribute the news reaction of government bond spreads to the underlying changes in the recovery rate and the default probability.
Sovereign Debt Renegotiation and Credit Default Swaps
Juliana Salomao
(University of Minnesota)
[View Abstract]
A credit default swap (CDS) contract provides insurance against default. After a country defaults, the country and its lenders usually negotiate over the share of the defaulted debt to be repaid. This paper incorporates CDS contracts into a sovereign default model and demonstrates that the existence of a CDS market results in lower default probability, higher debt levels, and lower financing costs for the country. Since the CDS payout is not automatically triggered by losses from renegotiations, the lender needs to be compensated for lower expected insurance payments. This leads to higher debt repayment in renegotiation, decreasing the benefits of defaulting, and hence allowing the country to borrow more at lower rates. Uncertainty over the insurance payout when the debt is renegotiated explains why in the data, as the output declines, the CDS spread becomes lower than the bond spread. Furthermore, this pricing diynamic during a debt crisis can be used to infer market perceptions of the probability of the CDS paying out after a renegotiation. The model is calibrated to Greek data and shows that increasing CDS levels from 0 to 5% of debt lowers the unconditional default probability from 2.6% to 2.0% per year with no impact on debt level. Further increasing the CDS to 40% of debt increases the equilibrium debt level by 15%, but also increases the probability of default to 3.1%.
Sovereign Default and Public Debt Sustainability
Hubert Kempf
(Ecole Normale Superieure)
Michel Guillard
(University of Evry)
[View Abstract]
[Download Preview] Abstract We address sovereign default in a macroeconomic model with infinite horizon and we highlight the impact of the rule of default on the occurrence and frequency of default through the risk premium set by markets on public debt. Our model allows us to define two steady-states, one stable, the other unstable. There is default when public debt is heading toward the unstable steady-state. We define the “default threshold” as the upper limit of public debt beyond which the default occurs with unit probability. Reasoning on a specification of the default rule, we characterize a critical value for the haircut ratio, leading us to define the notion of “realistically sustainable debt”. Below this ratio, absent any further shocks, the dynamics of post-default public debt is not realistically sustainable because it leads inevitably to a future default. Above it, the post-default public debt converges to the (stable) steady state and is therefore “realistically sustainable”. Our analysis puts to the fore the crucial and ambivalent role of the haircut ratio on the dynamics of public debt.
Self-Fulfilling Debt Crises: Can Monetary Policy Really Help?
Philippe Bacchetta
(University of Lausanne)
Elena Perazzi
(University of Lausanne)
Eric van Wincoop
(University of Virginia)
[View Abstract]
[Download Preview] This paper examines the potential for monetary policy to avoid self-fulfilling sovereign debt crises. We combine a version of the slow-moving debt crisis model proposed by Lorenzoni and Werning (2014) with a standard New Keynesian model. Monetary policy could preclude a debt crisis through raising inflation and output and lowering the real interest rate. These reduce the real value of outstanding debt and the cost of new borrowing, and increase tax revenues and seigniorage. However, the policies needed to avert a crisis generally require excessive inflation for a sustained period of time so that the central bank cannot credibly avoid a self-fulfilling debt crisis.
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 17 & 18
American Economic Association
The Evolution of Earnings Inequality, Property Laws and Educational Attainment on Marital Behavior
(J1)
Presiding:
Aloysius Siow
(University of Toronto)
The Evolution of Earnings Inequality, Educational Attainment on United States Marital Behavior, 1970-2010
Kirsten Cornelson
(University of Toronto)
Aloysius Siow
(University of Toronto)
[View Abstract]
[Download Preview] Many observers argue that the increase in earnings inequality and the overtaking of female to male schooling attainment since the seventies led to (1) more positive assortative matching in marriage by educational attainment and (2) significant decline in US marriage rates. Due to the rise of single female headed households, the weffare of children suffered. Using the Choo Siow marriage matching function, this paper provides a quantitative assessment of these claims for marital behavior from 1970 to 2010 in the US. Although US marriage rates fell significantly, we show that increasing earnings inequality and changes in the schooling attainment distributions by gender contributed modestly to this decline. There is little evidence of an increase in PAM among college graduates.
Why Wait? A Century of Education, Marriage Timing and Gender Roles
Murat Iyigun
(University of Colorado)
Jeanne Lafortune
(Catholic University of Chile)
[View Abstract]
[Download Preview] This paper documents that, over the last century, U. S. marriage patterns and the gender educational gap followed a non-monotonic pattern. Cohorts born around the turn of the 20th century married late and they typically had slightly more educated wives than husbands, although the overall spousal education levels were very low. For cohorts born between the two World Wars, marriages occurred earlier and they involved husbands who were significantly more educated than their wives. Among the later born cohorts, marriages began to occur later and they involved more educated spouses with narrower gender gaps. In order to explain these patterns, we propose a multi-period framework in a frictionless matching model where educational and marriage decisions are endogenous. The two key features of our theory are that marriage requires a fixed entry cost and that married couples cannot study simultaneously. This simple model can replicate the aforementioned stylized facts. In accordance with our model, we also find evidence that exogenous delays in marriage age caused by minimum marriage age laws decreased the educational difference between women and men, in accordance with the predictions of our model.
Marrying for Money: Evidence from the First Wage of Married Women's Property Laws in the U.S.
Peter Koudijs
(Stanford University)
Laura Salisbury
(York University)
[View Abstract]
[Download Preview] One way in which marriage generates value is by allowing couples to pool property for the purposes of risk sharing and investment. This dimension of marriage has received little attention in the literature, in part because it is difficult to separate this effect from the gains from division of labor within the household. We measure the impact of a class of married women's property laws introduced in the American South during the 1840s on assortative matching in the marriage market. These laws did not grant married women autonomy over their separate property; they merely shielded this property from seizure by their husbands' creditors. This had the dual effect of mitigating downside risk while restricting a husband's ability to borrow against his wife's property; it also preserved the bulk of the wife's property as an inheritance for the couple's children. As such, these laws affected a couple's ability to pool property and access credit without affecting the relative bargaining position of husbands and wives; this allows us to shed light on the importance of property in the marriage market. Using a newly compiled database of linked marriage and census records, we show that, these laws had a heterogeneous effect on the marriage market in different areas of the wealth distribution. We provide an interpretation for these results.
An Empirical Framework for Matching with Imperfectly Transferable Utility
Alfred Galichon
(Sciences Po Paris)
Scott Duke Kominers
(Harvard University)
Simon Weber
(Sciences Po)
[View Abstract]
We introduce an empirical framework for models of matching with imperfectly transferable utility and unobserved heterogeneity in tastes. Our framework includes as special cases the classic fully- and non-transferable utility models, collective models, and settings with taxes on transfers, deadweight losses, and risk aversion. We characterize equilibrium and conditions for identification, and derive comparative statics.
Discussants:
Jeanne Lafortune
(Catholic University of Chile)
Aloysius Siow
(University of Toronto)
Kirsten Cornelson
(University of Toronto)
Murat Iyigun
(University of Colorado)
Jan 04, 2016 2:30 pm, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Wealth Taxation
(E1, H1)
Presiding:
Burhan Kuruscu
(University of Toronto)
Use It or Lose It: Efficiency Gains from Wealth Taxation
Fatih Guvenen
(University of Minnesota)
Gueorgui Kambourov
(University of Toronto)
Burhan Kuruscu
(University of Toronto)
Daphne Chen
(Florida State University)
[View Abstract]
This paper studies the quantitative implications of wealth taxation (as opposed to capital income taxation) in an incomplete markets model with return rate heterogeneity across individuals. The rate of return heterogeneity arises from the fact that some individuals have better entrepreneurial skills than others, allowing them to obtain a higher return on their wealth. With such heterogeneity, capital income and wealth taxes have different efficiency and distributional implications. Under capital income taxation, entrepreneurs who are more productive and, as a result, generate more income pay higher taxes. Under wealth taxation, on the other hand, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity. Thus, in this environment, the tax burden would shift from productive entrepreneurs to unproductive ones if capital income tax were replaced with wealth tax. This reallocation increases aggregate productivity. Second, and at the same time, it increases wealth inequality in the population. To provide a quantitative assessment of these different effects, we build and simulate an overlapping generations model with individual-specific returns on capital income and idiosyncratic shocks to labor income. Our results indicate that switching from capital income tax to wealth tax can generate large welfare gains through better allocation of capital. We study optimal taxation by allowing exemptions and progressivity.
Bequest Taxation and r-g
Emmanuel Farhi
(Harvard University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
We analyze the role of the gap r-g between the return of return on capital r and the growth of the economy g rate in a political economy model of bequest taxation. Higher values of r-g lead to higher wealth inequality, and higher and more progressive optimal taxes on bequest. These conclusions hold only under certain specific but reasonable assumptions regarding the bequest motive, the relative magnitudes of bequest and labor income inequality, and the nature of the political economy process.
Wealth Inequality, Family Background, and Estate Taxation
Mariacristina De Nardi
(Federal Reserve Bank of Chicago)
Fang Yang
(Louisiana State University)
[View Abstract]
[Download Preview] This paper provides two main contributions. First, it provides a new theory of wealth inequality that merges two forces generating inequality: bequest motives and inheritance of ability across generations; and an earnings process that allows for more earnings risk for the richest. Second, it uses a calibrated framework to study the effects of changing estate taxation on inequality, aggregate capital accumulation and output, the economic advantage of being born to a given parental background, and welfare. Our calibrated model generates realistically skewed distributions for wealth, earnings, and bequests and implies that parental background is a crucial determinant of one’s expected lifetime utility. We find that increasing the estate tax rate would significantly reduce wealth concentration in the hands of the richest few and would reduce the economic advantage of being born to a super-rich family, but also would lower aggregate capital and output. Lastly, it would also generate a significant welfare gain from the ex-ante standpoint of a newborn under the veil of ignorance.
Optimal Taxation and R&D Policies
Ufuk Akcigit
(University of Chicago)
Douglas Hanley
(University of Pittsburgh)
Stefanie Stantcheva
(Harvard University)
[View Abstract]
We study the optimal design of firm taxation and R&D subsidies in a dynamic model in which the returns to R&D investment by firms are heterogeneous across firms and uncertain over time. A firm’s quality and risky returns are private information. We use a mechanism design approach to solve for the optimal taxation of firms and R&D policies over the firms’ life cycle. We highlight the crucial parameters and elasticities that determine the sign and magnitude of the optimal policies. We calibrate the model to U.S. firm data to quantitatively illustrate the evolution of the optimal taxes and subsidies over firms’ lifecycles. Finally, we evaluate the performance of simpler tax and subsidy instruments, namely linear taxes and R&D subsidies, size-dependent, or firm age-dependent policies.
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 25
American Economic Association
What Caused the Decline in Labor Market Mobility?
(J2, E2)
Presiding:
Ben Zipperer
(Washington Center for Equitable Growth)
Do Noncompetes Chill Employee Mobility?
Evan Starr
(University of Maryland)
[View Abstract]
[Download Preview] We examine the nature of the relationship between noncompetition agreements and employee mobility. A noncompetition agreement (also known as a covenant not to compete, or simply as a noncompete) restricts the ability of an employee to work for a competitor (or start a competing business) after termination. These agreements are a remarkably common feature of the U.S. labor market across all industries, occupations, and income levels (Starr et al. 2015). Recent academic work and interest from policy makers has raised questions about the effects these agreements might have on an employee’s freedom to seek employment elsewhere. In this paper, we outline a basic model of employee mobility, and consider the potential consequences of noncompetes for the entire process of mobility. With this framework, and using data from the 2014 Noncompete Survey, we study how noncompetes are related to differences in search behavior, recruitment, job offers, and firm counteroffering behavior (separately studying technology and low-wage employees). We find that individuals with noncompetes are recruited and receive offers at relatively higher rates, and yet noncompetes are also associated with longer employment tenures. We consider some of the possible stories that would make sense of the patterns we identify.
Is Regulation to Blame for the Decline of American Entrepreneurship?
Alex Tabarrok
(George Mason University)
Nathan Goldschlag
(George Mason University)
[View Abstract]
[Download Preview] Mounting evidence suggests that economic dynamism and entrepreneurial activity are declining in the United States. Over the past thirty years, the annual number of new business startups and the pace of job reallocation have declined significantly. A variety of causes for these trends have been suggested, including an increasing ability of firms to respond to idiosyncratic shocks, technology induced changes in the costs of hiring and training, and increasing regulation. This research combines data from the Statistics of U.S. Businesses, which contains measures of the decline in economic dynamism, with RegData, a novel dataset leveraging the textual content of the Code of Federal Regulations. RegData contains annual industry level measures of the stringency of regulation. By combining these data, we are able to estimate the extent to which changes in the level of federal regulation can explain decreasing entrepreneurial activity and dynamism. We find that Federal regulation has had little to no effect on declining dynamism.
Labor Market Mobility and Endogenous Search-on-the-Job
Marshall Steinbaum
(Washington Center for Equitable Growth)
[View Abstract]
The rate at which workers switch jobs and the rate at which prime-age workers
migrate to a different region have both declined in the US since at least 2000. This paper
models declining mobility in a Search-and-Matching labor market with a job ladder and
endogenous search on the job. When the job-fnding rate for unemployed workers is low,
employed workers choose not to undertake costly search. As a result, they do not ascend the
job ladder. The paper also provides evidence of stagnant earnings among workers as a whole
and outright declines among young workers and in locations where the decline in mobility
is most acute. That is at odds with some proposed causes for declining mobility. The result
is a picture of a slackening labor market extending over multiple business cycles, especially
harming young workers who are unable to ascend the job ladder.
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salon 8
American Finance Association
AFA LECTURE - Neuroscience and Finance
(G1)
Presiding:
Campbell Harvey
(Duke University)
Neuroscience and Finance
Colin F. Camerer
(California Institute of Technology)
N/A
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Euro-Area Bank Liquidity (Co-Sponsored by the U.S. Office of Financial Research and European Central Bank)
(G2)
Presiding:
Luc Laeven
(European Central Bank)
Cross-Border Liquidity, Price Dispersion and Monetary Policy: Evidence from the Euro Area Interbank Crisis
Puriya Abbassi
(Deutsche Bundesbank)
Falk Brauning
(Vrije University Amsterdam)
Falko Fecht
(Frankfurt School of Finance)
Jose-Luis Peydro
(Universitat Pompeu Fabra)
[View Abstract]
[Download Preview] We analyze funding liquidity supply, including cross-border. For identification, we exploit the
proprietary TARGET2 dataset, the Lehman and sovereign crisis shocks, and the Eurosystem non-standard monetary policy changes. The crisis shocks induce a tightening of the liquidity supplied, especially for cross-border lending, with stronger impact in the sovereign crisis for
banks from periphery. Moreover, the interbank market – unlike other markets – allows identi-
fying price dispersion from different lenders on identical contracts (overnight-uncollateralized loans in the same morning for the same borrower). This price dispersion increases massively with the crisis, especially for riskier lending, and decreases with the expansionary monetary policies.
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
Matteo Crosignani
(New York University)
Miguel de Faria e Castro
(New York University)
Luis Fonseca
(Bank of Portugal)
[View Abstract]
[Download Preview] We analyze some of the potentially unintended consequences of the largest liquidity injection ever conducted by a central bank: the European Central Bank’s three-year Long-Term Refinancing Operations conducted in December 2011 and February 2012. Using an unique dataset on monthly security- and bank-level holdings of government bonds for Portugal, we analyze the impact of this unconventional monetary policy operation on the demand for government debt. We find that: (i) Portuguese banks significantly increased their holdings of domestic government bonds after the announcement of this policy; (ii) This increase in holdings was tilted towards shorter maturities, with banks rebalancing their sovereign debt portfolios towards shorter term bonds. We employ a theoretical framework to argue that domestic banks engaged in a “collateral trade”, which involved the pur- chase of high yield bonds with maturities shorter than the central bank borrowing in order to mitigate funding liquidity risk. Our model delivers general equilibrium implications that are consistent with the data: the yield curve for the Portuguese sovereign steepens after the announcement, and the timing and characteristics of government bond auctions are consistent with a strategic response by the debt management agency.
The Euro Interbank Repo Market
Loriano Mancini
(Swiss Finance Institute at EPFL)
Angelo Ranaldo
(University of St. Gallen)
Jan Wrampelmeyer
(University of St. Gallen)
[View Abstract]
[Download Preview] [Download PowerPoint] The search for a market design that ensures stable bank funding is at the top of regulators' policy agenda. This paper empirically shows that an important part of the European money market features this quality, namely the central counterparty (CCP)-based euro interbank repo market. Using a unique and comprehensive data set, we provide the first systematic study of this market and show that it functions well, even during crisis episodes. CCP-based repos secured with high-quality collateral even act as a shock absorber, in the sense that repo lending increases with risk, while spreads, maturities, and haircuts remain stable.
Discussants:
Philipp Schnabl
(New York University)
Jeremy Stein
(Harvard University)
Florian Heider
(European Central Bank)
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Governance Threats, Consequences and Countermeasures
(G3)
Presiding:
Renée B. Adams
(University of New South Wales)
Do Director Elections Matter?
Vyacheslav Fos
(Boston College)
Kai Li
(University of British Columbia)
Margarita Tsoutsoura
(University of Chicago)
[View Abstract]
[Download Preview] Using a hand-collected sample of election nominations for more than 30,000 directors over the period 2001–2010, we construct a novel firm-level measure of director proximity to elections—Years-to-election. Since directors often serve on multiple boards, the measure varies not only with director’s nomination status in a given firm, but also with her nomination status on other boards. We find that the closer members of a board are to their next director elections, the higher is CEO turnover–performance sensitivity. The results are driven by board members who are likely to influence CEO turnover decisions, such as chairmen and nomination committee members. A series of further tests—including tests that exploit variation in Years-to-election that comes from other boards—support a causal interpretation. Cross-sectional tests further show that, when other governance mechanisms are in place, CEO turnover–performance sensitivity is less affected by board Years-to-election. We conclude that director elections have important governance implications.
The Threat of Shareholder Intervention and Firm Innovation
Jin Qi
(University of Minnesota)
[View Abstract]
[Download Preview] This research demonstrates that the threat of shareholder intervention negatively affects firm manager innovation incentive. The underlying mechanism is that innovation may cause stock price to reflect less accurate information about a firm’s fundamental value, which makes firm managers vulnerable to shareholder intervention. Firm managers under the threat of shareholder intervention will be biased against innovation projects to minimize job termination risk. Consistent with this mechanism, I find that (1) increasing the threat of shareholder intervention has a significant and economically important negative impact on firm innovation; (2) the threat of shareholder intervention exerts less negative effects on firms that are more likely to have efficient stock prices—firms with more monitoring institutional investors and/or more financial analysts. To establish causality, I exploit a novel identification strategy that relies on a quasi-natural experiment of activist investor closures to generate exogenous variation in the threat of shareholder intervention. The results from the difference-in-differences estimation show that firm-level innovation significantly improves following exogenous activist investor closures. This identification strategy suggests a negative causal effect of shareholder intervention threat on firm innovation.
Corporate Governance and the Firm's Workforce
Inessa Liskovich
(Univ of Texas-Austin)
[View Abstract]
[Download Preview] This paper uses matched employer-employee data to study the effects of corporate governance on the earnings and composition of the firm's workforce. I build a new dataset that links over 2,000 public companies to their employees in Texas. Focusing on shareholder-sponsored proposals, I measure stronger corporate governance using the passage of proposals to declassify the board of directors. I find that vote passage lowers firm's average employee earnings by 11%, directionally consistent with the previous literature. This has often been interpreted as wage decreases for individual workers. However, I show that half of this decrease is due to the changing composition of the workforce. Firms shift from higher-earning to lower-earning employees, and this effect is concentrated amongst the lower end of the earnings distribution. This evidence suggests that stronger corporate governance does not simply cause a wealth transfer from employees to shareholders. Instead, it causes real changes in the types of employees selected and retained by the firm.
Do Takeover Defenses Deter Takeovers?
Jonathan Karpoff
(University of Washington)
Robert Schonlau
(Brigham Young University)
Eric Wehrly
(Seattle University)
[View Abstract]
The G-index and E-index are used extensively in financial research to measure firms’ takeover defenses. Using instruments for a firm’s use of takeover defenses based on a firm’s geography and IPO cohort, we report the first direct evidence that the G-index and E-index are indeed negatively related to acquisition likelihood. The relation between takeover likelihood and the G-index is driven by a subset of 12 provisions, many of which are not in the E-index and three of which have positive impacts on takeover likelihood.
Discussants:
Daniel Ferreira
(London School of Economics)
Gustavo Manso
(University of California-Berkeley)
Paola Sapienza
(Northwestern University)
Bernard Black
(Northwestern University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Intermediation and Raising Capital
(G2)
Presiding:
Shai Bernstein
(Stanford University)
Bad Times, Good Credit
Bo Becker
(Stockholm School of Economics)
Marieke Bos
(Stockholm University)
Kasper Roszbach
(Sveriges Riksbank)
[View Abstract]
[Download Preview] Asymmetric information between lenders and borrowers is understood to be a key friction in credit markets. Perhaps amplified information problems explain why the supply of corporate credit contracts in recessions and crises. Alternatively, asymmetric information may be reduced by economic slowdowns. We test these opposing views of information frictions in the credit market using data on lending from a large bank, through two business cycles. We find that this banks’ ability to sort borrowers by credit quality is best in recessions, and worst in good times. This suggests that information frictions are counter-cyclical in corporate credit markets.
Who Benefits from Bond Market Modernization?
David Musto
(University of Pennsylvania)
Jillian Popadak
(Duke University)
[View Abstract]
[Download Preview] We analyze how modernization shapes U.S. corporate bond market transactions. To identify the effects of technological change, we use eligibility cut-offs that allow ``Well-Known Seasoned Issuers'' (WKSI) to significantly accelerate issuance speeds and consequently reduce potential investors' review time. We find this innovation initiated widespread adoption of incurrence-based covenants. Together with evidence on covenant pricing and bondholding, this indicates a new rationale for covenant presence -- as a substitute for investor diligence. Overall, we find the benefits of bond market modernization accrue to investors and issuers rather than intermediaries and this distribution is facilitated by covenants' role in simplifying valuation.
Underwriter Networks, Investor Attention, and Initial Public Offerings
Emanuele Bajo
(University of Bologna)
Thomas Chemmanur
(Boston College)
Karen Simonyan
(Suffolk University)
Hassan Tehranian
(Boston College)
[View Abstract]
[Download Preview] Using various “centrality” measures from Social Network Analysis (SNA), we analyze, for the first time in the literature, how the location of a lead IPO underwriter in its network of investment banks affects various IPO characteristics. We hypothesize that investment banking networks allow lead IPO underwriters to induce institutions to pay attention to the firms they take public and to perform two information-related roles during the IPO process: an information dissemination role, where the lead underwriter uses its investment banking network to disseminate noisy information about various aspects of the IPO firm to institutional investors; and an information extraction role, where the lead underwriter uses its investment banking network to extract information useful in pricing the IPO firm equity from institutional investors. Based on these two roles, we develop testable hypotheses relating lead IPO underwriter centrality to the IPO characteristics of firms they take public. We find that more central lead IPO underwriters are associated with larger absolute values of offer price revisions; greater IPO and after-market valuations; larger IPO initial returns; greater institutional investor equity holdings and analyst coverage immediately post-IPO; greater stock liquidity post-IPO; and better long-run stock returns. Using a hand-collected data set of pre-IPO media coverage as a proxy for investor attention, we show that an important channel through which more central lead IPO underwriters achieve favorable IPO characteristics is by attracting greater investor attention to the IPOs underwritten by them.
Who Finances Durable Goods and Why it Matters: Captive Finance and the Coase Conjecture
Justin Murfin
(Yale University)
Ryan Pratt
(Brigham Young University)
[View Abstract]
[Download Preview] We propose an explanation for the prominent role of manufacturers in the financing of their own product sales, often referred to as "captive financing." By lending against their own product as collateral, durable goods manufacturers commit to support resale values in future periods, thereby raising prices and preserving rents today. Using data on captive financing by the manufacturers of heavy equipment, we find that captive backed models retain higher resale values. This, in turn, conveys higher pledgeability, even for individual machines financed by banks. Although motivated as a rent seeking device, captive financing generates positive spillovers by relaxing credit constraints.
Discussants:
Richard Townsend
(Dartmouth College)
Victoria Ivashina
(Harvard Business School)
Yael Hochberg
(Massachusetts Institute of Technology )
Jean-Noel Barrot
(Massachusetts Institute of Technology)
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Pricing of Macroeconomic Risk
(G1)
Presiding:
Lars Kuehn
(Carnegie Mellon University)
The Dividend Term Structure
Jac Kragt
(Tilburg University)
Frank de Jong
(Tilburg University)
Joost Driessen
(Tilburg University - TiSEM)
[View Abstract]
[Download Preview] We estimate a model for the term structure of discounted risk-adjusted dividend growth using dividend derivative prices for four major stock markets. A two-state model capturing short-term mean reversion within a year and a medium-term component which reverts at business-cycle horizon is superior over a single-state model. The dividend term structure extrapolates to an implied price-dividend ratio. This model-implied ratio, combined with current dividends, captures most of the daily stock index return variation, despite the fast mean reversion to long-run growth. Hence, investors update their valuation of dividends beyond the business cycle horizon only to a limited degree.
The Price of Variance Risk
Ian Dew-Becker
(Northwestern University)
Stefano Giglio
(University of Chicago)
Anh Le
(University of North Carolina)
Marius Rodriguez
(Federal Reserve Board)
[View Abstract]
The average investor in the variance swap market is indifferent to news about future variance at horizons ranging from 1 month to 14 years. It is only purely transitory and unexpected realized variance that is priced. These results present a challenge to most structural models of the variance risk premium, such as the intertemporal CAPM, recent models with Epstein–Zin preferences and long-run risks, and models where institutional investors have value-at-risk constraints. The results also have strong implications for macro models where volatility affects investment decisions, suggesting that investors are not willing to pay to hedge shocks in expected economic uncertainty.
Horizon-Specific Macroeconomic Risks and the Cross-Section of Expected Returns
Martijn Boons
(Nova School of Business and Economics)
Andrea Tamoni
(London School of Economics)
[View Abstract]
[Download Preview] We show that decomposing macroeconomic risks across horizon is key to uncover a tight link between risk premia and the real economy. Exposure in four-year returns to innovations in macroeconomic growth and volatility with a matching half-life of over four years is priced in a wide variety of test assets. Shorter-term risks are not priced. Importantly, we show that long-term growth and volatility capture largely common risk. We then propose a single, long-term, macroeconomic risk factor which drives out standard long-run risk measures and performs similar to the Fama-French three-factor model in cross-sectional tests.Our empirical results strongly support the use of long-horizon betas to measure macroeconomic risks in asset returns.
Identifying Long-Run Risks: A Bayesian Mixed-Frequency Approach
Frank Schorfheide
(University of Pennsylvania)
Dongho Song
(Boston College)
Amir Yaron
(University of Pennsylvania)
[View Abstract]
[Download Preview] We develop a nonlinear state-space model that captures the joint dynamics of consumption,
dividend growth, and asset returns. Our model consists of an economy containing a common
predictable component for consumption and dividend growth and multiple stochastic volatility
processes. The estimation is based on annual consumption data from 1929 to 1959, monthly
consumption data after 1959, and monthly asset return data throughout. We maximize the span of the sample to recover the predictable component and use high-frequency data, whenever available, to efficiently identify the volatility processes. Our Bayesian estimation provides strong evidence for a small predictable component in consumption growth (even if asset return data are omitted from the estimation). Three independent volatility processes capture different frequency dynamics; our measurement error specification implies that consumption is measured much more precisely at an annual than monthly frequency; and the estimated model is able to capture key asset-pricing facts of the data.
Discussants:
Adlai Fisher
(University of British Columbia)
Jessica Wachter
(University of Pennsylvania)
Hanno Lustig
(Stanford University)
Lars Lochstoer
(Columbia University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Social Media and Textual Analysis in Finance
(G1)
Presiding:
Lily Fang
(Massachusetts Institute of Technology)
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]
[Download Preview] 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.
Deciphering Fedspeak: The Information Content of FOMC Meetings
Narasimhan Jegadeesh
(Emory University)
Di (Andrew) Wu
(University of Pennsylvania)
[View Abstract]
[Download Preview] We present a new approach to quantify the economic and policy content of Federal
Reserve communications by dissecting the Federal Open Market Committee (FOMC)
meeting minutes into distinct economic topics, and simultaneously extracting the tone
and uncertainty level of each topic. We use market reaction to objectively assess the
relative informativeness of each topic, and we find significant incremental informational
value from the topic contents, despite that the minutes are released several weeks after
the original meetings. Furthermore, we find evidence consistent of the Fed possessing
superior information, which is then transmitted to the market through the language of
the minutes.
Information Discovery by Analysts
Naveen Daniel
(Drexel University)
Lalitha Naveen
(Temple University)
[View Abstract]
[Download Preview] Our contribution is to provide direct evidence that analysts engage in costly discovery of private information, and investors value this discovery. The innovation in our paper is to read over 3,700 analyst reports from Investext and explicitly identify whether the report contains discovery or interpretation. Analysts discover new information by talking to management sources (through personal meetings, investor meetings, and conference calls) or non-management sources (such as surveys or channel checks, and industry contacts). We find that information discovery is prevalent in 17% of the reports. For reports containing discovery, the average cumulative abnormal returns (over the three-day window surrounding the report issuance) are statistically and economically significant (5.9% for upgrades and –8.6% for downgrades). The cumulative abnormal returns are higher for reports containing discovery relative to those containing interpretation. We find that economic determinants predict whether a report will contain discovery. Discovery from management sources is more likely for reports in the period prior to Regulation FD and for reports by optimistic analysts. Discovery from non-management sources is more likely for reports written in the period following Regulation FD, for those written by All-Star analysts, for firms that have high information asymmetry, and firms where the competition among analysts is higher.
The Value of Crowdsourcing: Evidence from Earnings Forecasts
Barbara Bliss
(University of San Diego)
Biljana Nikolic
(University of San Diego)
[View Abstract]
[Download Preview] We use a novel dataset containing earnings forecasts from buy-side analysts, sell-side analysts, and individual investors, to examine whether the crowdsourcing of earnings forecasts provides value-relevant information. Consistent with the ‘wisdom-of-crowds’ effect, crowdsourced earnings consensus is more accurate than the I/B/E/S consensus 57% of the time. The accuracy of the crowdsourced consensus increases with diversity. The crowdsourced consensus produces errors that are more strongly associated with abnormal returns, suggesting that it is a superior measure of the market’s true earnings expectations. A trading strategy based on the difference between the consensuses yields an abnormal return of 0.592% per month.
Discussants:
Justin Wolfers
(University of Michigan)
David Lucca
(Federal Reserve Bank of New York)
Eugene Soltes
(Harvard Business School)
Joseph Engelberg
(University of California-San Diego)
Jan 04, 2016 2:30 pm, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
The Cross-Section of Expected Returns
(G1)
Presiding:
Ralph Koijen
(London Business School)
Spurious Factors in Linear Asset Pricing Models
Svetlana Bryzgalova
(London School of Economics)
[View Abstract]
[Download Preview] When a risk factor has small covariance with asset returns, risk premia in the linear asset pricing models
are no longer identied. Weak factors, similar to weak instruments, make the usual estimation techniques
unreliable. When included in the model, they generate spuriously high signicance levels of their own risk
premia estimates, overall measures of t and may crowd out the impact of the true sources of risk. I develop
a new approach to the estimation of cross-sectional asset pricing models that : a) provides simultaneous
model diagnostics and parameter estimates; b) automatically removes the effect of spurious factors; c)
restores consistency and asymptotic normality of the parameter estimates, as well as the accuracy of
standard measures of t; d) performs well in both small and large samples. I provide new insights on
the pricing ability of various factors proposed in the literature. In particular, I identify a set of robust
factors (e.g. Fama-French ones, but not only), and those that suffer from severe identication problems
that render the standard assessment of their pricing performance unreliable (e.g. consumption growth,
human capital proxies and others).
Risky Value
Atif Ellahie
(London Business School)
Michael Katz
(AQR Capital Management LLC)
Scott Richardson
(London Business School)
[View Abstract]
[Download Preview] We use a simple accounting based framework to link two primary measures of ‘value’ to expected returns for countries: earnings-to-price (E/P) and book-to-price (B/P). We document that when earnings are more persistent, E/P is close to a sufficient statistic for expected returns. However, when earnings are less persistent, B/P is needed. We find that high B/P countries are, on average, facing temporarily depressed earnings and their recovery in near term earnings growth is uncertain. Countries with high B/P also exhibit greater downside sensitivity to contemporaneous global earnings growth, which supports our interpretation that B/P reflects risky future earnings growth.
Monetary Policy Surprises, Investment Opportunities, and Asset Prices
Andrew Detzel
(University of Denver)
[View Abstract]
[Download Preview] I use changes in Federal funds futures rates on days of FOMC announcements to isolate monetary policy shocks. Recent evidence suggests that contractionary monetary policy shocks increase expected excess market returns. All else equal, standard intertemporal asset pricing theory predicts that these shocks should therefore earn a positive risk premium as long-lived investors will pay to hedge against decreases in expected returns. Consistent with this prediction, I find that a mimicking portfolio for these shocks earns positive average excess returns. Exposure to the monetary policy shock mimicking portfolio also jointly explains size, value, and momentum returns.
Discussants:
Motohiro Yogo
(Princeton University)
Stijn Van Nieuwerburgh
(New York University)
Anna Cieslak
(Duke University )
Jan 04, 2016 2:30 pm, Marriott Marquis, Nob Hill A & B
American Finance Association
The Market for Corporate Control
(G3)
Presiding:
Kai Li
(University of British Columbia)
Are Stock-Financed Takeovers Opportunistic?
B. Espen Eckbo
(Dartmouth College)
Tanakorn Makaew
(University of South Carolina)
Karin Thorburn
(Norwegian School of Economics)
[View Abstract]
[Download Preview] Conditional on making a takeover bid, bidders are more likely to offer stock as payment for the target when bidder market-to-book ratio (M/B) is high. However, when we instrument M/B with aggregate mutual fund flows that are exogenous to takeovers, this effect disappears. Moreover, we show that stock-payment is more likely when the two firms are geographically close and operate in complementary industries, and when the bidder has just issued seasoned equity, all of which reduce information asymmetry. Bidders paying with stock also tend to be small, non-dividend paying growth companies with low leverage, suggesting that financing constraints play role in the stock payment decision as well. Overall, our evidence does not suggest a particular role for bidder mispricing in driving the conditional all-stock payment decision in takeovers.
The Human Factor in Acquisitions: Cross-Industry Labor Mobility and Corporate Diversification
Geoffrey Tate
(University of North Carolina)
Liu Yang
(University of Maryland)
[View Abstract]
[Download Preview] The benefits of internal labor markets are largest when they include industries that utilize similar worker skills, facilitating cross-industry worker reallocation and collaboration. We construct a matrix of industry pair-wise human capital transferability using information obtained from more than 11 million job changes. We show that diversifying acquisitions occur more frequently among industry pairs with higher human capital transferability. Acquisitions between industries with higher human capital transferability result in larger labor productivity gains and are less often undone in subsequent divestitures. Moreover, acquirers retain more high skill workers and they exploit the real option to move workers from the target firm to jobs in other industries inside the merged firm. Overall, our results identify human capital as a source of value from corporate diversification and provide an explanation for seemingly unrelated acquisitions.
The Decreasing Returns of Serial Acquirers Around the World
Andrew Karolyi
(Cornell University)
Rose Liao
(Rutgers University)
Gilberto Loureiro
(University of Minho)
[View Abstract]
[Download Preview] We study 18,359 acquisitions made by serial acquirers around the world and uncover significantly lower announcement-day returns in later acquisitions. To disentangle the anticipation hypothesis from potential agency-based explanations for the acquisitive pattern, we utilize a unique database on private firms and subsidiaries to examine the post-acquisition operating performance of the targets and find that profitability, sales growth, and investment improves but at a slower rate for the target firms in later acquisitions by serial acquirers. We also uncover that the decreasing announcement returns in later acquisitions is mitigated when serial acquirers are domiciled in better governed countries or have higher institutional ownership. Overall, we interpret our evidence as consistent with agency cost explanations for serial acquisition behavior.
Extending Industry Specialization, Intangibles, and Cross-Border Acquisitions
Laurent Fresard
(University of Maryland)
Ulrich Hege
(HEC Paris)
Gordon Phillips
(Dartmouth College)
[View Abstract]
[Download Preview] We investigate the role of industry specialization in cross-border acquisitions. We find that acquirers from more specialized industries in a country are more likely to buy foreign targets in countries that are less specialized in these same industries. The magnitude of this specialization effect is large with 14.6\% more deals when the difference in industry specialization between two countries increases by one standard deviation. This relationship is stronger when the cross-country and cross-industry differences in measures of educational attainment and intangible capital are higher. Post-acquisition performance is higher when specialized acquirers purchase assets in less specialized industries. These results are consistent with management and localized industry know-how being mobile factors that provide an advantage that can be deployed on foreign assets.
Discussants:
Micah Officer
(Loyola Marymount University)
Elena Simintzi
(University of British Columbia)
Raghavendra Rau
(University of Cambridge)
Pedro Matos
(University of Virginia)
Jan 04, 2016 2:30 pm, Parc 55, Mission I
American Real Estate & Urban Economic Association
Energy and the Environment
(R1, Q5)
Presiding:
Kenneth Gillingham
(Yale University)
Capitalization of Energy Efficiency in the Housing Market
Nils Kok
(Maastricht University)
Erdal Aydin
(Maastricht University)
Dirk Brounen
(Tilburg University)
[View Abstract]
[Download Preview] The carbon externality from energy consumption in the residential sector is an important topic of societal debate. Much of the current policy making hinges on the assumption that markets efficiently capitalize home energy performance into transaction prices. However, the existing literature on the topic suffers from omitted variable bias, leading to inaccurate estimates. This study uses an instrumental variable approach on a large sample of dwellings to examine the capitalization of energy efficiency in the housing market. Using the exogenous variation in energy efficiency generated by 1973-74 oil crisis, as well as the evolution of building codes as instruments, we document that a 50 percent increase in energy efficiency leads to an increase in the transaction price of about 11 percent for an average home in the Dutch housing market. Our findings also indicate that the extent of energy efficiency capitalization does not significantly change when information asymmetry is reduced through the presence of Energy Performance Certificates (EPC). These findings are important for public policy regarding investments in home energy efficiency.
Incentivizing Green Single-Family Construction: Identifying Effective Government Policies and Their Features
Avis Devine
(University of Guelph)
Shaun Bond
(University of Cincinnati)
[View Abstract]
[Download Preview] For more than a decade, governments have been incentivizing, and now requiring, private developers to construct energy efficient, sustainable projects. We examine the effectiveness of green single-family construction incentive programs. A cross-sectional comparison of municipalities with and without green private residential incentive programs indicates which government levels of policy issuance and which types of certification programs prove most successful, and when those impacts should be expected. Findings indicate that only municipalities experience success with construction-related policies, which may be tailored to their local market’s construction demands. Business-related policies, however, prove effective at all levels of government implementation, with particular success at the state level. Lastly, event studies and multiyear window data indicates that green incentive policies elicit the greatest change 2 to 3 years after their implementation.
Telework: Urban Form, Energy Consumption, and Greenhouse Gas Implications
William D. Larson
(Bureau of Economic Analysis)
Weihua Zhao
(George Washington University)
[View Abstract]
[Download Preview] A primary motivation of telework policy is to reduce energy consumption and greenhouse gas emissions. Using a numerical simulation of the standard urban model, we show telework causes sprawl, calling into question the idea that telework decreases energy consumption. Overall effects depend on wage changes due to telework, land use regulation such as height limits or greenbelts, and the telework participation rate. While energy consumption increases in some scenarios, emissions may fall due to changes in the energy mix between gasoline and other sources.
Valuing Nuclear Energy Risks: Evidence from the Impact of the Fukushima Crisis on U.S. Housing Prices
Jeffrey Zabel
(Tufts University)
Shinsuke Tanaka
(Tufts University)
[View Abstract]
[Download Preview] On March 11, 2011, a 9.0 magnitude earthquake and tsunami struck Japan. This disabled the reactor cooling systems of the Fukushima Daiichi Nuclear Power Plant (NPP) that led to releases of radioactivity. The Fukushima accident was big news in the United States and it clearly led to a reevaluation of nuclear safety. In this paper, we look at how house prices around NPPs in the U.S. changed after this event. Because it was unanticipated, it can be considered to be an exogenous shock and we can isolate changes in prices that were directly tied to the Fukushima accident. It is important to note that there was no change in the risk of a nuclear accident in the U.S. after Fukushima. We view this is as an information shock that led to a reassessment of this risk by residents near nuclear power plants. We have data on transactions for single-family homes in 2009-2013 that are within 50 kms of 29 NPPs in seven states in the U.S. Our results provide some evidence that the impact on house prices was very local (within 0-4 kms of a NPP) and of a limited duration (around 6 months). This is consistent with polls taken in the U.S. that showed a significant drop in those who approved of building more NPPs soon after the Fukushima accident but also found a significant majority in favor of using nuclear power one year after the event.
Discussants:
Steven Sexton
(Duke University)
Kerry Vandell
(University of California-Irvine)
Raphael W. Bostic
(University of Southern California)
Jiro Yoshida
(Pennsylvania State University)
Jan 04, 2016 2:30 pm, Parc 55, Mission II & III
American Real Estate & Urban Economic Association
Real Estate Pricing
(R3, R2)
Presiding:
Paul Carrillo
(George Washington University)
Testing for the "Afternoon Effect" and other Price Anomalies in Real Estate Markets
Henry Munneke
(University of Georgia)
Joseph Ooi
(National University of Singapore)
C.F. Sirmans
(Florida State University)
Geoffrey Turnbull
(University of Central Florida)
[View Abstract]
Examining the sequential sale of new condominium units in a setting in which both consumption risk and completion risk are minimized and where production agglomeration does not pertain, this paper provides new evidence on the sales price-sales sequence pattern for real estate. The empirical results show that the anomalies of declining price “afternoon effect” or rising price from increasing relative demand documented in the auction literature do not extend to real estate markets. We thus conclude that the law of one price appears to hold for real estate assets sold in open (non-auction) markets. Nevertheless, the presence of a quality-sales sequence phenomenon suggests that earlier buyers in a multiple-unit development have and do exercise their option to select the more desirable unit.
Implicit Hedonic Pricing Using Mortgage Payment Information
Shuang Zhu
(Kansas State University)
R. Kelley Pace
(Louisiana State University)
[View Abstract]
[Download Preview] Hedonic pricing, estimating the value of housing characteristics through the use of transactions data, is one of the most common tasks performed by real estate researchers. However, transaction frequency varies over time, locations, and other factors. In contrast, two-thirds of homeowners have a mortgage that they pay each month. This manuscript explores the use of mortgage payment data as an alternative or supplemental means to derive the value of housing characteristics. Insofar as price affects
default and housing characteristic values determine price, housing characteristic values affect default. The implicit housing characteristic values come from parameter values that fit observed patterns of payments and defaults. We find a strong correlation ($0.74-0.92$) between the explicit and implicit approaches. In addition, the Monte Carlo simulation indicates that the mortgage based pricing model has potential to help reveal housing market information especially during low sales activity and/or high
default rate situations.
Why Do Real Estate Agents Buy Houses at Lower Prices? Cherry Picking or Bargaining Power
Tien Foo Sing
(National University of Singapore)
Sumit Agarwal
(National University of Singapore)
Jia He
(Nankai University)
Changcheng Song
(National University of Singapore)
[View Abstract]
[Download Preview] Real estate agents play an important intermediary role in housing markets. We use a merged transaction dataset that identifies houses purchased by registered real estate agents (salespersons) and other buyers in Singapore to empirically test the hypothesis that real estate agents use their information advantages to buy houses at bargained prices. We estimate that agents bought their own houses at prices that are 2% lower than comparable houses bought by other buyers. After the new regulatory regime has come into operation in 2010, agents’ price advantages in buying houses for their own use have disappeared. We compare sellers with time pressure to sell houses, such as individuals, who sell current houses to move into new houses, and distressed sellers affected by lawsuits, with investors who sell houses that yield positive returns, and find no evidence that agents use their information advantages to “cherry pick” houses from the weak sellers. However, our results support the bargaining power hypothesis that agents use their information advantages to buy their own houses at lower prices from individual sellers and distressed sellers.
Metropolitan Area Home Prices and the Mortgage Interest Deduction: Estimates and Simulations from Policy Change
Andrew Hanson
(Marquette University)
Hal Martin
(Federal Reserve Bank of Cleveland)
[View Abstract]
We simulate metropolitan area level price effects from reforming the Mortgage Interest Deduction (MID). Price simulations are based on an extended user cost model that incorporates two dimensions of behavioral change in home buyers: the propensity to borrow and the propensity to use tax deductions. Our results show a wide range of price effects across metropolitan areas and prospective policies. Eliminating the MID results in average home price declines as steep as 15.7 in Washington D.C, and as small as 3.2 percent in Memphis, TN. Converting the MID to a 15 percent refundable credit reduces prices in Washington, D.C. by only 0.6 percent and increases average price in Memphis by 9.4 percent.
Discussants:
Dean Gatzlaff
(Florida State University)
Jaren C. Pope
(Brigham Young University)
Benjamin Williams
(George Washington University)
Daniel A. Broxterman
(Florida State University)
Jan 04, 2016 2:30 pm, Parc 55, Powell I
American Real Estate & Urban Economic Association
REITs
(G2, G3)
Presiding:
Walter Boudry
(Cornell University)
Analyst Behavior Around REIT Equity Offerings
Erik Devos
(University of Texas-El Paso)
Elizabeth Devos
(Eastern Michigan University)
Andrew Spieler
(Hofstra University)
Seow Eng Ong
(National University of Singapore)
[View Abstract]
Based on analyst forecast properties for a large number of REITs, we find that information asymmetry is relatively large after REIT IPOs. In contrast, information asymmetry is lower around REIT SEOs. This paper also provides evidence that REIT analysts tend to be relatively pessimistic around SEOs, whereas they tend to be relatively more optimistic after an IPO. Our results are independent of REIT type, the number of analysts that follow a given REIT, robust for a number of multivariate specifications, and continue to hold in a setting which controls for possible endogeneity between analyst following and performance.
Institutional Property Type Herding in REITs
Ed Nelling
(Drexel University)
Vicky Lantushenko
(Drexel University)
[View Abstract]
[Download Preview] This study examines whether institutional investors exhibit herding behavior by property type in real estate investment trusts (REITs). Our analysis of changes in institutional portfolio holdings indicates strong evidence of this behavior. Most of the autocorrelation in aggregate institutional demand is attributed to institutional investors following the trades of others. Although momentum trading explains a small amount of this herding, institutional property type demand is more strongly associated with lagged demand than lagged returns. The results suggest that correlated information signals drive herding in REITs. This herding occurs at the property type level, and not at the individual firm level.
REIT Crash Risk and Institutional Investors
Qun Wu
(University of Nevada-Reno)
Heng An
(University of North Carolina-Greensboro)
Zhonghua Wu
(Florida International University)
[View Abstract]
[Download Preview] This paper examines the relationship between the stock crash risk of REITs and different types of institutional investors. First, when we classify REIT institutional investors by their legal type, we find that the ownership of pension funds (bank trusts) is negatively (positively) related to REIT crash risk. In addition, the trading of investment companies, including mutual funds, has become positively related to REIT crash risk in recent years. Next, when we classify REIT institutional investors by their investment behavior, we find that REIT crash risk is positively related to the trading of transient institutional investors, which trade frequently to maximize short-term gains. Moreover, the adverse impact of transient investors on REIT crash risk has worsened recently. These findings highlight the heterogeneous impacts of different types of institutional investors on REIT crash risk, which has important implications for REIT market participants and policymakers.
Stochastic Taxation and REITs Pricing Bubbles: A Statistical Analysis
Robert Edelstein
(University of California-Berkeley)
Konstantin Magin
(University of California-Berkeley)
[View Abstract]
[Download Preview] Using a modified Consumption Capital Asset Pricing Model (CCAPM) with stochastic taxation, we create estimates of fundamental values and fundamental overall rates of returns for United States Real Estate Investment Trusts (REITs) for our data sample, 1972 -- 2013. Comparing actual, observed REITs prices (and overall rates of return) with model-generated fundamental values (and fundamental overall rates of return), we examine the presence of bubbles. For our purposes, for publicly traded equity REITs, we define a bubble to be the difference between actual stock market price (overall rates of return) and fundamental value (fundamental overall rate of return). United States REITs have, among other features, special rules governing dividend distributions and corporate taxation treatment that makes them an especially attractive and a preferred vehicle to test the presence of pricing and rate of return bubbles. Using this notion for bubbles, our study suggests that during the sample time horizon, United States REITs experienced statistically significant price and rates of return bubbles for a preponderance of the time.
Discussants:
Tobias Muhlhofer
(University of Miami)
Benjamin Scheick
(Villanova University)
McKay Price
(Lehigh University)
Andrey Ukhov
(Cornell University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra H
American Risk & Insurance Association/American Economic Association
Topics in Risk and Economics
(G2, D8)
Presiding:
J. David Cummins
(Temple University)
Market Discipline and Government Guarantees: Evidence from the Insurance Industry
Yiling Deng
(Georgia State University)
J. Tyler Leverty
(University of Wisconsin-Madison)
George Zanjani
(Georgia State University)
[View Abstract]
[Download Preview] We identify the effect of public guarantees on market discipline by exploiting the rich variation in U.S. state guarantees of property-liability insurer obligations. We find government guarantees significantly reduce the sensitivity of premium growth to changes in financial strength ratings, and that this reduced sensitivity applies to both price and volume changes. The effects are concentrated among insurers rated A- or lower by A.M. Best, the leading financial strength rating agency in the insurance industry. For downgraded insurers, we find that premium growth in business not covered by state guarantees falls in relation to growth in its covered business, with the estimate of the difference being as high as 15% for A- rated insurers and 10% for insurers rated below A-.
The Governance of Risk Management: The Importance of Directors Independence and Financial Knowledge
Georges Dionne
(HEC Montreal)
Olfa Maalaoui Chun
(KAIST )
Thouraya Triki
(HEC Montreal)
[View Abstract]
[Download Preview] This paper tests the effects of independence and financial knowledge of directors on risk management and firm value in the gold mining industry. Our original hand collected database on directors’ financial education, accounting background, and financial experience allows for testing the effect of each dimension of financial knowledge on risk management activities. We show that directors’ financial knowledge increases the value of the firm through the risk management channel. This effect strengthens with the independence of directors sitting on the board and the audit committee. Extending the dimension of education, we show that following unexpected shocks to gold prices educated hedgers are more effective than the average hedgers in the industry. As a policy implication, our results suggest adding the experience and education dimensions to the 2002 SOX and NYSE requirements on financial literacy.
Comparative Mutual Aggravation
Sebastian Ebert
(Tilburg University)
Diego C. Nocetti
(Clarkson University)
Harris Schlesinger
(University of Alabama)
[View Abstract]
[Download Preview] A large strand of research has identified conditions on preferences under which (i) a single risk is undesirable and (ii) two independent risks aggravate each other. We extend this line of inquiry by establishing conditions such that (iii) the degree of mutual aggravation is greater for more severe risks. Here, the severity of risks is characterized by means of general stochastic dominance shifts and also via moment-preserving stochastic transformations. Greater mutual aggravation is implied by all commonly used utility functions and may thus be regarded a typical property of expected utility preferences. We show that greater mutual aggravation determines the comparative statics of risk changes in several risk management problems, including precautionary saving, intertemporal risk-taking, and self-protection. Greater mutual aggravation further explains recent experimental findings on higher-order risk preferences. Finally, it offers a new, simple, and efficient method to elicit risk preferences up to "very" high orders.
Optimal Insurance for Catastrophic Risk: Theory and Application to Nuclear Corporate Liability
Alexis Louaas
(Ecole Polytechnique)
Pierre Picard
(Ecole Polytechnique)
[View Abstract]
[Download Preview] We analyze the optimal insurance coverage for high severity-low probability accidents, both from theoretical and applied standpoints. Such accidents qualify as catastrophic when their risk premium is a non-negligible proportion of the victims’ wealth, although the probability of occurrence is very small. We show that this may be the case when the individual’s absolute risk aversion is very large in the accident case. We characterize the optimal insurance contract firstly for an individual, and secondly for a firm that may be at the origin of an accident that affects the whole population. The optimal indemnity schedule converges to a limit when the probability of the accident tends to zero. In the case of corporate civil liability, this limit schedule is a straight deductible contract that corresponds to an indemnification of victims ranked in order of priority according to the severity of their losses. We also show that the size of the deductible depends on the individuals’ risk aversion and also on the cost of contingent risk capital that is required to sustain the indemnity payment, should an accident occur. The empirical part of the paper is an application of these general principles to the case of nuclear accidents. Large scale nuclear accidents are typical examples of high-severity low-probability risks. We calibrate a model on French data in order to estimate the optimal liability ceiling of an electricity producer in the nuclear energy sector. We use data drawn from the cat-bond markets to estimate the cost of contingent capital for low probability events, and we show that the minimal corporate liability adopted in 2004 through the revision of the Paris Convention is probably lower than the level that would correspond to an optimal risk coverage of the population.
Jan 04, 2016 2:30 pm, Parc 55, Market Street
Association for Comparative Economic Studies
Political Economy of Russia’s Regions
(P2, H7)
Presiding:
Will Pyle
(Middlebury College)
Through Thick and Through Thin: Economic Shocks, Transfers and Strategic Priorities in Russia
Timothy Frye
(Columbia University)
Israel Marques
(Higher School of Economics-Moscow and Columbia University)
Eugenia Nazrullaeva
(Higher School of Economics-Moscow)
Andrei Yakovlev
(Higher School of Economics-Moscow)
Denis Ivanov
(Higher School of Economics-Moscow)
[View Abstract]
[Download Preview] While many scholars have examined whether politicians favor core or swing supporters during normal politics, we examine these competing logics during an economic crisis when governments face especially hard choices. We use new fiscal data from 83 regions in Russia during the economic crisis of 2008-2010 to explore two types of redistribution: social transfers and targeted investment funds. In line with core voter models, we find that regions more supportive of United Russia during elections received greater social transfers and more targeted investment funds than other regions. During the financial crisis politically loyal regions were even more richly rewarded. Thus, while economic crises often overturn patterns of economic redistribution, the economic crisis of 2008--10 in Russia reinforced them. These results are informative given the frequency of economic crisis in lower and middle-income countries and the ongoing debate over the impact of elections on policy in hybrid and authoritarian governments.
Politics and Banking in Russia
Zuzana Fungacova
(Bank of Finland)
Koen Schoors
(Ghent University)
Laurent Weill
(University of Strasbourg and Bank of Finland)
[View Abstract]
[Download Preview] Russia provides an event of prime interest to investigate the influence of state-owned banks on political outcomes with the ascending to power of Vladimir Putin in 1999 and in 2000. During this period, the state-owned bank Sberbank had a dominating market share throughout the country. The aim of our project is to investigate whether Sberbank lending has been used as a political instrument to influence the outcome of the Russian elections of March 2000. To study this question, we analyze the relation between the regional variation in Sberbank loans and the regional variation in Putin’s popularity. We test two hypotheses. First, we examine if Sberbank lending has increased in the months preceding elections in an attempt to boost Putin’s popularity. Second, we investigate if greater Sberbank lending has been observed in the months after elections to reward regions that performed well in the election with loans from government banks. To investigate this issue, we use monthly data for regional Sberbank lending activities. The “carrot” hypothesis is examined by considering the variation in Sberbank loans in the three months prior to the presidential elections of March 2000. The “reward” hypothesis is investigated by looking at the variation in Sberbank loans between March 2000 and December 2000. We relate these pre- and post-election regional changes in Sberbank lending to the regional change in Putin’s popularity.
The Impact of Climate Change on Government Expenditures: Evidence from Russia
Simo Leppänen
(Aalto University)
Laura Solanko
(Bank of Finland)
[View Abstract]
[Download Preview] This paper explores an almost untouched topic in the fast-growing climate econometrics literature – the implications of climate change for government expenditures. Using a rich sub-national dataset for Russia covering 1995–2009, we estimate the impacts of climate change through short-term weather variation and medium-term changes in average regional temperatures and precipitation. We show a strong and robust negative (but non-linear) relation between regional budget expenditures and population-weighted temperature. The results indicate that an increase in temperature results in a decrease in public expenditures and that the magnitude of this effect diminishes the warmer the region. Further, our results suggest that the benefits from warming accumulate and that adaptation measures could help leverage those benefits. The estimated decreases in public expenditure are, however, quite small. In mild warming scenarios, according to our estimates Russia saves roughly USD 3-4 billion in regional government expenditures between 2000 and the 2020s without undertaking adaptation measures, depending on the scenario. It should be noted that our results are estimated for a scenario of mild temperature increase (1-2 °C). Larger temperature increases are likely to have dramatic consequences e.g. from loss of permafrost and methane release that are impossible to predict with available historical data.
Trade, Border Effects, and Regional Integration Between Russia’s Far East and China
Dmitry Izotov
(Russian Academy of Sciences)
Kiril Tochkov
(Texas Christian University)
[View Abstract]
Russia’s Far East (RFE) has been traditionally one of the most isolated and economically disadvantaged parts of Russia. The revival of traditional trade and investment links with Northeast Asia, the economic emergence of neighboring China, and a recent policy drive by the federal government aimed at promoting growth in the region leave the impression that RFE is on the rise. For instance, exports to China, Japan, and Korea are five times larger than to the rest of Russia implying that RFE appears to be better integrated within Northeast Asia than within Russia. We test this hypothesis by using new data on interregional and cross-border trade in Russia to estimate a gravity model for the period 2005-2012. In particular, we estimate the effects of borders on trade by comparing interregional trade among the nine RFE regions with trade between RFE and the rest of Russia and between RFE and China. Our results indicate that after accounting for distance and contiguity trade within RFE is three times larger than trade with the rest of Russia. The tariff equivalent of the border between RFE and Russia is 14%, which is significantly lower than the 46% for the border between RFE and China. Interestingly, the regions that border China exhibit higher border effects than those further inland. These findings suggest that given their proximity, RFE’s trade with China should be far more intensive. The determinants of the trade barriers that prevent this from happening are explored using regression analysis and are identified mainly as poor cross-border infrastructure, limited scope for policy making at the regional level, and haphazard tax policies.
Discussants:
Ralph de Haas
(European Bank for Reconstruction and Development)
John Bonin
(Wesleyan University)
Iikka Korhonen
(Bank of Finland)
Jarko Fidrmuc
(Zeppelin University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Dissecting the Evolution of the State, Market, Firm, and Household
(B5, P1)
Presiding:
Mary V. Wrenn
(University of Cambridge)
Reconceptualizing the Nature and Evolution of Institutions
Lynne Chester
(University of Sydney-Australia)
[View Abstract]
Drawing on institutional economics, Regulation theory and the SSA approach, and an empirical analysis of electricity sectors, this paper proposes a reconceptualisation of institutions which explicitly illuminates the internal drivers of institutional change and the evolving nature of the co-constitutive relationships between institutions working together both in reinforcement and contradiction.
Evolution of U.S. Household Agency Over Stages of Capitalism
Laura Cardwell
(University of Missouri-Kansas City)
Zdravka Todorova
(Wright State University)
[View Abstract]
We specify elements of household agency and analyze their deterioration throughout the stages of capitalism as delineated by Hyman Minksy. We do not equate evolution with progress, and we find that there is evidence to demonstrate the decline in some areas of household agency within the social provisioning process.
Corporate Control and the Social Provisioning Process: An Evolutionary Analysis
Mitchell R. Green
(Franklin and Marshall College)
[View Abstract]
This paper argues that efforts to secure control over the business enterprise for purposes of effecting changes in the provisioning process, contribute to the evolution of the firm itself. The Pacific Northwest during the period 1865 to 1945 is examined with reference to qualitative changes in the social provisioning process.
Credit as a Means of Social Provisioning
Susan K. Schroeder
(University of Sydney-Australia)
[View Abstract]
This paper evaluates how the extension and forms of credit to firms and households have changed as financial liberalization progresses. Tendency towards fragility and default for these sectors are evaluated with an updated version of Minsky’s Financial Instability Hypothesis, illustrating ways in which prevalent models overlook key dynamics.
The Role of Culture, Historicity, and Human Agency in Guiding the Evolution of the State: The Case Against Cultural Fatalism
Anna Klimina
(University of Saskatchewan-Canada)
[View Abstract]
This paper queries what forces guide the evolution of the state. Special attention is paid to the simultaneous impact of cultural-historical factors and human agency, both of which figure largely in institutionalist discourse. Attention to both aspects of institutionalism can circumvent ideological misuse of the institutionalist paradigm in some societies.
Discussants:
Tae-Hee Jo
(State University New York-Buffalo State)
Carlo D’Ippoliti
(Sapienza University of Rome)
Jan 04, 2016 2:30 pm, Marriott Marquis, Pacific B
Association for Social Economics
Financialisation, Policy and Spatial Inequalities
(E4, N2)
Presiding:
Ilene Grabel
(University of Denver)
De-Financialising the Financial System
Malcolm Sawyer
(University of Leeds)
[View Abstract]
The period since circa 1980 has been widely recognized as one of financialisation. A previous period of financialisation culminated in the financial crashes of 1929 and the early 1930s, followed by a period of definancialisation, and after World War II financialisation returned, and intensified circa 1980. Financialisation in the recent era has involved the growth of the size of banks and of financial markets, development of financial instruments including derivatives and securitisation, de-regulation, the ownership of corporations by financial institutions and the pursuit of ‘shareholder value’, privatisation and de-mutualisation of the financial sector etc.. Financialisation has developed at different speeds and in different forms across the globe. Many researchers have pointed to deleterious effects on the economy and society of these processes. Based on the research in the Financialisation Economy Society and Sustainable Devel! opment project, we address three questions. First, what policies should be adopted towards the financial sector to construct a sector which better serves people and society? We propose measures such as re-mutualisation of the financial sector, development of State banks, financial transactions taxes directed to reducing the deleterious effects of financialisation through elements of de-financialisation. Second, as financialisation involves greater economic and political power of the financial sector, how politically feasible are policies of definancialisation? Third, the period since circa 1980 has been perceived in terms of financialised capitalism as a stage of capitalism, the question is posed on how such policies would relate to such a view.
Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long Run Growth
Mark Setterfield
(New School)
Yun Kim
(University of Massachusetts)
[View Abstract]
[Download Preview] This paper studies the deterioration of working households’ balance sheets result from rising income inequality and its impact on the sustainability of growth. It addresses the question of how “group inequalities ... influence sustainable development” identified under “Financialization and inequalities” in the ASA-ASSA 2016 call for papers. According to Setterfield and Kim (2013) and Setterfield et al (2014), in the presence of emulation effects in consumption behavior and uncertainty about the long-term consequences of debt accumulation, rising income inequality can boost growth but simultaneously undermine the sustainability of the growth process. The proposed paper will extend this earlier work so that it involves international comparisons. It is well known that the epicenters of the Great Recession were the US and UK, two “liberal market economies” (Hall and Soskice, 2001) where neoliberalism was most advanced and where increases in income inequality have been most pronounced over the last thirty-five years. This is certainly suggestive of a link between increased income inequality and the eventual breakdown of steady growth. But the precise nature of this link would be made clearer if events in a representative liberal market economy (such as the US) were compared and contrasted with those in a “coordinated market economy” (Hall and Soskice, 2001) such as Germany. As such, the key question addressed in this paper is: relative to the liberal market economies, were there limits to increases in inequality in coordinated market economies, and was the growth process robust to the increases in inequality that the! se economies experienced?
Regional Financialisation and Convergence: Evidence from Italy
Philip Arestis
(University of Cambridge and University of the Basque Country)
Giuseppe Fontana
(University of Leeds and University of Sannio)
Peter Phelps
(University of Leeds)
[View Abstract]
[Download Preview] The term ‘financialisation’ has now entered the lexicon of academics and policy makers, though there is still no agreement on its meaning and significance. One of the earlier definitions was offered by Epstein (2005; see also Krippner, 2005) when he refers to the growing weight of financial motives, financial actors and markets in the operation of modern economies, both at the national and international level, from the early 1980s until today. Building on this definition, this paper sheds further light on the implications of spatial financialisation, which has been associated with divergent economic development in Europe, a core-periphery disconnection and financial instability. The paper’s primary contribution is to extend in a robust manner a powerful panel data convergence testing methodology to analyse the spatial scale and temporal evolution of Italian regional lending conditions. Several prominent indicators are considered, including growth in bank lending as well as interest rate-based indicators, which reflect availability and constraints in lending. The paper concludes that financial divergence has broadly increased in Italian regions. As a result the ability of southern regions in Italy to absorb adverse macroeconomic and financial shocks has been weakened. Relevant regional financial policies have thereby become very important.
Ethics and Income Inequality: Uncovering Ethical Earnings in the US and UK Based on Group Identity
Aurelie Charles
(University of Bath)
Sunčica Vujić
(University of Antwerp)
[View Abstract]
[Download Preview] The literature in social sciences on identity, stratification, and intersectionality has long shown the importance of group identity in explaining the persistence of income inequality over time. However, methodological individualism and marginalism in economics mean that income inequality is still assessed from the perspective of the individual. By taking a group perspective to individuals, the contribution of this paper is to statistically define ethical and unethical earnings according to the nature of the long-run process of group’s earnings vis-à-vis others. The paper thus presents a long-run methodology to uncover ethical and unethical earnings and applies it to the US labour force by race and gender between 1968 and 2011 on the one hand, and to the UK labour force by race and gender between 2001 and 2014 on the other hand. Results show that rent-seeking behaviour is a group phenomenon which extends to most of the US and UK labour force, with strong group and occupational disparities.
Financialization, Fiscal Policies and Differential Interest Rates in Core and Periphery Countries of Eurozone: A Monetary Theory of Production Approach
Riccardo Realfonzo
(University of Sannio)
Andrea Pacella
(University of Catania)
[View Abstract]
The Eurozone has a unique monetary policy and commercial banks fix the loans interest rate by following the same mark-up rule: they add a mark-up on the short-run nominal interest rate set by the European Central Bank (ECB). However, empirical evidence shows that there are significant differentials in the interest rates that borrowers face in the core and periphery countries of the Eurozone. Furthermore, it can be shown that these differential interest rates are influenced by the insolvency rate of domestic firms as well as the effects of national fiscal policies (source: Creditreform, Eurostat). Drawing on the Monetary Theory of Production approach this paper shows that the mark-up set by national commercial banks over the short-run nominal interest rate set by the ECB depends positively on the way in which financial markets and financial actors perceive credit risks, which in turns positively depend on the liquidity risk and insolvency risk. The paper shows that expansionary fiscal policies could help to reduce these credit risks and hence alleviate the differential interest rates faced by borrowers in core and periphery countries of the Eurozone.
Jan 04, 2016 2:30 pm, Marriott Marquis, Walnut
Association for the Study of Generosity in Economics
Taxation and Charitable Giving
(D6, H2)
Presiding:
Sarah Smith
(University of Bristol)
The Price Elasticity of Charitable Giving: Evidence from U.K. Tax Records
Miguel Almunia
(University of Warwick)
Ben Lockwood
(University of Warwick)
Kimberley Scharf
(University of Warwick)
[View Abstract]
We estimate the responsiveness of charitable donations to tax incentives using an administrative panel of UK income tax returns with 9 millions observations per year for the period 2005-2012. We exploit a large reform in the UK Income Tax schedule which reduced the price of giving by 16% (up to 33% for a small group of taxpayers). Using an IV empirical strategy, we estimate that the intensive-margin price elasticity of giving is -0.45, significantly different from both 0 and -1. An alternative estimation using a consistent Tobit estimator with fixed effects yields an elasticity around -0.25. Additionally, we estimate the heterogeneity in the elasticity of giving across gender, income level and size of donations. Our results suggest that tax incentives for charitable donations in the UK are unlikely to be welfare-maximizing, since the loss in tax collection is higher than the increase in private donations due to this policy. Exploiting a unique feature of the UK Income Tax, we provide a lower bound for the avoidance response due to shifting donations across years.
What is the Price Elasticity of Charitable Giving? Estimating (Un)Compensated Elasticities from a Tax-Credit Kink
Daniel Hungerman
(University of Notre Dame)
Mark O. Wilhelm
(Indiana University-Purdue University Indianapolis)
[View Abstract]
The estimation of the tax-price elasticity of charitable giving has traditionally been a canonical area of interest in the economics profession. However, there is currently no consensus as to what this elasticity is, and in the past decade work on this topic has been largely abandoned. We explore the importance of tax incentives for giving by focusing on a state-level income tax-credit in Indiana that creates a convex kink in the budget constraint of donors. Using a dataset of over 800,000 donations, we compute estimates of the compensated elasticity of giving using standard kink methods; we also show that bunching at a kink can be used to directly uncover the uncompensated elasticity as well. We find evidence of bunching from the tax credit, but the implied uncompensated elasticity is relatively small, about 0.5 or less.
Do Tax Incentives Affect Charitable Contributions? Evidence from Public Charities’ Reported Revenues
Nicolas Duquette
(University of Southern California)
[View Abstract]
This paper estimates the effect of the charitable contribution tax deduction on charities' donation revenue from charities' tax filings. A one percent increase in the tax cost of giving causes charitable receipts to fall by about four percent, an effect three times larger the consensus in the literature. Further analysis reveals substantial heterogeneity in the tax response by subsector: health care and home care are more tax-sensitive than other charities, while higher education and arts are less tax-sensitive. The results are consistent with substantial tax response heterogeneity within the sample and between sampled and unsampled charities, implying that the mean tax elasticity of charitable contributions is a poor predictor of tax incentive effects for individual charities.
Discussants:
Marit Rehavi
(University of British Columbia)
Bradley Heim
(Indiana University)
Caroline Weber
(University of Oregon)
Jan 04, 2016 2:30 pm, Marriott Marquis, Pacific C
Association of Christian Economists
Health Policy in Developing Countries
(I1)
Presiding:
Julie Schaffner
(Tufts University)
Serving the Poorest of the Poor: What Water Project Placement Teaches Us about Government and NGO Motivations in Uganda
David R. Berger
(University of California-Berkeley)
[View Abstract]
Developing countries have long relied on foreign aid and international NGOs to provide supplemental public goods such as communal drinking water points. While poverty alleviation is often a stated goal of such efforts, no current measure of poverty-specific targeting exists. Using a complete survey of water points provided throughout Uganda by the government and by foreign sources from 1930 to 2012, I develop such a measure and compare the progressive targeting of large international NGOs and bilateral aid organizations with the government of Uganda and find that the foreign sources do indeed target poorer localities. I refine the test by flexibly controlling for cost measures. Using a similar empirical strategy, I examine the political correlates of government provision of water points in order to examine the prevailing strategy of political targeting. Specifically, I examine whether the government favors its core supporters, those who most strongly support the incumbent, or marginal voters, those who are most unevenly divided between incumbent and challenger. Finally, I use fluctuations in foreign economy budgets as instruments for foreign well construction in order to examine how the government reallocates in response to foreign provision.
Long-Term Health and Economic Effects of Antenatal Testing Laws
Winnie Fung
(Wheaton College)
Omar Robles
(Charles River Associates)
[View Abstract]
[Download Preview] This paper provides the first quasi-experimental analysis of the long-term impacts of mandatory antenatal testing for syphilis. Syphilis is a global public health problem, with an estimated 12 million people infected each year, including 2 million pregnant women. Mother-to-child transmission of syphilis can lead to neonatal death, preterm birth, and congenital deformities. In 1938-1947, different states in the U.S. initiated antenatal testing laws which mandated physicians and other personnel attending to pregnant women to test them for syphilis. Exploiting the variation in the timing of state antenatal testing laws, Fung and Robles (2016) find that the laws decreased neonatal mortality rates and deaths due to preterm births for nonwhites while having no discernible impact on whites. This paper follows up the initial result to study the long-term effects of mandatory antenatal testing on human capital accumulation, labor market, marriage, and crime outcomes. Using 1970 U.S. Census data, we find that treated cohorts who were exposed to antenatal testing laws in early childhood experienced negative long-term effects in terms of high school progression, unemployment, and underage marriage compared to control cohorts. Using data from the 1964-1980 March Current Population Surveys and the 1949-1968 Uniform Crime Reports, we find a reduction in unskilled wages and an increase in violent crime rates among treated cohorts. Our findings contribute to a growing literature that documents the link between early-life health conditions and later-life socioeconomic outcomes. We show that the long-term effects of the same health intervention in early childhood can differ significantly by race. Our results also suggest that while early childhood public health interventions are important and can have long lasting impacts, they must be coupled with complementary policies or programs that support the growth and development and eventual success of the treated individuals.
What Really is Brain Drain? Location of Birth, Education and Migration Dynamics of African Doctors
Çaglar Özden
(World Bank)
David Cameron Phillips
(Hope College)
[View Abstract]
[Download Preview] Accurate analysis of skilled migration flows and their economic impact requires joint identification of where migrants were born, where they were educated and at what age they moved to the destination country. Unfortunately, such complete datasets do not exist. We focus on African born and/or trained doctors practicing in the United States as an example to highlight these issues and identify key patterns in their career paths. We overcome data constraints by merging data from the American Medical Association (AMA) and American Community Survey (ACS) via propensity score matching techniques. Our results show that the standard assumptions on skilled migration lead to considerable overestimation of its extent and hide several economically important migration patterns. We find that almost half of African-born doctors were trained outside their birth country. On the flip side, around 15 percent of all doctors trained in Africa were actually born outside the continent. There is significant variation across countries in terms of age of migration levels, implying that many African doctors migrate after years of service and that their human capital is not completely lost to their birth countries. In short, global labor and education markets for high-skilled professionals are integrated in more nuanced and thought-provoking ways than assumed in the literature.
Discussants:
Christopher Barrett
(Cornell University)
Julie Schaffner
(Tufts University)
Bruce Wydick
(University of San Francisco)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 5 & 6
Association of Environmental & Resource Economists
Weather, Air Quality, Health and Crime
(Q5)
Presiding:
Maximilian Auffhammer
(University of California-Berkeley)
Air Quality, Mortality, and Perinatal Health: Causal Evidence from Wildfires
Christopher Khawand
(Michigan State University)
[View Abstract]
[Download Preview] Previously unexploited scientific models of pollution processes can be used to isolate powerful and geographically widespread variation in airborne pollution for the purposes of uncovering causal estimates of health effects. I simulate the geographic distribution over time of fine particulate matter (PM2.5) caused by wildfires for the entire continental United States during 2004-2010 using a set of scientific models of wildfire emissions and air pollution transport commonly used wildfire and air quality applications. Regressing observed concentrations of PM2.5 at pollution monitoring stations on simulated PM2.5 from wildfires, I find that wildfires can explain at least 15 percent of ambient ground-level PM2.5 and even larger fractions of toxic mercury and lead particulates. I regress county-level health outcomes on station-measured PM2.5 using simulated wildfire PM2.5 as an instrumental variable, finding that a 10μgm-3 (approximately 2.3 standard deviation) increase in monthly PM2.5 concentration is associated with one additional premature death per 100,000 individuals. This effect is driven primarily by deaths from cardiovascular and respiratory diseases for individuals over age 65. With a control function approach, I find evidence that dose response is approximately linear below the U.S. ambient air quality standard for PM2.5. In addition, in-utero exposure to PM2.5 is associated with higher rates of prematurity, lower birth weights, and changes in the sex ratio, which I interpret as evidence of fetal attrition. Finally, the estimated health effects of PM2.5 are sensitive to the inclusion of controls for other pollutants, likely reflecting changes in the underlying conditional local average treatment effect. I present suggestive evidence that these changes are driven by heterogeneous health risks per unit mass of the chemical subcomponents of total PM2.5 mass, with metallic particulates far more dangerous than organic particulates. These findings contribute to a growing body of evidence on the health dangers of fine particulate matter.
Weather, Traffic Accidents and Climate Change
Benjamin Leard
(Resources for the Future)
Kevin Roth
(University of California-Irvine)
[View Abstract]
We exploit random daily variation in weather, to document the relationship of temperature, rainfall, and snowfall with traffic accidents and travel demand. Using information on 46.5 million accidents from the State Data System of police reported accidents for 20 states and travel demand for 207,455 households included in the National Household Transportation Survey, we find unanticipated effects of weather on accidents and their severity. Our estimates suggest that warmer temperatures and reduced snowfall are associated with a moderate decline in non-fatal accidents, but there is a significant increase in fatal accidents. This increase in fatalities is due to a robust positive relationship between fatalities and temperature.
The nature of our data allows us to test potential mechanisms that may be driving the results. We show that exposure is important but not the only factor in fatalities. Slightly less than half of the estimated effect of temperature is due to changes in the exposure to pedestrians, bicyclists, and motorcyclists as temperatures increase. We are unable to attribute the remaining effect to demographic compositional changes, alcohol, or drug use. Consistent with the Peltzman effect, we find that drivers seem to respond to increased accident risk with behavioral changes including reduced demand for travel on days with extreme temperature and precipitation. Moreover, we show that heat, as opposed to extreme cold or precipitation is the only inclement weather factor that makes a fatality more likely conditional on having an accident.
The application of these results to middle-of-the-road climate predictions suggests that weather patterns from 2100 would lead to 667 additional fatalities and costs of more than $3 billion annually. While adaptation may reduce these costs, we find no evidence that this relationship has changed over between 1980 and 2010 or between hot and cold regions of the country.
Climate of Discontent: Weather, Typhoons, and Crime in the Philippines, 1990-2008
Jesse Anttila-Hughes
(University of San Francisco)
Emily Wetherley
(State of Utah Juvenile Courts)
[View Abstract]
[Download Preview] We combine nineteen years of novel regional Filipino crime data with climate data to test three distinct hypotheses regarding climate variability's influence on crime. Mirroring recent results linking heating with violent crime, we find that high temperatures are nonlinearly associated with increases in the murder rate. Consistent with the literature suggesting a causal link between poverty and crime, we find that climate conditions associated with low crop yields increase rates of property crimes. Lastly, we document the novel result that property crime rates increase the year following tropical cyclone impact, consistent with prior evidence suggesting that cyclones' poverty effects are substantial but take time to emerge. Our findings establish that climate variability can influence crime rates through multiple distinct economic and noneconomic channels in a middle-income country, and in particular supports both the growing consensus that high temperature increase rates of interpersonal violence as well as a causal interpretation of poverty’s positive association with property crime.
Weather Shocks, Crime and Agriculture: Evidence from India
Ram Fishman
(George Washington University)
David Blakeslee
(New York University Abu Dhabi)
[View Abstract]
This paper provides novel evidence from a contemporary developing countries on the causal relationship between weather, income, and crime over large spatial and temporal scales. Using detailed crime and weather data from India during the years 1971-2000, we show that weather shocks that reduce agricultural output, low rainfall and high temperatures, increase most types of crimes. These effects are larger and more uniform for property crimes than for violent crimes. Moreover, when these weather shocks occur outside the main cultivation season, they do not affect crime. These patterns are consistent with economic models of crime, and suggest agricultural income shocks to be driving the weather-crime relationship. Despite the significant economic changes taking place in India during these years, and even though the incidence of crime has in general declined, the effect of weather shocks on crime has remained remarkably stable.
Discussants:
Reed Walker
(University of California-Berkeley)
Maximilian Auffhammer
(University of California-Berkeley)
Solomon M. Hsiang
(University of California-Berkeley)
Namrata Kala
(Yale University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra A
Association of Financial Economists/American Economic Association
Interconnectedness and Systemic Risk
(G1, G2)
Presiding:
Kose John
(New York University and Temple University)
Syndication, Interconnectedness, and Systemic Risk
Jian Cai
(Washington University-St. Louis)
Anthony Saunders
(New York University)
Sascha Steffen
(University of Mannheim and ZEW)
[View Abstract]
[Download Preview] Syndication increases the overlap of bank loan portfolios and makes them more vulnerable to contagious effects. We develop a novel measure of bank interconnectedness using syndicated corporate loans. Interconnectedness is positively related to both bank size and diversification; diversification, however, matters more than size. We find a positive correlation between interconnectedness and various bank-level systemic risk measures including SRISK, CoVaR, and DIP that arises from an elevated effect of interconnectedness on systemic risk during recessions. Using a market-level measure of systemic risk, CATFIN, we also find that interconnectedness increases aggregate systemic risk during recessions.
Uncertainty Aversion and Systemic Risk
David L. Dicks
(University of North Carolina)
Paolo Fulghieri
(University of North Carolina)
[View Abstract]
[Download Preview] We propose a new theory of systemic risk based on Knightian uncertainty (or "ambiguity"). We show that, due to uncertainty aversion, probabilistic assessments on future asset returns are endogenous, and bad news on one asset class induces investors to be more pessimistic about other asset classes as well. This means that idiosyncratic risk can create contagion and snowball into systemic risk. Furthermore, in a Diamond and Dybvig (1983) setting, we show that, surprisingly, uncertainty aversion causes investors to be less prone to run individual banks, but runs will be systemic. In addition, we show that bank runs are associated with stock market crashes and flight to quality. Finally, we argue that increasing uncertainty makes the financial system more fragile and more prone to crises. We conclude with implications for the current public policy debate on the management of financial crisis.
Why banks want to be complex
Frank Hong Liu
(University of Glasgow)
Lars Norden
(Brazilian School of Public and Business Administration)
Fabrizio Spargoli
(Erasmus University)
[View Abstract]
[Download Preview] We investigate whether and how bank complexity affects performance and systemic risk. We base the analysis on a complexity measure that captures diversification and diversity, controlling for size and other bank characteristics. We find that more complex banks exhibit a higher profitability, lower risk, and higher market share. Moreover, we show an inversely U-shaped relation between bank complexity and banks’ sensitivity to systemic shocks. The evidence challenges the view that higher bank complexity is per se bad and is consistent with theoretical models that show that diversity in the banking system is critical for financial stability.
Short-Term Debt and Systemic Risk
Saptarshi Mukherjee
(New York University)
[Download Preview]
Discussants:
Christa H.S. Bouwman
(Texas A&M University)
Itay Goldstein
(University of Pennsylvania)
Steven Ongena
(University of Zurich)
S. Abraham Ravid
(Yeshiva University)
Jan 04, 2016 2:30 pm, Parc 55, Mason
Association of Indian Economic & Financial Studies
Economic Development: Macro and Micro Level Challenges
(O2, O2)
Presiding:
Chandana Chakraborty
(Montclair State University)
Boom and Bust Growth:Do Institutions Matter?
Sabyasachi Kar
(Institute of Economic Growth)
Lant Pritchett
(Harvard University)
Selim Raihan
(Dhaka University)
Kunal Sen
(IDPM and University of Manchester)
[View Abstract]
[Download Preview] An increasingly large literature on growth empirics has viewed economic growth as an ‘episodic phenomena’. In this paper, we propose a new measure for the total magnitude of success of a growth episode: the gain or loss in per capita output resulting from a structural break in the trend growth of output (acceleration or deceleration). Using this measure, we then reevaluate the relationship between growth and economic institutions within the growth episode framework, using separate measures of property rights institutions, contractual institutions and state capacity. Using cross-country data for 314 growth episodes for 125 countries, we show that higher institutional quality leads to a greater likelihood of successful growth episodes.
Welfare Implications of India's Employment Guarantee with a Wage Payment Delay
Parantap Basu
(DUBS and Durham University)
Kunal Sen
(IDPM and University of Manchester)
[View Abstract]
[Download Preview] The flagship programme of employment guarantee in India known as Mahatma
Gandhi National Rural Employment Guarantee Scheme (MGNREGS) guarantees a
maximum of 100 days of work for the rural poor at a government stipulated wage in
a public works scheme. Although the very intent of this programme is to benefit the
poor, it was criticized for its formidable payment delay. A surprising stylized fact is
that such a payment lag raises the participation of poor in the programme instead
of lowering it. In this paper, we argue that a payment delay could seriously hurt
the poor which may not be seen from the usual index of success of the programme
which is participation. Asset-poor households may participate more in response to
such a payment lag. This happens because a payment delay makes labour a credit
good. The household discounts its future labour income more due to a longer
payment lag. This depresses the annuity value of the labour income flow creating
an adverse wealth e¤ect. Since leisure is a normal good, households consume less
leisure and work harder in response to a longer payment delay. A programme of
financial inclusion is likely to increase indebtedness and the borrowing rate facing
the households, compounding the adverse wealth effect on the poor. Since welfare
depends negatively on labour supply, a greater MGNREGS participation may entail
a welfare loss to the rural households. We suggest that reduction of the payment
lag in MGNREGS before implementing the financial inclusion programme is likely
to improve the efficacy of both programmes.
Farmers’ Suicides in India, 1995-2012: Measurement and Interpretation
Srijit Mishra
(Nabaksrushna Choudhury Centre for Development Studies (NCDS))
[View Abstract]
[Download Preview] [Download PowerPoint] Background: Farmers’ suicides have become an important socio-economic concern in India that has profound implication on the quality of life of farmers and their families. There are not many epidemiological studies on this. We propose to estimate suicide rates for farmers and non-farmers across the states of India and over time. We will also contextualise our results to the discourse on agricultural technology and development in general and that of cotton farming in particular.<br />
Methods: Suicide rates are computed per 100,000 people using suicide incidences for farmers and non-farmers reported by the National Crime Records Bureau (NCRB) from 1995 to 2012 and normalising the same with age-adjusted interpolated/extrapolated population computed from census. It also raises questions on quality of data, definitions of data reporting as they have important bearing on measurement. Equally important is the population used for normalising to have an appropriate social context.<br />
Findings: At the aggregate all India level, one observes that the SDR for male farmers increases to a peak in 2004 and there is a second spike in 2009 but then it declines and also becomes lower than the suicide rates for male non-farmers in 2011 and 2012. However, state-specific analysis, while showing mixed pattern, indicates that the decline in recent years is largely on account of an abrupt drop in Chhattisgarh on account of changes in reporting and non-reporting of farmers’ suicides for West Bengal in 2012. The states of Andhra Pradesh and Maharashtra with large cotton-growing areas and with relatively higher incidence of farmers’ suicides, in contrast to the all India trend, show an increasing trend in recent years.<br />
Interpretation: Relatively higher incidence of farmers’ suicides is symptomatic of risk and raises livelihood as also public health concerns among the population dependent on agriculture. Public policy should focus on livelihood-enhancing and sustainable agricultural practices. Public health interventions should address the need for mental health care, reduce response time to lower harm and prevent deaths from poisoning and other self-inflicted harm, and restrict and regulate the access to and use of organophosphorous poisons. We also call for shifting the development discourse linked to farmers’ suicides from a techno-centric yield or income focus to a people-centric livelihood and quality of life focus.
From Well-Heeled to Tip-Toed, Shoe-Shine to Shoe-Lace: Monopolistic Competition and Product Differentiation in Men’s Footwear
Vishal Kumar
(Indian Institute of Management-Ahmedabad )
Satish Y. Deodhar
(Indian Institute of Management-Ahmedabad)
[View Abstract]
[Download Preview] [Download PowerPoint] Gone are the days when the only branded footwear Indians knew was Bata. After years of economic liberalization, one finds many firms; local, national, and international jostling for consumer attention by producing various types of footwear in Indian market. In fact, today Indian footwear industry is the second largest in the world. This market can be described as a stylized case of a monopolistically competitive market where there is intense competition among firms manufacturing differentiated products. In this study, we focus our attention on men’s formal shoes which are distinguished by the presence (or absence) of many differentiated attributes such as heel, toes, colour, surface, laces, buckles and brands. Invoking hedonic price analysis and bid and offer curves of the customers and firms respectively, shoe prices are viewed as the sum total of the valuation of each of the shoe attributes. We estimate the relative valuation of the shoe attributes by regressing market prices of shoes on various quality attributes. Analysis shows that shoes made of leather, shiny surface, buckles, laces, and brands carry a premium and differentiation based on colour, pointed toes, high heels, and texture is not important. In a highly competitive market, such data driven studies can provide pointers to firms in altering existing shoe models and successfully launching newer ones.
Size Dependent Fiscal Incentives and Horizontal Subcontracting in Manufacturing Firms: Evidence from Panel of Factories in India
K. V. Ramaswamy
(Indira Gandhi Institute of Development Research (IGIDR))
[View Abstract]
[Download Preview] This paper studies the threshold effects of fiscal incentives determined by sales-turnover in small-scale enterprises in Indian manufacturing. India’s industrial protection and promotion policies for small-scale enterprises have figured prominently in the literature on industrialization policies in developing countries. These enterprise size dependent policies have continued their prominence in recent years of India’s shift to market-oriented strategies of development. Size dependent labour regulations have attracted most attention as they argued to restrict firm-size expansion and employment growth. Empirical analyses of fiscal policy rules that incentivize firms to indulge in horizontal subcontracting or product outsourcing have been absent. These size dependent tax incentives could be equally important in encouraging fragmentation of production and prevent natural up-scaling of firm sizes. The present paper is perhaps the first attempt at capturing the effects of size dependent excise tax incentives in Indian manufacturing. The study is based on a large unbalanced panel of manufacturing factories in the formal sector covering 25 states and 5 union territories of India spanning the period 1998-2008. Mean subcontracting intensity was found to be significantly high in the enterprise-size group eligible for excise-tax exemption with turnover below Indian Rupees 50 million. The preliminary econometric results indicate that size-dependent effects are significant in labor-intensive industries and in Indian states classified as inflexible in terms of labor regulations. In brief the empirical results supported the threshold effects of size dependent fiscal incentives. <br /><br />
<br />
Economic Growth and Reduced Carbon Emissions: The Impact of Carbon Pricing
Niranjan Chipalkatti
(Seattle University)
Meenakshi Rishi
(Seattle University)
Thien Le
(University of Houston)
[View Abstract]
As more countries adopt policies like carbon taxes and/or carbon cap and trade, there is an urgent need to re-examine the economic growth-carbon emissions nexus and the mediating role of carbon pricing policy. Can developing economies sustain their economic growth in order to alleviate poverty and yet maintain a low carbon intensity economy on a per-capita basis?
Globally, 39 national and 23 sub-national jurisdictions have implemented or are scheduled to implement carbon-pricing instruments, including emissions trading systems and taxes. (See Figure 1). The world’s emissions trading schemes are valued at about $30 billion, with China now housing the world's second largest carbon market, covering the equivalent of 1,115 million tons of carbon dioxide emissions. The World Bank Group and others are encouraging countries, sub-national jurisdictions, and companies to join a growing coalition of first movers supporting carbon pricing. In recent years, cap and trade has commanded most of the attention in discussions relating to the Kyoto Protocol or connected with state-level climate policy efforts in the U.S. The Obama Administration has also supported cap and trade policies over taxation. But, what works better from the perspective of economic growth – carbon taxes or carbon cap and trade policies? The objective of this paper is to examine the impact of carbon pricing, specifically carbon cap and trade and carbon taxes, on economic growth and carbon emissions for a panel of countries.
Discussants:
Subarna Samanta
(College of New Jersey)
Raja Kali
(University of Arkansas)
Banani Nandi
(AT&T Shannon Laboratories)
Shailendra Gajanan
(University of Pittsburgh-Bradford)
Rukmani Gounder
(Massey University)
Amitrajeet A. Batabyal
(Rochester Institute of Technology)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 20
Econometric Society
Capital, Knowledge and Diffusion on the Path to the Industrial Revolution
(A1)
Presiding:
Carles Boix
(Princeton University)
Reformation and Reallocation: Human Capital, Employment, and Economic Activity in the German Lands
Davide Cantoni
(University of Munich)
Jeremiah Dittmar
(London School of Economics)
Noam Yuchtman
(University of California-Berkeley)
[View Abstract]
The Catholic Church was the most important economic institution in Western Europe until the 16th century. The Protestant Reformation, beginning with Luther's posting of his 95 theses in 1517, not only reduced the Church's social and political standing, but also was a major economic shock. We document the effects of the Reformation on the pattern of economic activity in early modern Germany. We first present evidence on the closure of monasteries across space and time. We then study changes in human capital investments, the reallocation of labor, and the resulting shift in economic activity from the church sector toward secular economic activities. We find that following the Reformation, university degrees were less often taken in theology, the study of which was strongly associated with jobs in the Catholic Church; jobs as monks were significantly less common among the university-trained; more generally, the frequency of church-related occupations declined, while the frequency of occupations in education, culture, and government administration increased. As a summary measure of the allocation of resources, we examine construction activity by sector: we find using highly disaggregated data that the rate of new construction activity within the church sector declined in Germany after 1517, while construction in the secular sector increased. The reallocation of economic activity away from the Catholic Church (and church uses more generally) marked the decline of Europe's most powerful economic institution and was a prominent component of Europe's modernization and secularization.
The Roots of the Industrial Revolution: Political Institutions or (Socially Embedded) Know-How?
Carles Boix
(Princeton University)
Scott Abramson
(European University Institute/ University of Rochester)
[View Abstract]
[Download Preview] This paper reassesses the causes and nature of economic growth in Europe from 1200 to 1900. Employing a comprehensive dataset that includes biogeographic features and urbanization data (1200-1800), per capita income data in the second half of the 19th century, location of protoindustrial centers and type of political institution in sovereign and semi-sovereign territories, it shows that the initial economic take-off (and of a growing economic divergence across Europe), sparked by new agrarian technologies interacting with suitable biogeographic conditions, led to the emergence and growth of cities and urban clusters in the European corridor broadly running from southern England to northern Italy. In contrast to the institutionalist literature, it shows that the fortunes of parliamentary institutions in early modern Europe played a small part in the success of the industrial revolution. The paper claims, instead, that development followed a process of endogenous growth, often regardless of the absence of executive constraints or access to energy resources.
New Media, Competition, and Growth
Jeremiah Dittmar
(London School of Economics)
N/A
The Mechanics of Endogenous Innovation and Growth: Evidence from Historical U.S. Patents
William R. Kerr
(Harvard University)
Ufuk Akcigit
(University of Pennsylvania)
Tom Nicholas
(HBS)
[View Abstract]
How does technological progress occur? Is the nature of innovation stable over time? We shed new light on these questions through a mixture of empirics and theory. We begin with an empirical analysis of patents granted by the United States Patent and Trademark Office. This analysis reveals several striking facts that emphasize the increasing importance of novel combinations of technologies for U.S. patents, compared to either new technology development or the reuse/refinement of older technology combinations, and the localized nature of these recombinations. We build an endogenous growth model that can match these facts and illustrate the underlying mechanics of the technological development process.
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 16
Econometric Society
Exchange Rates and Adjustment
(A1)
Presiding:
Laura Veldkamp
(New York University)
Exchange Rate Pass-Through and Market Structure in a Multi-Country World
Kanda Naknoi
(University of Connecticut)
[View Abstract]
[Download Preview] In a multi-country world, currencies do not move in isolation, and competitors’ exchange rate movements may help or hurt an exporting firm. Motivated by this fact, I construct a multi-country model to examine how export prices are affected by movements in own-currency and cross-currency exchange rates. Own-currency appreciations move firms along the demand curve while cross-currency appreciations shift the position of the demand curve. Both affect the price elasticity of demand and therefore the degree to which exchange rate movements affect prices. When own- and cross-currency appreciations are correlated, the exporter changes price in response to both. In the empirical section, I employ monthly data and provide estimates of own and cross exchange rate pass-through to the price of exports from Canada to the U.S. The cross exchange rate pass-through is found to exist in about one-third of sample sectors.
Information Globalization, Risk Sharing and International Trade
Laura Veldkamp
(New York University)
Isaac Baley
(Universitat Pompeu Fabra)
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.
Market Structure, External Adjustment and Pricing to Market
Raphael Sebastian Schoenle
(Brandeis University)
Raphael Auer
(Swiss National Bank)
Ariel Burstein
(UCLA)
[View Abstract]
We introduce Armington's (1969) notion of "origin differentiation" into a micro-founded model of pricing to market and examine how this affects the joint dynamics of prices and quantities in an international real business cycle framework. We find that the model, when calibrated using parameters that we structurally estimate from micro data on U.S. domestic and import prices, can match both movements in international relative prices and quantities as observed in the data. The mechanism that drives our results is that a moderate degree of substitutability between origins, combined with a high degree of substitutability between varieties from the same origin implies substantial variability in the markups of importers and limited spillovers into domestic prices, while at the same time it is consistent with a muted quantity response to such pronounced movements in relative prices.
Uncovered Interest Parity and Monetary Policy Near and Far from the Zero Lower Bound
Yi Zhang
(University of Wisconsin-Madison)
Menzie Chinn
(University of Wisconsin)
[View Abstract]
[Download Preview] Relying upon a standard New Keynesian DSGE, we propose an explanation for two empirical findings in the international finance literature. First, the unbiasedness hypothesis --- the proposition that expost exchange rate depreciation matches interest differentials --- is rejected much more strongly at short horizons than at long. Second, even at long horizons, the unbiasedness hypothesis tends to be rejected when one of the currencies has experienced a long period of low interest rates, such as in Japan and Switzerland. Using a calibrated New Keynesian dynamic stochastic general equilibrium model, we show how a monetary policy rule can induce the negative (positive) correlation between depreciation and interest differentials at short (long) horizons. The tendency to reject unbiasedness for Japan and Switzerland even at long horizons we attribute to the interaction of the monetary reaction function and the zero lower bound.
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 3 & 4
Econometric Society
Firms in Developing Economies
(A1)
Presiding:
David Atkin
(Massachusetts Institute of Technology)
Industrialization from Scratch: The Persistent Effects of China’s “Third Front” Movement
Ben Zou
(University of Maryland)
Jingting Fan
(University of Maryland)
[View Abstract]
[Download Preview] Can temporary subsidies to the industrial sector in an agricultural economy jump start a self-sustaining process of industrialization? This paper tests this hypothesis by examining the long-run effects of a unique industrialization campaign in China in the 1960s, known as the “Third Front Movement”. The Movement intended to establish industrial clusters in Western China, whose economy by then was predominantly agricultural. Motivated by national defense considerations, industrial plants established during this period were purposefully located in rugged areas far from existing industrial centers. By the time China started its market reform in the industrial sector in the 1980s, some local economies in the region had sophisticated industrial sectors while some otherwise similar places remained predominantly agricultural. This unique design lends us credibly exogenous variation to identify the effects of temporary industrial subsidies. We evaluate the effects of industrial presence on the eve of market reform on local economic development over two subsequent decades. Various empirical approaches, including case studies, synthetic control method, and pooled regressions controlling for a rich set of initial conditions, all yield similar results. Places that received large industrial investment during the Third Front Movement persisted to have higher levels of urbanization, industrialization and human capital in the post-reform era. The effects are mainly driven by the fast-growing non-state sector. Increased urbanization rates are mainly driven by workers transitioning from the agricultural sector to the urban sector within the local economy. Industrial linkages are able to explain a quarter of the total effect.
The Return to Entrepreneurship: Selection, Non-Pecuniary Benefits and Necessity in Mexico
Jesica Torres-Coronado
(ITESM)
[View Abstract]
I study the allocation of workers in Mexico across two occupations: wage-working and entrepreneurship. Is the assignment of talent optimal? Specifically, I examine whether micro-entrepeneurs would earn more if they worked for someone else for a wage instead of running their firm. I assume that workers care about the non-pecuniary benefits of entrepreneurship and that they are heterogeneous in their skills and preferences, and apply the generalized Roy model to control for selection on unobservables. I use a unique cross-section of full-time full-year male workers in urban areas, and estimate the return to entrepreneurship for the average entrepreneur. I compute earnings differentials using entrepreneurial profits net from capital returns to focus exclusively on the allocation of talent. The dataset includes the reservation wage for the entrepreneurs, which I use to explicitly incorporate the non-pecuniary benefits of running a business in the estimation, not only in the selection equation but also as an outcome. I observe whether the worker reportedly entered entrepreneurship involuntarily and run the generalized Roy model separately for the voluntary entrepreneurs and the self- reported necessity entrepreneurs. I then compute for each group the average monetary treatment-on- the-treated and the full treatment-on-the-treated, which adds the value of the non-pecuniary benefits and costs of owning a business to the monetary treatment-on-the-treated. I compare the monetary return to the full return to study the importance of both non-pecuniary benefits and necessity in the occupational choice.
Are Small Firms Labor Constrained? Experimental Evidence from Ghana
Jamie McCasland
(University of California-Berkeley)
[View Abstract]
[Download Preview] Small firms in developing countries are typically modeled as facing a frictionless market for workers, characterized by low search costs, full information, and a lack of regulation. We report the results of a field experiment that randomly placed unemployed young people as apprentices with small firms in Ghana. The program provided a novel worker screening technology to firms (in addition to simply reducing search costs), as (voluntary) participation included non-monetary costs for unemployed young people applying to the program. We find that firms that were offered apprentices by the program hired and retained them for at least six months (the end of our study window). Secondly, each assigned apprentice is associated with monthly increases of approximately 25 USD in revenue and 10 USD in profits (about 7-10% of baseline). Together, these findings suggest the presence of economically significant search costs in our context. Moreover, we present strong suggestive evidence of substantial heterogeneity in these returns as a function of (unobserved) worker ability. This final result highlights the importance of screening in firms’ hiring decisions, and echoes the widespread use of an entry fee mechanism to hire apprentices in our baseline labor market. A simple model in which productivity differences associated with worker ability necessitate costly screening can predict the impacts of our program. Our findings have implications for understanding labor markets in low-income countries, and in particular suggest that high youth unemployment in developing economies could be the result, at least in part, of substantial labor market frictions.
Do Factor and Financial Market Frictions Interact to Constrain Growth? Evidence from Firms and Farms
Alex Cohen
(Yale University)
[View Abstract]
This paper tests whether frictions in factor and financial markets interact to constrain the growth of firms and farms in developing countries. If firms or farms face constraints on labor or land, then relaxing financial frictions will cause the shadow prices of these inputs to rise. This will show up as increases in the marginal revenue products of these inputs relative to inputs that do not face factor market frictions. I take this observation to two randomized experiments that relaxed financial frictions to varying degrees for firms in Sri Lanka and farms in Ghana. I calculate marginal revenue products by assuming a Cobb-Douglas production function. I find that the treatments led to significant increases in the shadow wage in both settings and the shadow price of land for farms in Ghana. These distortions were greatest for treatments that relaxed financial frictions the most. Using a novel production function estimation approach and overidentification test, I fail to reject the Cobb-Douglas assumption. I conclude that frictions in factor markets may diminish the impact of microcredit and microinsurance, as well as other interventions designed to spur firm and farm growth.
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 19
Econometric Society
Inequality Dynamics
(A1)
Presiding:
Fatih Karahan
(Federal Reserve Bank of New York)
Understanding Portfolio Choice and Wealth Inequality: The Role of Non-Gaussian Earnings Risk with Asymmetric Mean Reversion
Fatih Karahan
(Federal Reserve Bank of New York)
Serdar Ozkan
(University of Toronto)
[View Abstract]
In a recent paper, Guvenen et al. (2015), we have shown the distribution of earnings shocks to be extremely leptokurtic, meaning that most earnings changes are very close to zero but few changes are very large. In this paper, we study the effects of these higher-order moments in earnings risk on portfolio choice and wealth inequality. We first show how to incorporate higher-order moments in incomplete markets model by developing a new approximation method for earnings risk. We then embed this approximation in a quantitative life-cycle model featuring liquid and illiquid assets and study the implications of high kurtosis. Our preliminary results suggest that households prefer to allocate more of their wealth to illiquid assets if shocks follow a leptokurtic distribution. These findings have important implications for the degree of consumption insurance against earnings shocks.
Determinants of Wage and Earnings Inequality in the United States
Ctirad Slavik
(Goethe University Frankfurt)
Hakki Yazici
(Sabanci University)
[View Abstract]
[Download Preview] The skill premium in the United States has gone up significantly between the 1960's and the 2000's. During the same period, individual wage volatility has also increased. Using a model that incorporates the technology-education race model of Tinbergen (1974) into a standard incomplete markets model, this paper shows that the rise in individual wage risk is an important contributor to the rise in skill premium. Depending on the decomposition method, the rise in wage risk explains 9% or 17% of the total rise in skill premium between the 1960's and the 2000's.
Slowing Women’s Labor Force Participation: The Role of Rising Income Inequality
Maria Jose Prados
(University of Southern California)
Stefania Albanesi
(NY Fed)
[View Abstract]
The entry of married women into the labor force and the rise in women’s relative wages are amongst the most notable economic developments of the twentieth century. These phenomena were particularly pronounced in the 1970s and 1980s, when participation of married women grew from 38% in 1975 to a peak of 60% in 1996 and the male to female ratio in hourly wages dropped from 1.60 to 1.34. Since the early 1990s, the growth in these indicators has stalled, especially for college graduates. In this paper, we link the decline in the growth in married women’s participation and relative wages since the early 1990s to the acceleration in the rise of the skill premium starting in those years. Our hypothesis is that the growth in wages for highly educated men generated a negative wealth effect on the labor supply of their female spouses, reducing their labor supply and their wages relative to men. Disaggregated evidence on relative wages and labor force participation of wives by education and income of the husband provides descriptive support for this mechanism. We develop a model of household labor supply which can qualitatively reproduce a negative effect on wives’ participation of a rise in husbands’ earnings. We show that a calibrated version of the model can account for a large fraction of the decline relative to trend in married women’s participation in 1995-2005, for college educated women and women married to college husbands. The model can also account for the rise in the gender wage gap for college graduates relative to trend in the same period.
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 15
Econometric Society
Topics in eCommerce
(A1)
Presiding:
Steven Tadelis
(University of California-Berkeley)
The Economics of the Bitcoin Network: Theory and Evidence
Susan Athey
(Stanford University)
[View Abstract]
This paper develops a model of user adoption and use of virtual currency (such as Bitcoin), and specifically incorporates the frictions created by Bitcoin. The theoretical model can be used to analyze how market fundamentals determine the exchange rate of fiat currency to virtual currency. Empirical evidence from Bitcoin prices and utilization provides mixed evidence about the ability of the model to explain prices. Further analysis of the history of all individual transactions on Bitcoin's public ledger establishes patterns of adoption and utilization across user types, transaction type, and geography. We document the extent to which the attributes of the anonymous users of Bitcoin can be inferred through their behavior, and we find that users who engage in illegal activity are more likely to try to protect their financial privacy.
Price Formation in Bilateral Trade: Evidence From Online Bargaining
Matthew Backus
(Cornell University)
Thomas Blake
(eBay Research)
Brad Larsen
(Stanford University)
Steve Steve Tadelis
(University of California-Berkeley)
Steven Tadelis
(University of California Berkeley)
[View Abstract]
This paper studies empirical patterns of price formation in bilateral trade situations. Our data come from over 7.2 million bargaining sequences occurring on eBay's Best Offer platform from 2010–2013. We document patterns of players' responses, response times, and heuristic strategies; as well as differences in outcomes and actions according to players' experience, gender, patience, and knowledge of their opponents’ valuations. We find that bargaining sequences are short, but conditional on an offer being made, highly likely to succeed. We also find that agents exhibit equitable behavior and often make offers that “split the difference” between negotiating positions.
Dynamic Pricing in a Labor Market: Surge Pricing and Flexible Work on the Uber Platform
Keith Chen
(University of California-Los Angeles)
Michael Sheldon
(University of Chicago)
[View Abstract]
[Download Preview] This paper studies how the dynamic pricing of tasks in the “gig” economy influences the supply of labor. A large economic literature has explored labor supply when workers can flexibly choose how long to work each day. In a study of taxi drivers, Camerer et al. (1997) claim that drivers quit when they hit a daily income target, consequently driving less when hourly earnings are high. If general, this behavior would undermine the benefits of emerging “sharing economy” markets where tasks are dynamically priced. In this paper, we study how driver-partners on the Uber platform respond to the dynamic pricing of trips, known as “surge” pricing. In contrast to income-target findings, we find that Uber partners drive more at times when earnings are high, and flexibly adjust to drive more at high surge times. A discontinuity design confirms that these effects are causal, and that surge pricing significantly increases the supply of rides on the Uber system. We discuss the implications of these findings for earnings, flexible work, and the efficiency of dynamically-priced labor markets.
Demand Estimation with High Dimensional Data and an Application to Amazon’s Book Marketplace
Wilko Schulz-Mahlendorf
(Amazon)
Patrick Bajari
(Amazon)
Guido Imbens
(Stanford University)
Ana Lemmen Meyer
(Amazon.com)
[View Abstract]
Much of the recent research in differentiated product demand estimation is based on extensions of the logistic models pioneered by McFadden (1974). However, these models do not scale effectively to the very large data sets that have recently become available in applied marketing. For example, we use daily data from Amazon’s US and EU e-book and physical book marketplaces. This data has approximately 44 million titles available for purchase in the US and over 33 million titles in the EU. The data also has hundreds of thousands of hedonic attributes that could be used as regressors. We propose methods to analyze demand more accurately at this larger scale by combining methods from econometrics and Machine Learning. Unlike most work in Machine Learning, we construct estimators that have a clear economic interpretation and that are identified under standard conditions used in the evaluation literature. As an application, we quantify some aspects of consumer behavior and price setting. In particular, we estimate the compensating variation to consumers attributable to the increased selection available from Amazon’s online retail catalog. We find that increased selection conservatively generates $2.2 billion in increased compensating variation in the US and $2.1 billion in the EU.
Discussants:
R. Preston McAfee
(Microsoft)
Luis Cabral
(New York University)
Enrico Moretti
(University of California-Berkeley)
Chris Nosko
(University of Chicago)
Jan 04, 2016 2:30 pm, Hilton Union Square, Sutter A & B
Economic History Association
Institutions Matter: Economic and Social Policies in the Long Run
(N2)
Presiding:
Julia Cage
(Sciences Po)
Policy Uncertainty and Investment: Evidence from the English East India Company
Dan Bogart
(University of California-Irvine)
[View Abstract]
[Download Preview] Heightened polarization and political instability in the early twenty-first century has created growing concerns about policy uncertainty. Some economists argue that investment is likely to be reduced because of uncertainty about who will be making policy decisions, what policy decisions will be made by those who end up in charge, and how those policies will affect profits for firms. Although policy uncertainty is often presented as a recent issue, it is not new. In the past, government policies could be just as controversial as today, and when political power changed or crises emerged the future of those policies became less clear too. In this paper, I examine how policy uncertainty affected the investment of the English East India Company, which operated from 1600 to around 1850. A long-run, historical perspective is useful because the past offers multiple political and fiscal events to analyze the impacts of policy uncertainty. History also allows one to gauge the significance of policy uncertainty across time and in different contexts. The English East India Company was arguably the most important company in the world during its heyday around 1800. It maintained a monopoly over all trade between Britain and Asia for over 200 years. By the early nineteenth century it accounted for approximately 50% of all European ships sailing to Asia. The English Company also controlled important regions in India, like Bengal, and laid the foundation for British colonial rule.
Inter-Annual Water Supply Variation and Irrigated Agriculture in the Arid Western United States: One Hundred Years of Agricultural Census Observations from Idaho
Zeynep Hansen
(Boise State University)
Scott Lowe
(Boise State University)
Wenchao Xu
(Xiamen University)
[View Abstract]
[Download Preview] In this paper, we address how inter-annual water supply volatility impacts certain agricultural outcomes over a long-time span. Climate change-induced warming patterns manifest in many ways in the western U.S., which include earlier snowmelt-driven streamflows (Cayan et al. 2001; Stewart et al. 2005; Regonda et al. 2005), reduced late-season flow, and increased early-season flow (Stewart et al. 2005). A large reduction in mountain snow pack and a substantial shift in streamflow seasonality accompany these warming patterns, to the extent that by 2050, the spring streamflow maximum is expected to arrive one month earlier in the year (Barnett et al. 2005). Since climate change reflects a long-term trend and adaptation and mitigation efforts take effect slowly, investigating the impacts of climate change and water supply over a long time span provides more insight than using data from short-term weather phenomena.
Institution Protections, Capital Costs, and Long-Run Economic Growth
Benjamin Chabot
(Federal Reserve Bank of Chicago)
Ron Alquist
(Kings Peak Asset Management)
[View Abstract]
[Download Preview] We document the relationship between institutional protections, the equity cost of capital, and subsequent GDP growth. The paper documents that firms located in countries with strong institutional protection of property rights enjoyed low-cost financing on the London capital market between 1870 and 1907 and cross-country variation in these costs of capital is systematically related to economic growth during the subsequent century.
Foreign Reserves and International Adjustments Under the Bretton Woods System: A Reappraisal
Eric Monnet
(Bank of France)
Damien Puy
(International Monetary Fund)
[View Abstract]
[Download Preview] This paper reopens the debate on international liquidity and adjustment under the Bretton Woods system. Despite numerous studies on the demand for foreign reserves conducted during the 1960s and early 1970s, we still know very little on the determinants of reserve accumulation during the Bretton Woods system. Papers published at that time used short time span and small samples and they relied on spurious econometrics. Studies on this topic stopped quickly after the end of the system and remained inconclusive (Williamson 1973). Despite several improvements in econometric techniques, availability of data and new developments in the theoretical and empirical literature on reserves (Obstfeld et al. 2010), there has been no attempt to reinvestigate the demand for foreign reserves under the Bretton Woods period. The literature on the correlation between business cycles across countries under Bretton Woods suffers from similar limitations. No study on this topic has been conducted since the 1970s whereas econometrics and data availability have greatly improved. In this paper, we build a new comprehensive quarterly database for the core countries of the Bretton Woods system (G10) and we challenge several misconceptions and widely held views about the functioning and outcomes of Bretton Woods. Our analysis of the accumulation of foreign reserves reveals fundamental flaws of the system and shows that confidence and adjustment problems were too severe to solve global imbalances problems. As a consequence, countries were strongly affected by international real and nominal shocks despite the use of capital controls. The Bretton Woods system does not appear as a Golden Age where countries could manage domestic policy without being constrained by international shocks and adjustments.
Discussants:
Daniel Shoag
(Harvard University)
Eric Edwards
(Utah State University)
Julia Cage
(Sciences Po)
Michael D. Bordo
(Rutgers University)
Jan 04, 2016 2:30 pm, Hilton Union Square, Powell A & B
Health Economics Research Organization
The Impact of the Affordable Care Act on Hospital Use, Cost, and Market Structure
(I1, L1)
Presiding:
Kosali Simon
(Indiana University)
The Impact of the Affordable Care Act on Hospital Access
Victoria E. Perez
(Indiana University)
Ari B. Friedman
(University of Pennsylvania)
[View Abstract]
The 2010 Patient Protection and Affordable Care Act (ACA) increased expectations of insurance prevalence, particularly among acute care hospitals with emergency departments. Concerns have arisen regarding hospital closures in non-expansion states, but the empirical effect of expansion or non-expansion on hospital expectations and closures is unknown. In this paper, we exploit state-level variation in Medicaid expansion to estimate the effect of hospital expectations on the likelihood of closure. Trends in expansion versus non-expansion states are modeled against the secular trend in hospital closures using a national census of hospital financial reports from 2006-2013. The data are obtained via the Healthcare Cost Report Information System and systematically validated with local news reports and phone surveys. We estimate the effect of provider expectations on patient access, defined as both the number of facilities, hospital capacity, and the average distance to the nearest hospital. The results suggest that improvement in hospital finances from the ACA have been concentrated among hospitals that were not at risk for closure prior to the ACA. The finding has important implications for patient access.
The Effect of the Affordable Care Act (ACA) Medicaid Expansion on the Utilization of Hospital Services
John Graves
(Vanderbilt University)
Craig Garthwaite
(Northwestern University)
Tal Gross
(Columbia University)
Mathew J. Notowidigdo
(Northwestern University)
tba
ACA Insurance Coverage Expansion Impact on Hospital Cost
Zeynal Karaca
(Agency for Healthcare Research and Quality)
Eli Cutler
(Truven Health Analytics)
Michael Dworsky
(RAND Corporation)
Christine Eibner
(RAND Corportion)
Gary Pickens
(Truven Health Analytics)
[View Abstract]
This study measured the effect of the Affordable Care Act Insurance Coverage Expansion on Hospital Costs. This is a retrospective longitudinal study of hospital cohorts in selected states submitting 2011-2014 data to the Healthcare Cost and Utilization Project (HCUP). States were classified according to implementation of the ACA Medicaid expansion. Difference-in-differences regression models were used to estimate the effect of the ACA insurance coverage expansion on hospital inpatient and emergency department costs and volumes. The contrast between expansion and non-expansion states was used to identify the effect of Medicaid expansion on volume and cost, while geographic variation in hospital market uninsurance rates was used to identify health insurance marketplace effects. The population studied was adults age 19-64 in selected states, with expected source of payment of Medicaid, private insurance or uninsured. A preliminary analysis of HCUP State Inpatient Databases showed that the largest and most consistent effects were discharge volume and payer mix transfers from the uninsured to Medicaid payment sources. Total discharge volume expansion effects were insignificant. Expansion effects on hospital inpatient costs were insignificant, except for the uninsured, where expansion effects were negative.
authors:
Cutler, Eli (Truven Health Analytics)
Dworsky, Michael (RAND)
Eibner, Christine (RAND)
Karaca, Zeynal (AHRQ)* presenter
Pickens, Gary (Truven Health Analytics)
Wong, Herbert (AHRQ)
Discussants:
Richard Lindrooth
(University of Colorado-Denver)
Vivian Ho
(Rice University)
Sayeh Nikpay
(University of Michigan and Vanderbilt University)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 23 & 24
Industrial Organization Society
Industrial Organization of Financial Services
(L1, L8)
Presiding:
Elizabeth Kiser
(Federal Reserve Board)
The Effects of Interest Rate Changes and Add-on Fee Regulation on Consumer Behavior in the U.S. Credit Card Market
Alexei Alexandrov
(Consumer Financial Protection Bureau)
Ozlem Bedre-Defolie
(European School of Management and Technology)
Daniel Grodzicki
(Pennsylvania State University)
[View Abstract]
We estimate the effects of changes in interest rate and late payment fee on consumers' credit card usage, balances, and propensity to pay late. Among other findings, we show that late payment fee is salient for all three decisions. We use our estimates to show that a policy lowering late payment fees (keeping everything else equal) might have increased issuers' revenue, through increased demand for usage and balances. In another calculation, taking into account that the vast majority of accounts have variable interest rates tied to the Federal Reserve's discount rate, we show that a hypothetical one percentage point Federal Reserve's discount rate increase lowers credit card balances by about 9%, while keeping usage virtually unchanged.
Capital Requirements in a Quantitative Model of Banking Industry Dynamics
Dean Corbae
(University of Wisconsin-Madison)
Pablo D'Erasmo
(Federal Reserve Bank of Philadelphia)
[View Abstract]
[Download Preview] We develop a model of banking industry dynamics to study the quantitative impact of capital requirements on bank risk taking, commercial bank failure, and market structure. We propose a market structure where big, dominant banks interact with small, competitive fringe banks. Banks accumulate securities like Treasury bills and undertake short-term borrowing when there are cash flow shortfalls. A nontrivial size distribution of banks arises out of endogenous entry and exit, as well as banks’ buffer stocks of securities. We test the model using business cycle properties and the bank lending channel across banks of different sizes studied by Kashyap and Stein (2000). We find that a rise in capital requirements from 4% to 6% leads to a substantial reduction in exit rates of small banks and a more concentrated industry. Aggregate loan supply
Estimating a Demand System for U.S. Debt Instruments
Ali Hortaçsu
(University of Chicago)
Jakub Kastl
(Princeton University)
[View Abstract]
Abstract: We use data on mutual fund holdings to estimate a demand system for US debt instruments of various maturities. Our model allows us to evaluate counterfactuals like how would the demand for 3-month treasury bill change if the supply of 5-year bonds were to double. We also provide validation of our results of demand estimation from the mutual fund holdings by estimating this demand system directly using data from actual auctions of US government instruments. Using the actual bids submitted in the uniform price auctions and an equilibrium model of bidding we can recover the willingness-to-pay (and hence the demand curve) for each debt instrument directly. Using time variation in the supplied quantity of various instruments, we can also recover the substitution patterns. Finally, we use the model to evaluate the effects of Quantitative Easing of various counterfactual intensities.
An Equilibrium Search Model of Price Dispersion in the U.S. Mortgage Market
Alexei Alexandrov
(Consumer Financial Protection Bureau)
Sergei Koulayev
(Consumer Financial Protection Bureau)
[View Abstract]
In this paper, we empirically investigate the extent to which information frictions, or search costs, might lead consumers to take out a pricier loan than they otherwise could have in the mortgage market. To that goal, we estimate an equilibrium model of costly search, where firms set prices in anticipation of limited search by consumers. On the creditor side, we combine data on rate sheets (e.g., prices) with market shares of individual creditors, separately for each state. On the consumer side, we use data on search intensities, creditor (non-price) preferences, and a host of other characteristics from a nationally representative survey. This data combination identifies the key object of interest: distribution of search costs in the population. Preliminary results indicate that the median search cost is in the order of 1,000-1,500 dollars per one additional creditor visited (depending on the segment) and, importantly, the elimination of search costs would bring a 10-15% improvement in the consumer surplus, through better information and lower prices, after accounting for equilibrium responses of firms.
Discussants:
Chaehee Shin
(Federal Reserve Board)
Marc Rysman
(Boston University)
Jean Francois Houde
(University of Pennsylvania)
Judith Chevalier
(Yale University)
Jan 04, 2016 2:30 pm, Parc 55, Divisadero
International Association for Energy Economics/American Economic Association
Economic Growth, Environment and Efficiency: Shaping the Future of Energy Demand
(Q4) (Panel Discussion)
Panel Moderator:
Kenneth Medlock III
(Rice University)
Robert Schwiers
(Chevron Corporation)
Andrew Slaughter
(Deloitte)
Amy Jaffe
(University of California-Davis)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra B
International Association for Feminist Economics
Work Segregation
(J7)
Presiding:
Alicia Girón
(Mexico Autonomous National University)
Gender Discrimination in Quality of Employment in the Unorganized Manufacturing Sector of India
Anupama Uppal
(Punjabi University)
[View Abstract]
Gender inequality remaining a serious issue around the world, new approaches to resolving it are needed; there is a large body of evidence that it is women who do most of the domestic work. Gender inequality in the labor market is ascertained by reference to seven gender gaps: labor force participation, human capital, the unpaid domestic and care work burden, vulnerable employment, wage employment, decent work, and social protection. The lower LFPR (Labor Force Participation Rate) of women compared to that of men represents an underutilization of women’s labor in the paid labor market which arises from inferior employment and decent work opportunities, human capital differences, and unpaid domestic labor and care constraints. When women participate in the formal paid economy, they suffer from several disadvantages, such as, carrying the extra burden of domestic responsibilities, poor human capital for the formal labour market, inferior status and poor prospects of getting good jobs in the core sector as well as poor upward mobility due to the burden of domestic responsibilities as a result, women may suffer from “time poverty.
In this paper we attempt to shed light to give visibility to unpaid work in formal statistics, to understand the linkages between paid and unpaid work, and to integrate the monetary value of unpaid work in System of National Accounts in such a way that gender equity and LFPR is not sacrificed, for this purpose the supportive evidences would be taken from a detailed time-use survey of India.
On the nature (and nurture) of gender differences in work preferences. Evidence from East and West Germany
Miriam Beblo
(University of Hamburg)
Luise Görges
(University of Hamburg)
[View Abstract]
[Download Preview] We study the origins of gender differences in work preferences and examine a nature-versus- nurture explanation by exploiting the division of Germany and its reunification in 1990 as
a natural experiment. We test hypotheses on how disparate political systems may have nurtured different gender gaps in preferences, based on German-General-Social-Survey data from 1991, 1998 and 2012. Our analyses reveal a substantial East-West difference in the gender gap directly after reunification and no convergence thereafter. In line with the nurture hypothesis, the findings are driven by cohorts who grew up during separation, and are robust to potential pre-separation differences, selective migration and heterogeneity across states.
Occupational Segregation and Social Welfare
Olga Alonso-Villar
(University of Vigo)
Coral del Rio
(University of Vigo)
[View Abstract]
[Download Preview] Most occupational segregation measures quantify how uneven the distribution of a demographic group across occupations is with respect to that of other groups. But when one is concerned with the consequences of segregation, one should also identify the “quality” of the occupations that the group tends to fill or, on the contrary, not to fill. This paper aims at quantifying the welfare losses that a society experiences due to the well-being losses that disadvantaged groups have for being concentrated in low-paid (or low status) occupations, an issue that, as far as we know, has not been formally dealt with in the literature. Apart from developing measures, this paper explores the evolution of the welfare loss of US society along the last decades derived from segregation by both gender and race. Segregation in this multigroup context implies accounting not only for disparities between women and men of the same race but also for differences between women of a given race and men of a different race and for differences within the same gender group across races. By quantifying the losses of society derived from the occupational sorting of the disadvantaged gender-race groups, this paper moves beyond the mere measurement of unevenness to focus on the economic consequences of that unevenness, which is where the main problem lies.
The Effects of Anti-Affirmative Action Laws On Racial Disparities in Earnings
Marlene Kim
(University of Massachusetts-Boston)
[View Abstract]
This study will use a difference in difference in difference analysis to assess how state laws banning affirmative action in education and employment affected African American men’s and women’s earnings. Standard demographic and human capital control variables will be used. Data from the March Annual Demographic Current Population Survey (from IPUMS) will be used from 1977-2014. The results are expected to find that racial minorities, both men and women, suffered earnings losses as a result of anti-affirmative policies.
Discussants:
Alicia Girón
(Autonomous National University)
Ebru Kongar
(Dickinson College)
Jan 04, 2016 2:30 pm, Marriott Marquis, Nob Hill C & D
International Banking, Economics and Finance Association/American Economic Association
The Implementation of Macroprudential Policies by Central Banks
(E5) (Panel Discussion)
Panel Moderator:
Wayne Passmore
(Federal Reserve Board)
Markus K. Brunnermeier
(Princeton University)
Arvind Krishnamurthy
(Stanford University)
Paul Tucker
(Harvard University)
John C. Williams
(Federal Reserve Bank of San Francisco)
Jan 04, 2016 2:30 pm, Parc 55, Embarcadero
International Health Economics Association/American Economic Association
Economic Cycles and the Health of Nations: International Evidence
(I1, E3)
Presiding:
Albert A. Okunade
(University of Memphis)
Air Pollution and Procyclical Mortality
Christopher J. Ruhm
(University of Virginia)
Garth Heutel
(Georgia State University)
[View Abstract]
[Download Preview] Prior research demonstrates that mortality rates increase during economic booms and decrease during economic busts, but little analysis has been conducted investigating the role of environmental risks as a potential mechanism for this relationship. We investigate the contribution of air pollution to the procyclicality of deaths by combining county-level data on overall, cause-specific, and age-specific mortality rates with county-level measures of ambient concentrations of three types of pollutants and the unemployment rate. After controlling for demographic variables and state-by-year fixed-effects, we find a significant positive correlation between carbon monoxide (CO) concentrations and mortality rates. Controlling for CO, particulate matter (PM10), and ozone (O3) attenuates the relationship between overall mortality and the unemployment rate by a statistically significant (at the 0.1 level or better) 17 percent. The findings are robust to the use of state rather than county level data and to a variety of alternative specifications. Our results are also consistent with those of other studies in the economics and public health literatures measuring the mortality effects of air pollution and suggest that changes in environmental risks are likely to explain some portion of the observed procyclical fluctuation in mortality.
Lifecycle Effects of a Recession on Health Behaviors: Boom, Bust, and Recovery in Iceland
Tinna Laufey Ásgeirsdóttir
(University of Iceland)
Hope Corman
(Rider University and NBER)
Kelly Noonan
(Rider University and NBER)
Nancy E. Reichman
(Rutgers University)
[View Abstract]
[Download Preview] This study uses individual-level longitudinal data from Iceland, a country that experienced a severe economic crisis in 2008 and substantial recovery by 2012, to investigate the extent to which the effects of a recession on health behaviors are lingering or short-lived and to explore trajectories in health behaviors from pre-crisis boom, to crisis, to recovery. Health-compromising behaviors (smoking, heavy drinking, sugared soft drinks, sweets, fast food, and tanning) declined during the crisis, and all but sweets continued to decline during the recovery. Health-promoting behaviors (consumption of fruit, fish oil, and vitamin/minerals and getting recommended sleep) followed more idiosyncratic paths. Overall, most behaviors reverted back to their pre-crisis levels or trends during the recovery, and these short-term deviations in trajectories were probably too short-lived in this recession to have major impacts on health or mortality. A notable exception is for alcohol consumption, which declined dramatically during the crisis years, continued to fall (at a slower rate) during the recovery, and did not revert back to the pre-crisis upward trend during our observation period. These lingering effects, which directionally run counter to the pre-crisis upward trend, suggest that alcohol is a potential pathway by which recessions improve health and/or reduce mortality.
The Effects of Aggregate and Gender-Specific Labor Demand Shocks on Child Health
Marianne Page
(University of California-Davis and NBER)
Jessamyn Schaller
(University of Arizona)
David Simon
(University of Connecticut)
[View Abstract]
[Download Preview] In this paper, we study the effects of shocks to local economic conditions on children’s health. While an extensive literature documents that increased unemployment rates are, perhaps counter-intuitively, associated with reductions in mortality and improvements in adult health, we know very little about how children’s health responds to changes in labor market conditions. The direction this relationship is difficult to sign a priori. On one hand, economic theory suggests that reductions in family income that accompany negative employment shocks will have negative effects on children’s health. On the other hand, unemployment may cause parents to substitute parental care for market-based childcare, potentially improving the quality of care and reducing children’s exposure to infectious diseases. Other potential mechanisms include changes in health insurance, parental mental health, and pollution exposure.
We use restricted data from the National Health Interview Survey to provide some of the first estimates of the relationship between aggregate economic conditions and children’s health. Following previous literature, we begin by estimating the effects of local unemployment rates on children’s health. Next, we construct a predicted employment growth rate to isolate the effects of demand-induced changes in labor market opportunities. This instrument addresses potential endogeneity issues arising because unemployment rates capture changes in labor supply as well as labor demand. Finally, because previous literature suggests that the effects of changes in mothers’ and fathers’ employment opportunities may be different, we extend the shift-share approach so that we can separately estimate the effects of changes in labor demand for men and women on children’s health.
We find that increases in state unemployment rates are associated with minor increases in injuries and emotional difficulties among children, but have no effects on parent-reported general health, activity limitations, sick days, ear infections, or asthma. Results using gender-specific labor demand indices suggest that these weak overall effects are masking opposite-signed effects of shocks to male and female labor demand. In particular, we find evidence that improvements in male labor market conditions are associated with better child health, while improvements in female labor market conditions are associated with worse parent-reported health and increases in asthma and emotional difficulties.
Longitudinal Analysis of Macroeconomic Conditions and Traffic Policies on Hit-and-Run Fatalities of Non-Motorists
Michael T. French
(University of Miami)
Gulcin Gumus
(Florida Atlantic University and IZA)
Brittany M. Harder
(University of Miami)
[View Abstract]
According to the US National Highway Traffic Safety Administration (NHTSA, 2014), a pedestrian is hit and injured in traffic crashes every seven minutes and killed every two hours. In 2012, pedestrian deaths increased 6 percent from 2011 and accounted for 14 percent of all traffic fatalities (NHTSA, 2014). About one-fifth of the pedestrians killed in traffic crashes in 2012 were involved in hit-and-run collisions. MacLeod et al. (2012) report that, between 1998 and 2007, while the total annual number of pedestrian fatalities in the US declined, the proportion of hit-and-run pedestrian fatalities increased. Previous research has identified several individual and environmental factors that are associated with hit-and-run collisions. Hit-and-runs are more prevalent in urban areas, at nighttime and early morning, under poor lighting conditions, during weekends, and on high-speed roads. Drivers involved in hit-and-runs are more likely to be young (under the age of 25), male, intoxicated, and to drive without a valid license and a stolen vehicle. In unison, alcohol-impairment of pedestrians is also a crucial factor in pedestrian fatalities. To the best of our knowledge, however, prior studies have not systematically investigated the longitudinal effects of alcohol and traffic policies on hit-and-run fatalities. In this paper, we use state-specific annual data are from the 1990-2012 Fatality Analysis Reporting System (FARS). Given that the largest group of hit-and-run victims is pedestrians (accounting for about 60 percent of all hit-and-run fatalities), most of the analysis focuses on this group. Our empirical analysis controls for various other factors including macroeconomic conditions, proportion of young drivers, urban miles traveled, gas prices, and alcohol consumption. The results suggest that the .08 BAC limit may have an unintended consequence of increasing hit-and-run fatalities. We suspect that some drivers who are under the influence of alcohol or
Discussants:
John Friedman
(Brown University)
Andrew Friedson
(University of Colorado-Denver)
Jan 04, 2016 2:30 pm, Marriott Marquis, Juniper
International Society for Inventory Research
Inventories, Investment and Business Cycles
(E2, E3)
Presiding:
Hyunseung Oh
(Vanderbilt University)
Just-in-Time Production and the Great Moderation: Inventories in German Manufacturing
Georg Strasser
(European Central Bank)
[View Abstract]
In the mid-1980s firms started adapting new inventory management concepts such as just-in-time production (JIT). The relevance of JIT for the simultaneous decline in macroeconomic volatility is the subject of an unresolved debate. This paper reexamines the effect of JIT at the firm level and its aggregate implications. Both feedstock and product inventory in German manufacturing have declined by only 25% since the 1980s. The modesty of this reduction supports that the direct effect of JIT via inventory investment cannot explain the large drop in aggregate volatility. This paper proposes that the change in inventory risk exposure constitutes an important indirect effect of JIT. Inventory risk affects other spending and investment decisions of firms, and amplifies their response to uncertainty shocks. In a large firm panel, business expectations of firms with shorter inventory coverage respond significantly less to changes in the macroeconomic situation. This makes the sequence of decisions of firms with smaller inventory less erratic, and points towards a substantial contribution of inventory management to aggregate volatility.
Capital Unemployment, Financial Shocks, and Investment Slumps
Pablo Ottonello
(University of Michigan-Ann Arbor)
[View Abstract]
[Download Preview] Recoveries from financial crises are characterized by low investment rates and declines in capital stocks. This paper constructs an equilibrium framework in which financial shocks have a persistent effect on aggregate investment. The key assumption is that physical capital is traded in a decentralized market with search frictions, generating ``capital unemployment.'' After a negative financial shock, the share of unemployed capital is high, and the economy dedicates more resources to absorbing existing unemployed capital into production, and less to accumulating new capital. An estimation of the model for the U.S. economy using Bayesian techniques shows that the model can generate the investment persistence and half of the output persistence observed in the Great Recession. Investment search frictions also lead to a different interpretation of the sources of business-cycle fluctuations, with a larger role for financial shocks, which account for 33% of output fluctuations. Extending the model to allow for heterogeneity in match productivity, the framework also provides a mechanism for procyclical capital reallocation, as observed in the data.
Durable Goods and Investment Dynamics
James A. Kahn
(Yeshiva University)
Louis Maccini
(Johns Hopkins University)
[View Abstract]
[Download Preview] A large body of research has established that investment responds sluggishly toward a long-term target. Quantitative models have contended with this by assuming various forms of adjustment costs, both in capital and in the rate of investment. We provide an alternative approach to modeling investment dynamics that focuses on the supply side, in which producers of investment goods use delivery lags and unfilled orders to smooth production and thereby modulate investment flows.
Residential Construction Lags Across the U.S. and Their Implications for Housing Supply
Hyunseung Oh
(Vanderbilt University)
Chamna Yoon
(Baruch College)
[View Abstract]
[Download Preview] Housing supply decisions consist of both an extensive margin (new housing starts) and an intensive margin (construction intensity of incomplete houses). While it is well known that housing starts have declined dramatically during the 2006–2009 housing bust, the intensive margin of residential investment has not been studied in the literature. In this paper, we document that construction intensity of incomplete houses has also fallen significantly during the bust. Using the Census micro data for construction lags of single-family houses across the US, we show that average construction lags for completed houses increased during the bust, and that this increase comes from long deferrals of several houses under construction, especially those that were unsold at the early stage of construction. Motivated by these new facts, we study a time-to-build model of residential construction where investment in each stage is irreversible. The model predicts that as the level of uncertainty increases, the “wait-and-see” channel becomes relatively more important for the intensive margin than for housing starts. Calibrated to match the house price dynamics during the recent recession, the model accounts for the majority of the observed increase in construction lags, which suggests that the real-options mechanism played an important role in the dynamics of residential investment during the recent bust. Several housing supply implications based on the model follow.
Discussants:
Ruediger Bachmann
(University of Notre Dame)
Andrea Lanteri
(Duke University)
Oleksiy Kryvtsov
(Bank of Canada)
Matteo Iacoviello
(Federal Reserve Board)
Jan 04, 2016 2:30 pm, Parc 55, Davidson
Labor & Employment Relations Association
Confronting Stagnant Compensation
(J3)
Presiding:
Teresa Ghilarducci
(New School)
Will 21 Million Older Americans Lower Your Wages
Teresa Ghilarducci
(New School)
[View Abstract]
Paper examines whether wage stagnation reflects developments in benefits or not.
Rigging the Rules Explains Wage Stagnation
Lawrence Mishel
(Economic Policy Institute)
[View Abstract]
Paper examines institutional factors and labor standards trends, including enforcement, to<br />
gauge the overall impact on wage stagnation and inequality.
Institutions and Decent Jobs: The U.S. in International Perspective
David Howell
(New School)
[View Abstract]
The paper connects wage stagnation to economic growth by examining the role of labor's<br /><br />
share
Natural Rate of Unemployment is not Full Employment
John Komlos
(University of Munich)
[View Abstract]
[Download Preview] Natural Rate of Unemployment is not Full Employment
The “natural” in the natural rate of unemployment is a misnomer, insofar as unemployment does not occur in nature. The concept is especially misleading because many economists and media commentators inappropriately equate it with “full” employment. As a consequence, endemic un- and underemployment is accepted as an inevitable attribute of the labor market. This is inaccurate inasmuch as the concept assumes that the institutional structure of the labor market is held constant. However, with creative restructuring of that market our aim should be bring the underemployment rate down to 1.2%, the rate that obtained in 1944 and which probably represents the lower bound rate physically attainable. Instead of the prevailing system, the right to work needs to be recognized as a natural right, because the right to life depends upon it. Several ways are proposed to create an inclusive labor market that distributes the available work in a more equitable fashion than the current system.
Discussants:
Alexandre Mas
(Princeton University)
Mary Daly
(Federal Reserve Board-San Francisco)
Jan 04, 2016 2:30 pm, Parc 55, Balboa
Labor & Employment Relations Association
Precarious Work: Women in Germany, Japan, and Korea
(J4)
Presiding:
Elaine McCrate
(University of Vermont)
The Actual Situation of Labor and Organization of the Female Irregular Workers in the Service Industries in Japan as the Process of Globalization Continues
Masako Mitsuyama
(Doshisha University)
Sachi Kotani
(Nihon University)
[View Abstract]
[Download Preview] [Download PowerPoint] With the progress of globalization, the economy has rapidly shifted to service industries in Japan, while overseas transfer
of Japanese manufacturers has been developed. With these changes, the social systems and laws which regulated the
way of working of workers were diminished. For example, repeal of the Act on the Adjustment of Business Activities of
Retail Business at Large-scale Retail Stores promoted abolition of the regulation of business hours, or amending the
Worker Dispatching Law enlarged the numbers of dispatched workers. In the service industries in particular, the supermarkets
in Japan abolished the regular closing day, and the business hours came to be longer in distribution industries
and care giving for which demands have increased rapidly in an aging society since the nursing-care insurance system
was established.
And so, this presentation concerns the actual situation of employment, working conditions and employment structure, and
the mechanism of how these are decided at the workplaces in the service industries, especially in super-markets and care
giving, in which many female irregular workers are working. Moreover, we discuss how trade unions intervene in the
determination of business hours of the stores and establishment and working hours of workers and regulate them in these
industries. Additionally, we have to consider how trade unions have responded to reduction of the union density and
weakening of the influence of them in Japan.
How Working Conditions of the Female Irregular Workers in the Service Industries in Germany are Regulated in Workplace?
Yoko Tanaka
(Tsukuba University)
Uta Meier-Graewe
(University of Giessen)
[View Abstract]
In Germany, the manufacturing industries keep global competitiveness by coordination through the industrial relations with
relatively better labor conditions, while the interpersonal service industries in local market, which is often dominated by
female irregular workers, have formed the low wage sector with precariousness working conditions. In spite of many
workplaces where the labor conditions are relatively well regulated by the trade unions and works councils, the market
competition and cost reduction pressures have brought lower conditions of the female irregular workers in the service
industries on the other. Given that the industrial structural change is moving toward to service economy, this situation
could lead to the stratification and poverty problem in the coming society.
In this presentation, the working conditions of the female irregular workers in the service industries would be investigated
through two case studies in the supermarket and care giving. Firstly, their working hours, wages and social/company-level
security would be observed, and their relation to the precariousness and poverty would be discussed. Then, the effects of
the regulations and institutions like laws, agreements, company systems, or the influences of movements and negotiations would be analyzed as the determinants of the workplace conditions.
The Actual Situation of Labor and Organization of the Female Irregular Workers in the Service Industries in Korea
Nobuko Yokota
(Yamaguchi University)
Sung Hee Kim
(Korea University)
[View Abstract]
With the progress of globalization since the 1990s, the domestic economy has rapidly shifted to service industries in<br />
Korea. The Korean service industries have two types of service industries. Both chaebol-owned and foreign companies,<br />
which expelled the traditional, indigenous and small service industries, developed one type, and the other has been<br />
involved in the service economy leaving the labor process and modes of work of the service workers as they traditionally<br />
used to be.<br />
An example of the former is the distribution industry. Since the 1990s, large-scale retail companies, owned by chabols or<br />
established by a tie-up of chaebols and huge foreign retailers, such as large volume sales and super-markets have rapidly<br />
dominated the retail market, which had been previously dominated by the traditional, indigenous, small wholesale and<br />
retail businesses. The rapid growth of these large scales of retail companies has been dependent on the support of lowwage<br />
female irregular workers, the only workers who could work flexibly responding to work fluctuation. We focus on how<br />
the employment structure of large volume sales and super-market has changed since the irregular worker protection law<br />
was established in 2007, and discuss how the female irregular workers in these workplaces have been organized, and<br />
how their movement has developed since then.<br />
On the other hand, care giving has come to take a part of the mainstream of service industries in an aging society since<br />
the nursing-care insurance system started in 2008. However, traditional, inferior employment and labor process of caregivers<br />
have remained the same while they came to be employed as workers. And so, we clarify how care-givers have<br />
been organized and how their movement has changed laws and systems in order to improve their working conditions and<br />
acquire recognition of being workers, as well as the actual situation of these workers.
Discussants:
Sanford Jacoby
(University of California-Los Angeles)
Jan 04, 2016 2:30 pm, Marriott Marquis, Pacific J
National Association of Forensic Economics
Topics in Forensic Economics
(K1, D4)
Presiding:
William G. Brandt
(Brandt Forensic Economics)
Valuation, Risk, and Damages in an Emerging Legal Marijuana Industry: Early Evidence and Sober Projections
Patrick Anderson
(Anderson Economic Group)
[View Abstract]
[Download Preview] The United States has prohibited the sale of marijuana for decades, despite significant and widespread use among a fairly diverse section of its population. Since the turn of the century, a modest but growing number of states have adopted laws allowing for the legal sale of medical marijuana, and at least four have effectively legalized limited trade in modest amounts for recreational use. The potential size of the market for legal cannabis products is a question for which strong evidence is available for the first time in 75 years. Policymakers, taxpayers, as well as potential consumers and distributors of such products all have an interest in understanding the likely scale of this market, the regulatory structures that could reduce the dangers it poses, and the potential sources of conflict and tax revenue. Using a set of methods used in forensic economics, public policy studies, industrial economics and mathematical economics, and data from the first two years of legal operation in multiple states, we provide a new analysis on this important topic.
Key findings: 1. We expect that the emergence of the legal cannabis products market will be marked for some time by a patchwork of state laws. 2. Contrary to the impression created by the legalization votes beginning in 2012, the country is displaying considerable reluctance toward embracing legal cannabis. Clear indications of this include the votes in Florida in 2014 and Ohio in 2015. 3. As we enter 2016, much of the United States operates under at least two sets of conflicts between state and federal laws. 4. Demonstrated consumer demand data did not exist for legal cannabis products in the United States until 2014. Using intuition, some data, and a small amount of information from recently-legalized states, we estimate the potential size of the consumer market, and related estimates of potential state excise taxes using a standardized scheme, for all 50 states. 5. Our estimates imply smaller demand than that frequently discussed by advocates for legalization. For example, our estimate of consumer demand for the State of Michigan (which is about $592 million) is approximately half the over $1 billion that advocates for legalization in the State have described. 6. Consumer adoption of these products, even if limited, has consequences. Among these are cannibalization of other product categories, including alcoholic beverages. 7. The conflicts in laws and related risks, along with uncertainties related to the consumer demand and lack of product standards, produce a highly uncertain environment. However, we find that legal businesses in this arena still have value. In particular, we find the value varies with the prospects for normalization as well as the size of the market. We use an innovative recursive model, which natively takes into account asymmetric risks, to estimate the indicative value of a distribution business in all 50 states.
Omitted Variable Bias in Multiple Regression Models for Employment Discrimination
Elias Grivoyannis
(Yeshiva University)
Constantine Grivoyannis
(City University of London)
[View Abstract]
In multiple regression models explanatory variables are frequently omitted because of practical or theoretical necessities. Such omissions introduce bias in the estimation of the coefficients of the included variables and could make the statistical analysis meaningless and irrelevant. This paper uses numerical examples to show how the magnitude of the bias can be assessed and when multiple regression models with omitted variables can be properly used and support employment litigation.
Shooting for the Moon: Inflation Risk and Damages Estimation in Personal Injury and Wrongful Death Litigation
Scott Gilbert
(Southern Illinois University Carbondale)
[View Abstract]
In personal injury and wrongful death court cases, there are various methods for estimating economic damages. One way of ranking these methods is to see how they fare in an historical simulation, with methods ranked “better” if they match more closely an ex post earnings stream. The “best” method is then a structured settlement that pays out actual earnings in each future loss year. The present work points out two potential problems with this ranking. First, while a lump sum award based on present value is a loser in this ranking, it is nevertheless welfare improving, being preferred to the “winner” by the (risk averse) plaintiff and leaving the (risk neutral) defendant indifferent. Second, the logic of choosing a lump sum that does well in historical simulation is akin to that of an economist advocating for a structured settlement rather than a lump sum. For these reasons, the simulation approach should be treated with caution in forensic economic practice.
Discussants:
Larry Spizman
(State University of New York-Oswego)
Jennifer L. Polhemus
(Precision Research)
Nicholas Briscoe
(Crowe Horwath LLP)
Jan 04, 2016 2:30 pm, Hilton Union Square, Van Ness Room
National Economic Association
Development and Migration
(O1, Q1)
Presiding:
Gregory N. Price
(Langston University)
Can Agricutural (Rural Sector) Development Address the High Rate of Unemployment in the Urban Sector? The Case of Sub-Sahara Africa
Juliet Elu
(Morehouse College)
Bichaka Fayissa
(Middle Tennessee State University)
[View Abstract]
This paper examines the problems of rural-urban migration and the widespread rate of urban unemployment in Sub-Sahara African (SSA) countries. As many SSA countries experience economic growth, structural transformation from the agricultural to manuafacturing sectors exposes the economy to exessive unemployment and surplus of labor. Investment in human capital as an engine for growth is expected to provide a smooth transition, however, the urban sector has failed to absorb these skilled labor.We utilize the Solow Neo-classical growth model and data from the World Bank to estimate the rural-urban migiration and reverse migration for SSA countries facing servere unemployment among skilled labor in urban sectors. Our parameter estimates can potentially reveal that agricultural industrialization can absorb the surplus labor with postive value-added effect on agriculture. This suggests that institutional policies in these countries with excess unemployment must emphasize on agricultural sustainablility as an important component of achieving economic growth that is effective in reducing poverty.
Competing Sectors in South Africa
Miesha Williams
(Morehouse College)
[View Abstract]
[Download Preview] This study examines the extent to which manufacturing labor (reflecting capitalist productivity) can affect agricultural labor (reflecting subsistent productivity) and private investment. This paper also assesses the need for government reform concerning labor and investment incentives. Using quarterly South African Reserve Bank aggregates from 1967:1-2014:4, the implemented structural vector auto-regression (SVAR) is reflective of the savings retention model initially posed by Feldstein and Horioka (1980). Findings suggest that increasing the proper manufacturing labor, even for government fragments, can lead to increased agricultural labor with subsequent positive impacts in investment.
Intentions to coordinate in the field
Angelino Viceisza
(Spelman College)
Tanguy Bernard
(IFPRI and University de Bordeaux IV)
Fo Kodjo Dzinyefa Aflagah
(University of Maryland)
[View Abstract]
[Download Preview] [Download PowerPoint] These results are preliminary and incomplete. Please contact aviceisz@spelman.edu for updated results prior to citation.
We combine data from coordination games, a randomized controlled trial (RCT), and a survey to assess whether others' intentions to sell to one's farmer group (cooperative) impacts one's actual sales to the farmer group during commercialization. So, we seek to "solve" a group-based coordination dilemma that manifests itself as a failure to commercialize through one's farmer group. The study is conducted in conjunction with members of a sample of peanut-producing groups in Senegal.
We find that intentions to coordinate/sell together impact actual coordination (collective commercialization). In particular, farmers who are members of larger groups sell more through the group in the presence of others' intentions. In addition, smaller farmers seem to benefit most from selling through the group. Finally, there is suggestive evidence that farmers who were pre-exposed to the coordination games are more responsive to intentions revealed in the RCT.
We are currently verifying robustness of these findings and exploring potential mechanisms.
For a draft presentation, see https://goo.gl/ZQlSzZ.
Terms of Trade and Inequality from the Perspective of Arthur Lewis
Romie Tribble, Jr.
(Spelman College)
[View Abstract]
This paper explores Lewis' use of the terms of trade to explain likelihood of economic development convergence across countries to investigate, in turn, the possibilities for economic development convergence within a country with respect to distinct classes and racial communities. Following the economic logic which informed Lewis' prediction of economic convergence and divergence between countries, this study predicts that economic disparity (income inequality) between classes and races within a country will be explained by both the level of per capita income and by the strategic terms of trade prevailing during the process of a country's development process. Lewis's insights on economic development convergence and divergence are theoretically incorporated within the S-Curve framework (Tribble, 1996, 1999). This framework or model is utilized to identify phases in the structural process of development consistent with terms of trade impact on the likelihood of economic convergence or divergence across class and race category. This study uses OLS estimation to empirically identify both the structural and terms of trade impacts on economic disparity between classes and races and within classes and races. These empirical parameters are then utilized to assess the likelihood of development convergence across classes and races.
Remittances, Official Development Assistance, and Human Development in Africa: An Empirical Analysis
Zelealem Yiheyis
(Clark Atlanta University)
Kasahun Woldemariam
(Spelman College)
[View Abstract]
International remittances are increasingly becoming an important source of household income and foreign exchange in developing countries. Although on a relative decline, official development assistance continues to be a major source of external finance, especially in Africa where, in the aggregate, it outweighs personal remittances as a share of GDP. While the effects of these two types of transfers on economic growth have been a subject of numerous empirical studies, there is a paucity of comparative analyses of their implications for human development, especially in the context of Africa. This study seeks to assess the relative contributions of official development assistance and remittances to human development outcomes in the continent. To this end, an eclectic model of human development is specified and estimated on panel data from 35 African countries. The results of the study suggest that both types of inflows make modest contributions to human development.
Discussants:
Jan Christopher
(Delaware State University)
Linda Loubert
(Morgan State University)
Bichaka Fayissa
(Middle Tennessee State University)
Angelino Viceisza
(Spelman College)
Romie Tribble, Jr.
(Spelman College)
Jan 04, 2016 2:30 pm, Hilton Union Square, Union Square 1 & 2
Omicron Delta Epsilon
Omicron Delta Epsilon John R. Commons Award Lecture
(E1, B2)
Presiding:
Kathryn Nantz
(Fairfield Univeristy)
The Trouble with Macroeconomics
Paul Romer
(New York University)
[View Abstract]
This paper presents a dispassionate version of issues in current macroeconomics, beginning with a history of theory of economic thought from Samuelson through the Rational Expectations Revolution. The successes of that era can guide our thinking about difficult problems concerning the future and expectations. This discussion sets the stage for the question of what has gone wrong since then, and offers prescriptions for the future practice of macroeconomics.
Jan 04, 2016 2:30 pm, Parc 55, Powell II
Society for Computational Economics
Expectations and Asset Prices in Dynamic Macro Models
(E3, G1)
Presiding:
Kevin J. Lansing
(Federal Reserve Bank of San Francisco)
Model Averaging and Asset Price Volatility
In-Koo Cho
(University of Illinois)
Kenneth Kasa
(Simon Fraser University)
[View Abstract]
[Download Preview] An agent operating in a self-referential environment thinks the parameters of his model might be time-varying. In response, he estimates two models, one with time-varying parameters, and another with constant parameters. Forecasts are then based on a Bayesian Model Averaging strategy, which mixes forecasts from the two models. In reality, structural parameters are constant, but the (unknown) true model features expectational feedback, which the agent’s reduced form models neglect. This feedback allows the agent's fears of parameter instability to be self-confirming. Within the context of a standard linear present value asset pricing model, we use the tools of large deviations theory to show that the agent's self-confirming beliefs about parameter instability exhibit Markov-switching dynamics between periods of tranquility and periods of instability. However, as feedback increases, the duration of the unstable state increases, and instability becomes the norm. Even though the constant parameter model would converge to the (constant parameter) Rational Expectations Equilibrium if considered in isolation, the mere presence of an unstable alternative drives it out of consideration.
Monetary Policy and Asset Prices with Infinite-Horizon Learning
Marco Airaudo
(Drexel University)
[View Abstract]
[Download Preview] We study the stabilizing properties of interest rate rules that grant an explicit response to stock prices in a New Keynesian framework where imperfect knowledge and incomplete markets generate wealth effects from equity holdings. Boundedly-rational agents need to form infinite-horizon forecast about pay-off relevant variable in order to solve their intertemporal optimization problems, as in Preston (2005, 2006). In this context, we find that, when the central bank adopts a forecast-based Taylor rule, granting an explicit response to stock prices can facilitate the attainment of a determinate rational expectations equilibrium which is also stable under learning dynamics.
Housing Demand, Savings Gluts and Current Account Dynamics
Pedro Gete
(Georgetown University)
[View Abstract]
[Download Preview] I show that, across and within countries, both the expansion and shrinking of the Global Imbalances since the mid 1990s are strongly correlated with the dynamics of housing markets. Then I study a quantitative model which can account for both the dynamics of housing and the global imbalances without any role for exchange rate driven expenditure switching. Housing demand drivers (population, LTV, housing expectations) alone imply counterfactual interest rate dynamics. Savings glut shocks alone generate the wrong housing price-to-rent ratios. Both types of shocks need to be combined. Counterfactuals using the model suggest that, as long as loan-to-values are regulated and housing expectations are not very optimistic, the large global imbalances of the mid-2000s are unlikely to return.
Explaining Exchange Rate Anomalies in a Model with Taylor-Rule Fundamentals and Consistent Expectations
Kevin J. Lansing
(Federal Reserve Bank of San Francisco)
Jun Ma
(University of Alabama)
[View Abstract]
[Download Preview] We introduce boundedly-rational expectations into a standard asset-pricing model of the exchange rate, where cross-country interest rate differentials are governed by Taylor-type rules. Agents augment a lagged-information random walk forecast with a term that captures news about Taylor-rule fundamentals. The coefficient on fundamental news is pinned down using the moments of observable data such that the resulting forecast errors are close to white noise. The model generates volatility and persistence that is remarkably similar to that observed in monthly exchange rate data for Canada, Japan, and the U.K. Regressions performed on model-generated data can deliver the well-documented forward premium anomaly.
Discussants:
Mikhail Anufriev
(University of Technology-Sydney)
Jang-Ting Guo
(University of California-Riverside)
Francesco Furlanetto
(Norges Bank)
Jianfeng Yu
(University of Minnesota)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra I
Society of Government Economists
Using Linked Census and Administrative Data to Analyze Intergenerational and Geographic Mobility
(J6, D1)
Presiding:
Joseph Ferrie
(Northwestern University)
Do Grandparents Matter? Multigenerational Mobility in the US from 1940-2013
Joseph Ferrie
(Northwestern University)
Catherine Massey
(U.S. Census Bureau)
Jonathan Rothbaum
(U.S. Census Bureau)
[View Abstract]
Most studies of intergenerational mobility focus exclusively on the transmission of (dis)advantage from parents to their children. Detecting any influence of grandparents or even earlier generations on children's outcomes is seldom possible even in long-running longitudinal studies such as the Panel Study of Income Dynamics . We link family lines from the 1940 U.S. Census to the Current Population Survey of the 1970s and 1980s and to the 2000-13 censuses and American Community Surveys. This allows us to examine the impact of both parents and grandparents on children's adult income and educational attainment in a large, nationally-representative sample. After accounting for measurement error, we find that for both outcomes grandparents matter, and they matter more than a simple AR(1) characterization of the transmission process predicts. Our results suggest that two-generation studies overstate how quickly (dis)advantage dissipates over time within family lines.
Fathers, Children, and the Intergenerational Transmission of Employers
Martha Stinson
(U.S. Census Bureau)
Chris Wignall
(U.S. Census Bureau)
[View Abstract]
We document the tendency of fathers in the U.S. to share employers with their sons and daughters. We show that the rate of job sharing is much higher than can be explained by the fact that fathers and sons tend to live near each other. Younger children are much more likely to share their father's employer, as are children of high-earning fathers. We find that sons’ earnings at shared jobs tend to be higher than at unshared jobs. We also find that this relationship is stronger for sons’ of high-earning fathers: the increase in earnings at shared jobs is higher than the increase in earnings for children of low-earning fathers. The increase in earnings stems largely from fathers helping sons find jobs in industries where they otherwise would be less likely to be employed and less from higher pay relative to other workers at the same employer. We find that a job in manufacturing, construction, and wholesale trade is more likely to be a shared employer than a job in retail trade or food and accommodations. However, once we control for employer characteristics, we find that a son who shares an employer with his father earns only slightly more than another man his age in the same industry. For daughters, sharing an employer is only related to earnings if the father is in the top quartile of the earnings distribution and this is completely explained by firm characteristics. Finally, we find that shared employment strengthens the correlation between fathers’ and sons’ earnings ranks, contributing to lower intergenerational mobility.
The Roles of Lifetime Employment, Earnings, and Living Costs in Model of Migration
Hubert P. Janicki
(U.S. Census Bureau)
Mark J. Kutzbach
(U.S. Census Bureau)
Adam Nowak
(West Virginia University)
Danielle Sandler
(U.S. Census Bureau)
[View Abstract]
We use employer-employee matched earnings data and linked place of residence data to
assemble a panel of migration, earnings, and employment status for the United States. We
use this data to investigate the relative importance of location-based factors and individual
characteristics in determining migration decisions. Our empirical framework and the large,
longitudinal sample allow us to place migration decisions in the context of lifetime expected
utility maximization. Our main finding, that people are attracted to higher earning locations,
but have a strong overall preference against moving, is consistent with the literature. In future
work, we will make further use of the density and longitudinal nature of our data to provide
more insight into why moving is so uncommon despite earnings differences across locations.
Do Low Income Housing Tax Credits Provide Pathways to Better Neighborhoods? Evidence from a Clustered Regression Discontinuity Design
Quentin Brummet
(U.S. Census Bureau)
Otavio Bartalotti
(Iowa State University )
[View Abstract]
Subsidized housing development in low-income neighborhoods has the potential to improve housing options for low-income populations, but research is divided on whether subsidized housing opens up new neighborhoods to low-income individuals or simply reinforces neighborhood segregation by encouraging poor households to move to relatively poor areas. This study addresses these questions by examining the Low Income Housing Tax Credit (LIHTC). LIHTC is a very important component of the current subsidized housing stock, as it is responsible for providing funding to roughly one third of new multifamily construction built in the US over the past thirty years.
Our study is unique in that it uses a large nationally representative panel data set derived from the 2000 and 2010 decennial censuses of the US population. We construct this data set using probabilistic matching techniques to link the 2000 long form of the decennial census to the 2010 decennial census. The size of this data set allows us to construct a variety of measures of neighborhood quality and examine the effects of low-income housing on neighborhood mobility across a diverse range of geographic areas.
We use this data to examine whether an increase in low-income housing units due to LIHTC generates increased movement of low-income individuals into poorer neighborhoods. Our analysis follows previous work such as Baum-Snow and Marion (2009) and Freedman and McGavock (2015) in exploiting discontinuities in eligibility rules that designate whether a census tract is a “Qualified Census Tract” (QCT) that receives additional subsidies for low-income housing development. While a large literature has examined the effect of subsidized housing on poverty concentration, we are the first to examine the origins of individuals moving into low-income housing on such a large scale.
Discussants:
Gary Solon
(University of Arizona)
Miles Corak
(University of Ottawa)
Sarena Goodman
(Federal Reserve Board)
Matthew Freedman
(Drexel University)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra J
Union for Radical Political Economics
Meanings of Money: Considering Marx, Keynes, Sraffa, and Minsky
(B5)
Presiding:
Ann E. Davis
(Marist College)
The Ontology of Money, The Monetary Circuit and the Sources of Profit
John Smithin
(York University)
[View Abstract]
[Download Preview] [Download PowerPoint] An important theme amongst heterodox economists for the past twenty-five years has been the idea that in order to advance Keynes’s idea of a monetary theory of production, or MTP (Graziani 2003, Fontana, Pacella and Realfonzo 2015), it is necessary to go beyond the arguments of the General Theory (1936) and to analyze in full the workings of the monetary circuit (Graziani 1990, Parguez and Seccarreccia 2000). In some writings before the General Theory (1936), Keynes (1933a, 1933b) did allude to the original Marxian monetary circuit, which he (Keynes) wrote as M – C – M’. However, these references did not survive in the published version. Nor did Keynes seem particularly confident about this concept in debates about interest rate theory in the Economic Journal and elsewhere the following year (Graziani 1984). It is therefore important to inquire exactly how the Marxian circuit was supposed to work. A starting point is to write out the scheme from Das Kapital, vol.2, ch.1 (Marx 1884), in full, that is, M – C ... P ... C’ –M’, and try to explain precisely what M’ – M, and C’ – C, are supposed to represent. This poses a further question, that economic sociologists have sometimes asked, but economists almost never, namely “where do profits come from” (Collins 1986)? It seems that the system must first generate positive aggregate profits in money terms before any “real” profit or surplus can come into existence for the parties to dispute.
The Sociology of Money and Economic Development: A Critique of Metallist Views in Gunder Frank and World Systems
Matias Vernengo
(Bucknell University)
David Fields
(University of Utah)
[View Abstract]
Andre Gunder Frank’s influential book Re-Orient was part of a revisionist development in the literature which suggested that the development of the West, with respect to the Rest, in particular with respect to the more developed areas of Asia, was relatively recent, and that it was essentially possible as a result of the resources associated with the colonization of the Americas by Western Europe. It is argued in this paper that Gunder Frank’s arguments are weakened by a Metallist conception of money, which presumes the functioning of the Quantity Theory of Money, and a conception of the world economy, which extends the World Systems literature on the formation of world markets considerably further into the past, naturalizing the existence of markets, and suggesting that there is no distinctive features to the capitalist mode of production, a category Gunder Frank denies any validity. We argue that a Cartalist or Chartalist perspective on money, which is complemented by an understanding the rise of capitalism, and the so-called Military-Fiscal State in Western Europe is essential to understand the Great Divergence.
Money and the Sraffian Tradition: Clarification and Assessment
Gary Mongiovi
(St. John's University)
[View Abstract]
A far too widely held view among Post-Keynesian, Marxian and Institutionalist economists is that Sraffian analysis is fundamentally incapable of taking proper account of money. Some Post-Keynesians have criticized the Sraffian approach for failing to acknowledge the centrality of money and finance in market economies. This view is grounded in a narrow understanding of the Sraffian framework, and in particular, in a misunderstanding of its methodological underpinnings. Economists use different tools to address different problems. The analytical problems Sraffa addressed in Production of Commodities by Means of Commodities have nothing directly to do with money, hence money plays no role in the model developed in that book. This doesn’t mean that the model of 1960 implies the neutrality of money (as Davidson, Minsky and many other Post-Keynesians seem to think); nor does it mean that the insights we derive from his 1960 analysis are incompatible with monetary analysis. But what we say about money ought to be grounded in what we think about the mechanisms that determine relative prices and income distribution. There is in fact a significant body of literature in the Sraffian line that deals with monetary issues, particularly inflation, in a way that is generally compatible with Post-Keynesian views on money. Sraffa’s earliest economic writings were on monetary economics, and one of the reasons that Keynes was so deeply impressed with the young Sraffa is that the latter’s perceptive baccalaureate thesis on the asymmetric effects of inflation and deflation had a lot in common with Keynes’s Tract on Monetary Reform. This paper will argue that while there are many issues about which Post-Keynesians and Sraffians may legitimately and fruitfully disagree, their differences on monetary questions have been grossly exaggerated.
What is Money? The Theory of Endogenous Money from a Revolutionary Perspective
Louis-Philippe Rochon
(Laurentian University)
[View Abstract]
Rochon and Rossi (2013) have argued that there are two fundamental approaches to endogenous money within post-Keynesian economics: the evolutionary and the revolutionary views. The first approach defines endogenous money in terms of specific institutions and conclude that money became endogenous over time as these institutions developed. Such an approach is defended by Chick (1986) and Niggle (1991), in particular. In contrast, a revolutionary approach to endogenous money suggests that money is always endogenous irrespective of the historical period of specific institutional settings. This is because money is debt, created by banks through the production process. This carries important policy implications.
Unaccountable Finance Beyond the Rule of National Law: How Shadow Banking has Transformed the Meaning of Money
Gary Dymski
(Leeds University)
Mimoza Shibani
(University of East London)
Susan Ozawa Perez
(Protected Investors of America)
[View Abstract]
Shadow banking is increasingly acknowledged as a normal feature of megabank activity, even while its scope and extent remain only partially understood. At the same time, the growth of shadow banking activity is acknowledged as a source of extraordinary financial risk, as evidenced by the recent initiatives of the European Central Bank, the Bank for International Settlements, and the Financial Stability Board to identify lists of large complex financial institutions for which extra capital margins will be required.
The definition of shadow banking as “normal banking activities conducted outside the protections offered by national bank regulators” does not go to the heart of what this phenomenon means for the understanding of contemporary finance. Shadow banking consists of financial activities undertaken in such a way as to avoid regulation. These activities’ inclusion within the boundaries of ‘normal banking activities’, which themselves are increasingly dominated by too-big-to-fail megabanks, is transforming the nature of credit and money markets – and thus, given the endogenous-money framework, the very meaning of money itself.
This paper explores the nature, scope, and size of shadow banking, and the implications of this phenomenon for the meaning – the economic and social roles – of money. We map the geographic spread and volume of shadow banking more completely than has been done to date, including the spatial exposures to risk and social vulnerabilities that arise from the spread of shadow banking. Of particular importance is the widely differing capacity of different countries to provide "lender of last resort" protection for their financial systems. The paper takes further the analysis of Chiong, Dymski, Hernandez (2015) regarding the growing dominance of international banking conventions and rules relative to the authority of national law. The paper concludes by examining the economic and and social implications of this transformation of the meaning of money.
Discussants:
Ann E. Davis
(Marist College)
Zdravka Todorova
(Wright State University)
Fred Moseley
(Mount Holyoke College)
Jan 04, 2016 2:30 pm, Marriott Marquis, Sierra K
Union for Radical Political Economics/National Economic Association
The Racial Gap and Wealth Accumulation
(E2)
Presiding:
Sue K. Stockly
(Eastern New Mexico University)
“Twice as Hard for Half as Much": Wealth Privilege and the Racial Wealth Gap
Bob Williams
(Guilford College)
[View Abstract]
[Download Preview] The racial wealth gap is a stark and pervasive piece of the American landscape. Unlike the frequently cited disparities in educational attainment, occupational status, and household income, the racial wealth gap looms wider as it has resisted any mitigation over the past 50 years. Despite this record, the primary economic model on wealth accumulation – the Life Cycle Hypothesis – has nothing to say on the subject. In this paper, I offer an alternative model, what I call the Wealth Privilege model. This model simply examines the primary pathways that households accumulate wealth: household saving, asset appreciation, and family gifts and inheritances. For those with means, each pathway operates as a virtuous cycle enabling families to build wealth with increasing ease. For those with little wealth, they experience the same pathways as vicious cycles that limit their capacity to accumulate wealth. These disparate experiences give rise to the growing concentration of wealth.
Relative Economic (Im)mobility: Revisiting the Intergenerational Drag Hypothesis
Cruz Caridad Bueno
(Sienna College)
Darrick Hamilton
(New School)
William A. Darity, Jr.
(Duke University)
[View Abstract]
Using the Integrated Public Use Microdata Series (IPUMS) and a measure of occupational prestige (OCCSCORE) as a labor market outcome, we analyze the distinct levels of labor market discrimination and wealth/asset inequality experienced by a range of ethnic and racial groups in the United States between 1880 and 2010. This research paper builds on previous work using IPUMS data between 1980 and 1990 (Darity, Dietrich, and Guilkey 2001), which provides statistically significant evidence that a racial/ethnic group’s OCCSORE at the turn of the century affects the current generation’s occupational status. Hence, this data might show that instead of progressively eroding discrimination, labor markets may reproduce racial and ethnic disadvantages for some groups and advantages to others. In addition to extending the analysis to incorporate recent years, we examine the implications of racial and ethnic group OCCSCORE on home and business ownership, two important indicators of wealth and the ability or inability to transfer wealth to future generations. In the aftermath of the Great Recession, understanding the implications of labor market discrimination on asset ownership becomes of utmost importance for understand human well-being and the transmission of well-being to future generations. These findings will provide us with policy recommendations that may mitigate the negative effects of labor markets on stigmatized groups and their ability to generate and transmit wealth to future generations.
Native American Tribal Government’s Role in Fostering Asset Accumulation
Sue K. Stockly
(Eastern New Mexico University)
Randall Akee
(University of California-Los Angeles)
Jean-Marc Gandonou
(Eastern New Mexico University)
[View Abstract]
Survey data from the National Asset Scorecard for Communities of Color (NASCC) Project on asset accumulation in Tulsa, Oklahoma indicated significant differences across tribal affiliation which may be driven by differences in programs offered by tribal governments to their citizens. This survey further investigates the NASCC findings through analysis of U.S. Census data. The American Community Survey in particular includes specific tribal affiliation. The dataset consists of demographic, health, educational attainment, income, and wealth characteristics for members of three tribes in Oklahoma as well as for Native Americans residing in the state who have not explicitly identified themselves with tribal ancestry. An additional dataset was constructed with information on programs and benefits offered to citizens of each tribe as well as tribal government financial data. Our research adds a new component to the literature examining differences in wealth accumulation by race and political status for a little-studied group. Specifically, we examine the intersection of race and political status in wealth and asset accumulation.
Financial Literacy and Wealth Among Hispanics
Josephine Cruz Lugovskyy
(Northwest Missouri State University)
Mary J. Lopez
(Occidental College)
[View Abstract]
The Great Recession exacerbated pre-existing racial and ethnic wealth disparities. In 2009, the median wealth of whites was 20 times as high as blacks and 18 times as high as Hispanics (Pew Research Center, 2011). As a result of their low levels of savings and asset accumulation, Hispanics and African-Americans are often at a disadvantage relative to whites in terms of their readiness for retirement. Using data from the 2004-2012 Health and Retirement Study, we examine the extent to which financial literacy has an impact on the amount and types of assets held by Hispanics. In addition, we exploit the longitudinal nature of the survey to examine whether Hispanics with greater financial literacy saw a lower drop in wealth during the Great Recession relative those with limited financial knowledge. Understanding not only the level of financial literacy among Hispanics, but the costs associated with a lack of it as well can help policymakers create programs to help racial and ethnic groups most in need of financial education
Discussants:
Rhonda Vonshay Sharpe
(Bucknell University)
Marie T. Mora
(University of Texas-Rio Grande Valley)
Gary A. Hoover
(University of Oklahoma)
Ejindu Ume
(Miami University)
Jan 04, 2016 4:45 pm, Hilton Union Square, Continental Ballroom 5 & 6
American Economic Association
Awards Ceremony and Presidential Address
Presiding:
Robert Shiller
(Yale University)
Richard Thaler
(University of Chicago)
Behavioral Economics: Past, Present and Future
Jan 04, 2016 4:45 pm, Parc 55, Market Street
Association for Comparative Economic Studies
Membership Meeting and Presidential Address
Presiding:
Michael Alexeev
(Indiana University)
Jan 04, 2016 4:45 pm, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Presidential Address: Frederic S. Lee (1949-2014) In Memorium
Presiding:
Tae-Hee Jo
(State University of New York-Buffalo State)
Tae-Hee Jo
(State University of New York-Buffalo State)
Frederic S. Lee (1949-2014): What If There Are No Conventional Price Mechanisms?
Jan 04, 2016 5:15 pm, Marriott Marquis, Sierra A
International Banking, Economics and Finance Association
Annual Membership Meeting and Presidential Address
Jan 04, 2016 5:30 pm, Marriott Marquis, Yerba Buena Salon 8
American Finance Association
Business Meeting and Presidential Address
Jan 04, 2016 6:00 pm, Marriott Marquis, Walnut
African Finance & Economics Association
Presidential Address and Board Meeting
Presiding:
John Anyanwu
(African Development Bank)
Yaw Nyarko
(New York University)
Jan 04, 2016 6:00 pm, Marriott Marquis, Nob Hill
Chinese Economists Society
Annual Meeting and Presentations by Chinese Universities
Presiding:
Wing Woo
(University of California-Davis)
Jan 04, 2016 6:30 pm, Hilton Union Square, Imperial B
National Economic Association
Presidential Address
Presiding:
Lisa Cook
(Michigan State University)
Jan 04, 2016 8:00 pm, Hilton Union Square, Imperial A
American Economic Association
8th Annual Economics Humor Session in Honor of Caroline Postelle Clotfelter
Presiding:
Yoram Bauman
(standupeconomist.com)
Fish and Missing Markets: Extending Revealed and Stated Preference Methods to Salmon
Andy Keeler
(East Carolina University and University of North Carolina Coastal Studies Institute)
Home Economics
Jodi Beggs
(Northeastern University and Economists Do It With Models)
The Funniest Papers in the History of Economics
Yoram Bauman
(standupeconomist.com)
Jan 05, 2016 8:00 am, Hilton Union Square, Imperial A
American Economic Association
Advances in Open Macroeconomics: Frictions in Goods and Financial Markets
(F4, F3)
Presiding:
Emmanuel Farhi
(Harvard University)
Labor Mobility Within Currency Unions
Emmanuel Farhi
(Harvard University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
We study the effects of labor mobility within a currency union suffering from nominal rigidities. When the demand shortfall in depressed region is mostly internal, migration may not help regional macroeconomic adjustment. When external demand is also at the root of the problem, migration out of depressed regions may produce a positive spillover for stayers. We consider a planning problem and compare its solution to the equilibrium. We find that the equilibrium is generally constrained inefficient, although the welfare losses may be small if the economy suffers mainly from internal demand imbalances.
Cross-Border Equity Holdings and External Accounts
Anna Pavlova
(London Business School)
Roberto Rigobon
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Recent evidence on the importance of cross-border equity flows calls for a rethinking of the standard theory of external adjustment. We introduce equity holdings and portfolio choice into an otherwise conventional open-economy dynamic equilibrium model. Our model is simple and it admits an exact closed-form solution regardless of whether financial markets are complete or incomplete. In this simple framework, we are able to establish interconnections between the real side of the economy, represented by the trade balance, the current account, and consumption allocations and the financial side, such as portfolio holdings, stock prices and valuation changes. Methodologically, we contribute to the existing DSGE literature on international portfolio choice that so far has either relied on approximation methods or used simplified asset market structures.
International Shocks and Domestic Prices: How Large Are Strategic Complementarities?
Mary Amiti
(Federal Reserve Bank of New York)
Oleg Itskhoki
(Princeton University)
Jozef Konings
(KU Leuven)
[View Abstract]
How do international shocks affect domestic prices? In this paper, we estimate the effect of exchange rate changes on the prices that firms charge in their domestic market. These prices can be affected directly through the marginal cost channel for firms that import their intermediate inputs and indirectly through the markup channel as firms respond to changes in their competitors’ prices. The contribution of this paper is to examine, theoretically and empirically, the impact of exchange rate shocks on domestic prices, isolating the role of both the marginal cost and the markup channels, while taking explicit account that all prices in the economy are set simultaneously. We find that strategic complementarities play an important role in transmitting international shocks into domestic prices. We show that about a half of exchange rate movements is transmitted into the average domestic prices, with the marginal cost and the markup channels playing nearly equal roles. Firm heterogeneity plays a central role in this transmission mechanism, with small firms reacting mostly through the marginal cost channel and large firms adjusting more through the markup channel. Large firms exhibit substantially stronger strategic complementarities than small firms. Lastly, we provide a calibrated model of variable markups able to match a number of salient features of our data, and then use it to undertake a number of counterfactuals.
International Relative Prices: Evidence from Online Retailers in Seven Countries
Brent Neiman
(University of Chicago)
Alberto Cavallo
(Massachusetts Institute of Technology)
[View Abstract]
We construct a dataset containing daily prices for hundreds of goods that collectively represent the bulk of expenditures on fuel, food, and consumer electronics in seven countries since 2010. Relative to earlier work, including our own, we significantly increase the coverage of goods studied by measuring prices in common physical units such as grams, items, or liters. We can therefore reasonably compare across countries the prices of otherwise identical goods sold in slightly different package sizes. We use these data to ask how price levels and dynamics for the same good varies across countries, with a focus on uncovering the extent to which the exchange rate, measurement error, and price stickiness dictate the extent of law of one price variations. Finally, we consistently scrape the web pages of the 10 largest online retailers in each country and note the total number of available varieties within narrowly defined categories. This allows us to characterize the scale of cross-country differences in the availability of consistently defined consumer varieties.
Discussants:
Ricardo Reis
(Columbia University)
Matteo Maggiori
(Harvard University)
Ariel Burstein
(University of California-Los Angeles)
Yuriy Gorodnichenko
(University of California-Berkeley)
Jan 05, 2016 8:00 am, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Chinese Housing Market: Facts and Consequences
(R1, E3)
Presiding:
Hanming Fang
(University of Pennsylvania)
Demystifying the Chinese Housing Boom
Hanming Fang
(University of Pennsylvania)
Quanlin Gu
(Peking University)
Wei Xiong
(Princeton University)
Li-An Zhou
(Peking University)
[View Abstract]
[Download Preview] We construct housing price indices for 120 major cities in China in 2003-2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find that despite the enormous housing price appreciation during the decade, the price appreciation was accompanied by equally impressive growth in household purchasing power, except in the few first tier cities, and housing market participation by households from the low-income fraction of the city population remained steady. Nevertheless, the severe financial burdens endured by bottom-income mortgage borrowers throughout China, who commonly used price-to-income ratios over eight to buy homes, reflected expectations of persistent high income growth and housing price appreciation into the future. Such expectations can contract substantially in the event of a sudden stop in the Chinese economy and present an important source of risk to the housing markets.
Evaluating the Risk of Chinese Housing Market: What We Know and What We Need to Know
Yongheng Deng
(National University of Singapore)
Joseph Gyourko
(University of Pennsylvania)
Jing Wu
(Tsinghua University)
[View Abstract]
[Download Preview] Competing claims about conditions in Chinese housing markets are challenging to evaluate because of data limitations. We bring new data to bear on this issue and examine a wide array of property market risk metrics and fundamentals. On average across 35 large cities, real land and house prices have grown at double-digit rates on a compound annual basis over the past decade. However, there is substantial heterogeneity across markets, with Beijing’s land prices appreciating at a real 27.5% rate and its house prices growing by 20% per annum. Interestingly, there is no evidence that supply growth has outpaced demand growth over the past decade in the nation’s capital. This is in stark contrast to conditions in a dozen large, primarily interior markets in which substantial excess supply appears to exist. All Chinese markets, including Beijing, are risky in the sense that appear to be ‘priced to perfection’. Even a modest downward shift in expectations of future price growth could generate a sharp decline in asset values. However, the biggest downside risks are in those places with burgeoning supply-demand imbalances, as any negative economic shock would hit an oversupplied market. Fundamentals do matter, as statistical analysis finds that a one standard deviation higher normalized inventory is associated with a 0.45 standard deviation lower rate of real house price growth the following year.
The Great Wall of Debt: Corruption, Real Estate, and Chinese Local Government Credit Spreads
Andrew Ang
(Columbia University)
Jie Bai
(Georgetown University)
Hao Zhou
(Tsinghua University)
[View Abstract]
[Download Preview] Issued by local government financing vehicles and backed mostly by land sales,chengtou bonds are an important source of financing for Chinese local governments. We identify large heterogeneity in chengtou bond yields, which is not supposed to be since they are implicitly guaranteed by the central government. We find that corruption in China has a significant effect on local government credit spreads, with one standard deviation increase in "Tigers" or "Flies" corresponding to 9 or 5 basis points in elevated chengtou bond yields. We measure corruption using the graft cases conducted by the Central Commission of Discipline and Investigation (CCDI), with the rank-weighted average and total number of cases as proxies for the depth and width of corruptions| "Tigers" and "Flies", respectively. Real estate GDP is the most prominent determinant of local government credit spreads, and the effect of corruption works mainly through the channel of real estate|more corruption clearly depresses the real estate value. Since the anti-corruption campaign started in late 2012, the effect of corruption has become highly significant and non-redundant through the real estate channel.
The Great Housing Boom of China
Kaiji Chen
(Emory University)
Yi Wen
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] This paper provides a theory to explain the paradoxical features of the great housing boom in China---the persistently faster-than-GDP housing price growth, exceptionally high capital returns, and excessive vacancy rates. The expectation that high capital returns driven mainly by resource reallocation are not sustainable in the long run can induce investors, including even the very productive entrepreneurs to speculate in housing during economic transition. This creates a self-fulfilling growing housing bubble, which can create severe resource misallocation. A calibrated version of the theory accounts quantitatively for both the growth dynamics of house prices and other salient features of the recent Chinese experience.
Discussants:
Yongheng Deng
(National University of Singapore)
Kaiji Chen
(Emory University)
Zhiguo He
(University of Chicago)
Zheng Michael Song
(University of Chicago and Chinese University of Hong Kong)
Jan 05, 2016 8:00 am, Hilton Union Square, Yosemite A
American Economic Association
Financial History and Asset Pricing
(G1, N2)
Presiding:
David Chambers
(University of Cambridge )
Testing Asset Pricing Theory on Six Hundred Years of Stock Returns: Prices and Dividends for the Bazacle Company from 1372 to 1946
David le Bris
(KEDGE Business School)
William N. Goetzmann
(Yale University)
Sébastien Pouget
(Toulouse School of Economics)
[View Abstract]
We test asset pricing theory using the Bazacle company of Toulouse, the earliest documented shareholding corporation. We collect share prices and net dividends from its foundation in 1372 to its nationalization in 1946. We find a real average dividend yield of 5% per annum and no long-term price growth. Both dividends and stock prices are found stationary. This enables us to directly study how prices relate to expected cash flows, without relying on rates of return. An asset pricing model with persistent dividends and a time-varying risk correction is not rejected by the data. Variations in expected future dividends explain between one-sixth and one-third of variations in prices. Moreover, some macroeconomic factors such as summer coldness, that do not affect future dividends, are negatively associated with stock prices, suggesting that they impact the risk correction.
Four Centuries of Return Predictability
Benjamin Golez
(University of Notre Dame)
Peter Koudijs
(Stanford University)
[View Abstract]
[Download Preview] We analyze aggregate market prices and dividends throughout modern financial history. Focusing on the most important market in each period, we start with the Dutch and English markets in the early 17th century and move to the U.S. market at the end of the 19th century. We find that the dividend-to-price ratio predicts returns throughout all four centuries. “Excess volatility” is thus a pervasive feature of financial markets. The dividend-to-price ratio also predicts dividend growth rates in all but the most recent (post 1945) period. Cash-flows were therefore much more important for price movements in the past, and the dominance of discount rate news is a relatively recent phenomenon. This is consistent with the increased duration of the stock market in the recent period.
Recreating the South Sea Bubble: Lessons from an Experiment in Financial History
Giovanni Giusti
(Universitat Pompeu Fabra)
Charles Noussair
(Tilburg University)
Hans-Joachim Voth
(University of Zurich)
[View Abstract]
[Download Preview] Major bubble episodes are rare events. In this paper, we examine what factors might cause some asset price bubbles to become very large. We recreate, in a laboratory setting, some of the specific institutional features investors in the South Sea Company faced in 1720. Several factors have been proposed as potentially contributing to one of the greatest periods of asset overvaluation in history: an intricate debt-for-equity swap, deferred payment for these shares, and the possibility of default on the deferred payments. We consider which aspect might have had the most impact in creating the South Sea bubble. The results of the experiment suggest that the company’s attempt to exchange its shares for government debt was the single biggest contributor to the stock price explosion, because of the manner in which the swap affected fundamental value. Issuing new shares with only partial payments required, in conjunction with the debt-equity swap, also had a significant effect on the size of the bubble. Limited contract enforcement, on the other hand, does not appear to have contributed significantly.
Art as an Asset and Keynes the Collector
David Chambers
(University of Cambridge)
Elroy Dimson
(University of Cambridge)
Christophe Spaenjers
(HEC Paris)
[View Abstract]
[Download Preview] If art indexes are exposed to transaction-channel selectivity, suffer from survivorship bias, or weight individual assets inappropriately, they may be unrepresentative of art investors’ performance. To investigate these issues, we study an actual invested portfolio — the art collection of economist John Maynard Keynes — using valuations that span up to 96 years. We document substantial long-term real returns and show that auction purchases were followed by significantly higher initial returns than primary market acquisitions. We argue that, because of the concentration of art portfolios, indexes based on auction prices for established artists can successfully capture the value-weighted average returns realized by art investors buying in the secondary market. Positive skewness in returns can nevertheless cause most investors to underperform the asset class.
Discussants:
Ralph Koijen
(London Business School)
Stijn Van Nieuwerburgh
(New York University)
Stefan Nagel
(University of Michigan)
Tim Jenkinson
(University of Oxford)
Jan 05, 2016 8:00 am, Hilton Union Square, Continental – Parlor 9
American Economic Association
Gender Differences in Career Outcomes
(J1, J7)
Presiding:
Lise Vesterlund
(University of Pittsburgh)
Gender Dynamics in Referral-Based Hiring: A Field Experiment
Anna Sandberg
(Stockholm University)
Karin Hederos Eriksson
(Stockholm University)
Lukas Kvissberg
(Stockholm School of Economics)
Erik Polano
(Stockholm School of Economics)
[View Abstract]
[Download Preview] We explore gender dynamics in referral-based hiring, using a field experiment at one of Europe's leading business schools. In the experiment, 428 students are asked to refer another student at the school for a part time job. We find strong evidence of same-gender bias in referrals among both male and female students. While the overall gender distribution of students at the school is fairly equal, 74 percent of male students refer another man and 71 percent of female students refer another woman. Roughly half of this same-gender bias can be accounted for by gender differences in social network composition at the school. These results are robust across different jobs with varying gender stereotypicality.
Does Gender Matter for Academic Promotion? Evidence from Two Large Scale Randomized Natural Experiments
Manuel Bagues
(Aalto University Helsinki)
Natalia Zinovyeva
(Aalto University Helsinki)
[View Abstract]
[Download Preview] To achieve gender balance, academia has still a long way to go. In Europe women account for 46% of PhD graduates, 37% of associate professors and only a mere 20% of full professors. The US displays similar patterns and in Japan the gender imbalance is even larger. This paper analyzes the role of the gender composition of promotion committees in shaping this gap. The gender of evaluators might matter for several reasons. First, male candidates might benefit from the existence of an “old-boys network". Second, if women tend to specialize in different subfields than men and evaluators overrate the importance of their own types of research, the lack of female evaluators might be detrimental for female candidates. Third, male evaluators might perhaps be subject to gender stereotypes. We exploit evidence from two large-scale randomized natural experiments: centralized scientific evaluations in Spain and in Italy. In these two countries applicants to Full or Associate Professor positions are required to qualify in an examination that is conducted at the national level by a committee of (randomly selected) experts. Our database includes information on around 100,000 applications and 8,000 (randomly selected) evaluators. We proxy networks using information from co-authorships and theses committees. These networks tend to be slightly gendered and there is also some gender segregation across subfields. However, the chances of success of female candidates do not increase with the number of women in evaluation committees, if anything the opposite is true. Information from 274,000 individual evaluation reports also shows that, in mixed-gender committees, male and female evaluators are equally biased against female candidates, suggesting that the presence of women in the committee affects the voting behavior of male evaluators. These findings suggest that the introduction of gender quotas in scientific committees is unlikely to increase female representation.
Gender Bias in Performance Evaluations
Friederike Mengel
(University of Essex)
Jan Sauermann
(Stockholm University)
Ulf Zölitz
(Institute for the Study of Labor (IZA))
[View Abstract]
[Download Preview] This paper provides new evidence on gender bias in performance evaluations of university teachers. We exploit a quasi-experimental dataset on 19,962 teaching evaluations, where students are randomly allocated to female or male teachers. Despite the fact that neither students' grades nor self-study hours are affected by the teacher's gender, we find that in particular male students evaluate female teachers worse than male teachers. The bias is largest for junior teachers, which is worrying since their lower evaluations might affect junior women's confidence and hence have direct as well as indirect effects on women's progression into academic careers.
Dynamic Evolution of Individual Willingness to Compete
Thomas Buser
(University of Amsterdam)
[View Abstract]
I study how the gender gap in willingness to compete evolves over time in response to wins and losses. Participants in a series of lab experiments perform in the same real-effort task over several rounds. In each round, they have to choose between piece-rate remuneration and a winner-takes-all tournament with a randomly chosen opponent. After each round, they get feedback on the competition outcome. In experiment 1, participants learn whether they performed better or worse than their opponent independently of whether they chose to compete. In experiment 2, only those who choose competition learn whether they outperformed their opponent. The main findings are that 1) rather than shrinking in response to experience, the gender gap persists over time and a significant gender gap develops even for those individuals who initially choose to compete; 2) women's willingness to compete diminishes more in reaction to losing than men's; and 3) gender differences in initial beliefs or belief updating cannot explain this gender difference in the reaction to competition outcomes. The gender difference in the response to losing is at least as strong for high performers as for low performers meaning that losing early on is very costly for high performing women. Not giving relative feedback to those who do not compete does not increase the gender gap in competing but leads to more high performers of both genders who stay away from competition and to a diminishing rate of competing over time. My findings have implications for our understanding of professional and academic career choices and gender differences in labour market outcomes.
Discussants:
Katherine Coffman
(Ohio State University)
Scott Carrell
(University of California-Davis)
Eszter Czibor
(University of Chicago)
Johanna Mollerstrom
(George Mason University)
Jan 05, 2016 8:00 am, Hilton Union Square, Continental – Parlor 3
American Economic Association
Inequality, Redistribution and Macroeconomic Instability
(E1, E2)
Presiding:
Romain Ranciere
(Paris School of Economics)
Inequality and Risky Credit Bubble
Toan Phan
(University of North Carolina)
Julien Bengui
(University of Montreal)
[View Abstract]
[Download Preview] We study the interaction between inequality, credit market imperfections and rational asset bubbles. We show that income inequality and asset pledgeability play essential roles in influencing the existence and characteristics of asset price bubbles. If a bubble asset has low pledgeability, then the asset primarily provides a store of value to agents with a high demand for savings, and is thus held in equilibrium by the rich. On the other hand, if the bubble has high pledgeability, then it provides high collateral value to borrowing-constrained agents, and thus the bubble asset is held in equilibrium by the poor. The asset bubble gives rise to a credit bubble, in which borrowers take on excessive risk because of the possibility of default, and the collapse of the asset bubble leads to widespread default. Our findings therefore provide an explanation for prominent stylized features of the recent crisis in the U.S.: a boom in housing prices in 2002-2006, associated with a boom in borrowing against housing collateral and home equity among low-income households, and the widespread default among “subprime” borrowers following the collapse of the housing bubble in 2007-2009.
Sovereign Default, Inequality, and Progressive Taxation
Axelle Ferriere
(New York University)
[View Abstract]
[Download Preview] A sovereign's willingness to repay its foreign debt depends on the cost of raising taxes. The allocation of this tax burden across households is a key factor in this decision. To study the interaction between the incentive to default and the distributional cost of taxes, I extend the canonical Eaton-Gersovitz-Arellano model to include heterogeneous agents, progressive taxation, and elastic labor supply. When the progressivity of the tax schedule is exogenous, progressivity and the incentive to default are inversely related. Less progressive taxes, and hence higher after-tax inequality, encourage default since the cost of raising tax revenue from a larger mass of low-income households outweighs the cost of default in the form of lost insurance opportunities. When tax progressivity is endogenous and chosen optimally, the government internalizes the influence of progressivity on default risk and the cost of borrowing. As such, committing to a more progressive tax system emerges as an effective policy tool to reduce sovereign credit spreads in highly indebted countries.
Financial Innovation for Rent Extraction
Anton Korinek
(Johns Hopkins University)
[View Abstract]
[Download Preview] This paper makes the case that a significant number of recent financial innovations were designed to extract rents from public safety nets 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 bailouts distort incentives to invest in risky securities. This paper shows that they 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.
Income Inequality and Current Account Imbalances
Michael Kumhof
(International Monetary Fund)
Claire Lebarz
(Paris School of Economics)
Romain Ranciere
(Paris School of Economics)
Alexander W. Richter
(Indiana University)
Nathaniel A. Throckmorton
(College of William and Mary)
[View Abstract]
[Download Preview] Current account regressions show that when top income shares are added to the comprehensive set of conventional explanatory variables used by the IMF, they predict significantly larger current account deficits in a cross-section of advanced economies, but with important outliers among countries that have pursued export-led rather than finance-led growth strategies. To study this mechanism, we develop a DSGE model where the income share of top earners increases at the expense of bottom earners. Due to preferences for wealth, top earners have a much higher marginal propensity to save than bottom earners, as they do in the data. We find that, when the redistributive shock has a large positive effect on asset values, and if domestic financial markets are large, the result will be a sizeable current account deficit. On the other hand, when the redistributive shock mostly affects relative labor incomes, and if domestic financial markets are small, the result will be a current account surplus.
Discussants:
Kevin J. Lansing
(Federal Reserve Bank of San Francisco)
Juan M. Sanchez
(Federal Reserve Bank of St Louis)
Alessandro Dovis
(Pennsylvania State University)
Thomas Theobald
(Macroeconomic Policy Institute)
Jan 05, 2016 8:00 am, Hilton Union Square, Continental – Parlor 1
American Economic Association
Job Polarization and Biased Technological Change
(J2, O3)
Presiding:
Ariell Reshef
(University of Virginia)
Routinization across Sectors: Theory and Evidence
Maarten Goos
(University of Leuven )
Emilie Rademakers
(University of Leuven )
Anna Salomons
(Utrecht University)
Marieke Vandeweyer
(University of Leuven)
[View Abstract]
[Download Preview] This paper examines three empirical phenomena that have recently been discussed in the literature: job polarization, deindustrialization and Baumol’s cost disease. Although assumed to be driven by the same process of recent technological change, each of these phenomena is explained differently by existing models and empirical analyses. Building on the existing literature, this paper therefore presents a unifying framework to derive critical assumptions that are consistent with all three stylized facts. Moreover, the paper presents empirical evidence for the US and 12 European countries in support of the hypothesis that job polarization, deindustrialization and Baumol’s cost disease are intrinsically related phenomena following from ongoing technological progress.
Job Polarization and Structural Change
Zsofia Barany
(Sciences-Po)
Christian Siegel
(University of Exeter Business School)
[View Abstract]
[Download Preview] We document that job polarization – contrary to the consensus – has started as early as the 1950s in the US: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers. Given that polarization is a long-run phenomenon and closely linked to the shift from manufacturing to services, we propose a structural change driven explanation, where we explicitly model the sectoral choice of workers. Our simple model does remarkably well not only in matching the evolution of sectoral employment, but also of relative wages over the past fifty years.
Robots at Work
Guy Michaels
(London School of Economics)
Georg Graetz
(Uppsala University)
[View Abstract]
[Download Preview] Despite ubiquitous discussions of robots’ potential impact, there is almost no systematic empirical evidence on their economic effects. In this paper we analyze for the first time the economic impact of industrial robots, using new data on a panel of industries in 17 countries from 1993-2007. We find that industrial robots increased both labor productivity and value added. Our panel identification is robust to numerous controls, and we find similar results instrumenting increased robot use with a measure of workers’ replaceability by robots, which is based on the tasks prevalent in industries before robots were widely employed. We calculate that the increased use of robots raised countries’ average growth rates by about 0.37 percentage points. We also find that robots increased both wages and total factor productivity. While robots had no significant effect on total hours worked, there is some evidence that they reduced the hours of both low-skilled and middle-skilled workers.
The March of the Techies: Technology, Trade, and Job Polarization in France, 1994--2007
James Harrigan
(University of Virginia)
Ariell Reshef
(University of Virginia)
Farid Toubal
(ENS-Cachan)
[View Abstract]
[Download Preview] Using administrative employee-firm-level data from 1994 to 2007, we show that the labor market in France has become polarized: employment shares of high and low wage occupations have grown, while middle wage occupations have shrunk. During the same period, the share of hours worked in technology-related occupations ("techies") grew substantially, as did imports and exports, and we explore the causal links between these trends. Our paper is the first to analyze polarization in any country using firm-level data. Our data includes hours worked classified into 22 occupations, as well as imports and exports, for every private sector firm. We show that polarization is pervasive: it has occurred within the nonmanufacturing and manufacturing sectors, and both within and between firms. Motivated by the fact that technology adoption is mediated by technically qualified managers and technicians, we use an innovative measure of the propensity to adopt new technology: the firm-level employment share of techies. Using the subsample of firms that are active over the whole period, we show that firms with more techies in 2002 saw greater polarization from 2002 to 2007. Firm-level trade, by contrast, has a small effect on polarization. To control for the endogeneity of firm-level techies and trade in 2002, we use values of techies and trade from 1994 to 1998 as instruments. We also show that firms with more techies in 2002 grew more rapidly from 2002 to 2007, using the same instrumental variable strategy. We conclude that technological change, mediated through techies, is an important cause of polarization in France. Trade is less important.
Discussants:
David Autor
(Massachusetts Institute of Technology)
David Dorn
(University of Zurich)
Thomas Lemieux
(University of British Columbia)
Stephen Machin
(University College London)
Jan 05, 2016 8:00 am, Hilton Union Square, Plaza B
American Economic Association
Labor Markets with Occupational Licensing: Their Economic Effects
(J4)
Presiding:
Alexandre Mas
(Princeton University)
Battling over Jobs: Occupational Licensing in Health Care
Morris M. Kleiner
(University of Minnesota)
[View Abstract]
The goal of this paper is to examine the major tensions between the monopoly face of licensing and the potential consumer protection goals of occupational regulation in the health care industry. Historically, health care occupations have limited the supply of providers as a method of raising wages, but with growth in the number of newly regulated occupations, many professions have come in conflict with one another over who gets to do the work. Rather than having consumers decide, state legislatures and licensing boards determine the allocation of tasks. The paper outlines policies that may allow consumers rather than service providers to determine the allocation of these jobs.
Lifecycle Costs of Entry Barriers to the Legal Profession
Clifford Winston
(Brookings Institution)
[View Abstract]
[Download Preview] The costs of entry barriers to the legal profession may affect lawyers and society throughout a lawyer's training and subsequent career. This paper will report evidence on how entry barriers increase the costs of law school and distort occupational choice; distort the choice of working for the public sector versus the private sector and put the government at a disadvantage when competing against private lawyers in policy disputes; increase the difficulty of making partner at a law firm and contribute to job dislocation; and possibly contribute to the growing partisanship on the Supreme Court. The case for deregulating the legal profession will be made in this context.
Disruptive Change in the Taxi Business: The Case of Uber
Alan B. Krueger
(Princeton University)
[View Abstract]
[Download Preview] Mobile technology has enabled Uber and other companies to compete with licensed taxis and for-hire car services. This paper will examine whether Uber provides a more efficient alternative to traditional taxis. Preliminary evidence, for example, indicates that the "capacity utilization rate", measured by the fraction of time that drivers have a passenger in their car, is significantly higher for Uber than for traditional taxis.
Discussants:
Paul Joskow
(Sloan Foundation and Massachusetts Institute of Technology)
Jesse Rothstein
(University of California-Berkeley)
Jan 05, 2016 8:00 am, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
Macroprudential Policy
(E5, G2)
Presiding:
Hyun Song Shin
(Bank for International Settlements)
The Use and Effectiveness of Macroprudential Policies: New Evidence
Eugenio Cerutti
(International Monetary Fund)
Stijn Claessens
(Federal Reserve Board)
Luc Laeven
(European Central Bank)
[View Abstract]
[Download Preview] Using a recent IMF survey and expanding on previous studies, we document the use of macroprudential policies for 119 countries over the 2000-13 period, covering many instruments. Emerging economies use macroprudential policies most frequently, especially foreign exchange related ones, while advanced countries use borrower-based policies more. Usage is generally associated with lower growth in credit, notably in household credit. Effects are less in financially more developed and open economies, however, and usage comes with greater cross-border borrowing, suggesting some avoidance. And while macroprudential policies can help manage financial cycles, they work less well in busts.
Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Countercyclical Capital Buffer (CCB)
Cathérine Koch
(Bank for International Settlements)
Christoph Carl Basten
(FINMA)
[View Abstract]
[Download Preview] How does the CCB affect mortgage pricing after Switzerland was first to activate this macroprudential tool of Basel III? As we observe multiple offers per request, our findings relate to mortgage supply and demand. First, the CCB changes the composition of mortgage supply, as capital-constrained and mortgage-specialized banks raise prices more in relative terms. Second, risk-weighting schemes linked to borrower risk do not amplify the CCB effect. To conclude, changes in the supply composition point to the CCB’s success in shifting mortgages from less to more resilient banks, but stricter capital requirements do not discourage banks from risky mortgage lending.
Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements
Cecilia Dassatti Camors
(Banco Central de Uruguay)
Jose Luis Peydro
(Universitat Pompeu Fabra)
Francesc Rodriguez-Tous
(Universitat Pompeu Fabra)
[View Abstract]
[Download Preview] We analyze the impact of liquidity and reserve requirements on credit supply. For identification, we exploit a change in regulation in Uruguay – an increase of the requirements for short-term funding, especially from (retail and interbank market) foreign funds – using the credit register that follows all loans granted to non-financial firms. Following a difference-in-difference approach, we compare lending to the same firm before and after the policy change among banks with different exposure to the funds targeted by the policies. We find that restrictions to short-term deposits for banks imply a reduction of credit supply; more affected banks increase their exposure into riskier firms; and larger banks mitigate the effects. Our results suggest that foreign short-term capital inflows and liquidity requirements affect credit supply and risk-taking of banks.
How Does Credit Supply Respond to Monetary Policy and Bank Minimum Capital Requirements?
Shekhar Aiyar
(International Monetary Fund)
Charles Calomiris
(Columbia University)
Tomasz Wieladek
(Bank of England)
[View Abstract]
We use data on UK banks’ minimum capital requirements to study the interaction of monetary policy and capital requirement regulation. UK banks were subject to both time-varying capital requirements and changes in interest rate policy. Tightening of either capital requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks, and the lack of interaction between capital requirement changes and monetary policy, have important policy implications. Our results confirm the theoretical consensus view that monetary policy should focus on price stability objectives and that capital requirement changes are a more effective tool to achieve financial stability objectives related to loan supply. We also identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macroprudential variation in capital requirements.
Discussants:
Steven Ongena
(University of Zurich)
James Vickery
(Federal Reserve Bank of New York)
Ricardo Correa
(Federal Reserve Board)
Markus K. Brunnermeier
(Princeton University)
Jan 05, 2016 8:00 am, Hilton Union Square, Franciscan D
American Economic Association
Market Design for Student Placement: Econometrics and Empirical Evidence
(I2, D4)
Presiding:
Bernard Salanie
(Columbia University)
Demand Analysis Using Strategic Reports: An Application to a School Choice Mechanism
Nikhil Agarwal
(Massachusetts Institute of Technology)
Paulo Somaini
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] Several school districts use assignment systems in which students have a strategic incentive to misrepresent their preferences. Indeed, we find evidence suggesting that reported preferences in Cambridge, MA respond to these incentives. Such strategizing can complicate the analysis of preferences. The paper develops a new method for estimating preferences in such environments. Our approach views the report made by a student as a choice of a probability distribution over assignment to various schools. We introduce a large class of mechanisms for which consistent estimation is feasible. We then study identification of a latent utility preference model under the assumption that agents play a Bayesian Nash Equilibrium. Preferences are non-parametrically identified under either sufficient variation in choice environments or sufficient variation in a special regressor. We then propose a tractable estimation procedure for a parametric model based on Gibbs' sampling. Estimates from Cambridge suggest that while 84% of students are assigned to their stated first choice, only 75% are assigned to their true first choice. The difference occurs because students avoid ranking competitive schools in favor of less competitive schools. Although the Cambridge mechanism is manipulable, we estimate that welfare for the average student would be lower in the popular Deferred Acceptance mechanism.
Structural Estimation of a Model of School Choices: The Boston Mechanism Versus Its Alternatives
Caterina Calsamiglia
(Universitat Autonoma de Barcelona)
Chao Fu
(University of Wisconsin-Madison)
Maia Güell
(University of Edinburgh, London School of Economics, CEPR, FEDEA, and IZA)
[View Abstract]
An important debate centers on what procedure should be used to allocate students across public schools. We contribute to this debate by developing and estimating a model of school choices by households under one of the most popular procedures known as the Boston mechanism (BM). We recover the joint distribution of household preferences and sophistication types using administrative data from Barcelona. Our counterfactual policy analyses show that a change from BM to the Gale-Shapley student deferred acceptance mechanism would create more losers than winners, while a change from BM to the top trading cycles mechanism has the opposite effect.
College Choice Allocation Mechanisms: Structural Estimates and Counterfactuals
Carvalho Jose Raimundo
(Universidade Federal do Ceará)
Thierry Magnac
(Toulouse School of Economics)
Qizhou Xiong
(Toulouse School of Economics)
[View Abstract]
[Download Preview] We use rich microeconomic data on performance and choices of students at college entry exams to analyze the impact on student welfare of using different allocation mechanisms between university majors. The allocation procedure in place allows us to model precisely preferences and expectations of students using the set-up of a congestion game. The counterfactuals we consider balance costs arising from congestion and costs arising from using simple exams to rank students. A deferred acceptance type of mechanism or the inversion of the timing of choices and exams are shown to increase welfare. Redistribution among students or schools is sizeable.
Beyond Truth-Telling: Preference Estimation with Centralized School Choice
Gabrielle Fack
(Université Paris 1 and Paris School of Economics)
Julien Grenet
(Paris School of Economics)
Yinghua He
(Toulouse School of Economics)
[View Abstract]
[Download Preview] We propose novel approaches and tests for estimating student preferences with data from school choice mechanisms, e.g., the Gale-Shapley Deferred Acceptance. Without requiring truth-telling to be the unique equilibrium, we show the matching is (asymptotically) stable, or justified-envy-free, implying that everyone is assigned to her favorite school among those she is qualified for ex post. Having validated the approaches and tests in simulations, we apply them to Parisian data and reject truth-telling but not stability. The estimates are then used to evaluate the sorting and welfare effects of admission criteria that determine how schools rank students in centralized school choice.
Discussants:
Christopher A. Neilson
(Princeton University)
Jeremy Fox
(University of Michigan)
Alfred Galichon
(Sciences Po Paris)
Bernard Salanie
(Columbia University)
Jan 05, 2016 8:00 am, Hilton Union Square, Franciscan C
American Economic Association
Motherhood and the Labor Market
(J1)
Presiding:
Kevin Lang
(Boston University)
Social Norms, Labor Market Opportunities, and the Marriage Market Penalty for Skilled Women
Jessica Pan
(National University of Singapore)
Marianne Bertrand
(University of Chicago )
Patricia Cortes
(Boston University)
Claudia Olivetti
(Boston University)
[View Abstract]
[Download Preview] In most of the developed world, skilled women marry at a lower rate than unskilled women. We document heterogeneity across countries in how the marriage market penalty for skilled women has evolved over time. As labor market opportunities for women have improved, the gap in ever-married rates between skilled and unskilled women has been decreasing in North America, Nordic countries, and some parts of Western Europe. In sharp contrast, the marriage gap has widened in East Asia and parts of Southern Europe, with singlehood rates for skilled women reaching unprecedented levels in the most recent cohorts. We propose a theoretical model in which the (negative) social attitudes towards working women might contribute towards the lower marriage rate of skilled women, and might also induce a non-linear relationship between their labor market prospects and their marriage outcomes. A marriage market penalty (or premium) emerges endogenously in our model as a function of skilled women’s rising labor market opportunities and the time allocation decisions that these generate. We show that the interaction between women’s labor market opportunities and gender norms generates a U-shaped marriage penalty. The model allows us to characterize the dynamics of the marriage market penalty for skilled women in an environment with specific gender norms as the labor market opportunities for them increase. The model is also valuable in generating comparative statics across environments with more or less conservative gender identity norms. We test the key assumptions and predictions of the model in a panel of 20+ developed countries as well as across states in the US.
Employment Adjustments Around Childbirth: How Mothers Smooth their Careers
Barbara Pertold-Gebicka
(Charles University in Prague)
Nabanita Datta Gupta
(Aarhus University)
Filip Pertold
(CERGE-EI)
[View Abstract]
[Download Preview] In many European countries the labor market is segmented into public and private sectors. The public sector is considered to be family friendly and allow for combing motherhood and career development. In this paper, we take advantage of the Danish administrative records to explore how women adjust work conditions after giving birth to their first child by changing the employment sector and thus smooth earnings consequences of maternity. In particular, we show that switching from private to public sector is most frequent for high skilled professionals in occupations with low freedom to make decisions and with high time pressure. This specific brain-drain can explain why we observe high gender wage gaps in occupations with convex pay schemes. Further, our estimates of the motherhood wage gap suggest that women who switch from private to public sector lose the least on their post-motherhood wage gap due to motherhood in each respective post-birth year, while women who stay in the private sector are building up the most on their pre-motherhood wage gap.
The Role of Paid Parental Leave in Reducing Women's Career Interruptions: Evidence from Paid Leave Laws in California and New Jersey
Tanya Byker
(Middlebury College)
[View Abstract]
[Download Preview] I analyze the effects of paid parental leave on maternal labor supply. Using monthly longitudinal data from the Survey of Income and Program Participation, my event-study research design characterizes the evolution of labor-force participation around childbirth for women affected by paid leave laws in California and New Jersey. I find that paid leave laws are associated with a substantial increase in labor-force attachment in the months directly around birth but have little impact beyond six months after birth. While US-style short-duration leave is unlikely to change prolonged exits from the labor force, my findings imply that paid leave laws induce some women to work stay more attached, particularly low-skill women.
Can Financial Incentives Reduce the Baby Gap? Evidence from a Reform in Maternity Leave Benefits
Anna Raute
(University of Mannheim)
[View Abstract]
I study whether earnings dependent parental benefits have a positive impact on fertility, and whether they are successful at narrowing the baby gap between high educated (high earning) and low educated (low earning) women. I exploit a reform in parental leave benefits in Germany: Up until 2007 German parental benefits were means-tested transfers and targeted at lower income families. From 2007 onwards parental leave benefits were increasing in mother’s pre-birth earnings with a minimum benefit being granted to all mothers. The reform increased the financial incentives to have a child for higher educated and higher-earning women considerably, by up to 21,000 €. First I find large discontinuous jumps in overall monthly birth rates nine months after the passing of the law as well as evidence for discrete drops in abortion rates for married women just after the law was passed. Second, I exploit the large differential changes in parental leave benefits across education and income groups to estimate the causal effect of parental leave benefits on fertility. I find a positive, statistically significant effect of an increase in benefits on fertility, which is mainly driven by women in the middle and upper-end of the education and income distribution. My findings suggest that earnings dependent parental benefits, which compensate women for their opportunity cost of childbearing accordingly, might be a successful means to increase the fertility rate of high-skilled and higher-earning women and to reduce the disparity in fertility rates with respect to mothers’ education and earnings.
Discussants:
Carolina Castilla
(Colgate University)
Núria Rodríguez-Planas
(City University of New York-Queens College)
Christopher J. Ruhm
(University of Virginia)
Kevin Lang
(Boston University)
Jan 05, 2016 8:00 am, Hilton Union Square, Plaza A
American Economic Association
Physiology and Economics
(D8)
Presiding:
Justin Sydnor
(University of Wisconsin-Madison)
Testosterone and Trading: A Biological Driver of Asset Mispricing
Amos Nadler
(University of Western Ontario)
Peiran Jiao
(University of Oxford)
Veronika Alexander
(Claremont Colleges)
Paul J. Zak
(Claremont Colleges)
Cameron J. Johnson
(Loma Linda University)
[View Abstract]
Traditional finance theories state asset prices are determined by firm fundamentals, such as per-share earnings and relative risk. However, a growing body of literature shows prices often do not reflect underlying value and are largely formed by expectations of future cash flows that are discordant with financial fundamentals and are vulnerable to cross-sectional sentiment influences. This paper demonstrates asset mispricing by a biological driver of competitive bidding — testosterone — in experimental asset markets. We show that testosterone drives competitive bidding leading prices to dissociate from fundamental value, producing larger and longer-lasting bubbles. Further, testosterone reduces trading performance and increases trader overconfidence.
The Effect of Arousal on Economic Decision Making
Salar Jahedi
(RAND Corporation)
Dan Ariely
(Duke University)
Cary Deck
(University of Alaska-Anchorage)
[View Abstract]
Recent research in psychology suggests that human choice is the outcome of an interplay between the intuitive system and reasoning system of the brain. Depending on the extent to which each system is activated, different revealed preferences may result. This project uses a controlled laboratory experiment to directly expose individuals to either neutral and sexually arousing images and examine how core economic preferences, such as risk-taking, impatience, healthiness in snack choice, and susceptibility to anchoring are affected. The results of this study indicate that risk-taking and impatience generally increase with exposure to arousing images, but not nearly as much as previous studies have found. The results are also compared to a cognitive load task where participants engage in a digit-memorization task while answering the same questions. We find that cognitive load has a larger observed effect on behavior than does exposure to arousing images.
Sleepiness, Choice Consistency and Risk Preferences
Marco Castillo
(George Mason University)
Ragan Petrie
(George Mason University)
David L. Dickinson
(Appalachian State University and IZA)
[View Abstract]
[Download Preview] We investigate the consistency and stability of individual risk preferences by manipulating cognitive resources. Participants are randomly assigned to an experiment session at a preferred time of day relative to their diurnal preference (circadian matched) or at a non- preferred time (circadian mismatched) and choose allocations between two risky assets (using the Choi et al., 2007, design). Consistency of behavior of circadian matched and mismatched subjects is statistically the same, however mismatched subjects tend to take more risks. We conclude that, consistent with several theories, preferences are rational yet can change depending on state-level cognitive resources.
The Effect of Stress on Inter-Temporal Choice: Do Stress Domains Matter?
Johannes Haushofer
(Princeton University)
Chaning Jang
(Princeton University)
[View Abstract]
[Download Preview] The effect of stress on economic choice is well documented in the psychological and economic literature but less attention has been paid to 1) the generalizability of these effects to populations in the developing world; and 2) to what extent the effect of stress is influenced by the domain in which it resides. To answer these questions, we conduct a series of random-assignment experiments among urban poor in Nairobi, Kenya. We randomly assign participants to stress or non-stressed conditions, where stress is activated in a social, physical, or financial domain. In the social domain, we use the Trier Social Stress Test, in the physical we use the Cold Pressor Task, and to induce financial stress we design a real-time centipede game. Subsequently, we measure inter-temporal choice using a titration exercise with real monetary payoffs. We find that both the reactivity to the stressor as well as the effect on inter-temporal choice are domain dependent.
Hunger Games: Does Hunger Affect Time Preferences?
Lydia Ashton
(University of Wisconsin-Madison)
[View Abstract]
Using a novel laboratory experiment I find that hunger increases monetary impatience. This effect is larger when monetary rewards are immediate, which shows that present bias is a visceral response and can help explain why the poor tend to make more shortsighted economic decisions. Given possible confounds between physical and cognitive resource depletion, I also manipulated cognitive fatigue. I find that cognitive fatigue also increases monetary impatience; nevertheless this effect is driven by an increase in corner solutions. I argue that this may reflect a decrease in attention and an increase in heuristic-based choices. However, more work is needed to confirm this hypothesis.
Discussants:
Colin F. Camerer
(California Institute of Technology)
David Laibson
(Harvard University)
Jan 05, 2016 8:00 am, Hilton Union Square, Golden Gate 5
American Economic Association
Political Economy
(D7)
Presiding:
William D. Ferguson
(Grinnell College)
How Does Petty Corruption Affect Tax Morale in Sub-Saharan Africa? An Empirical Analysis
Bjoern Jahnke
(Leibniz University-Hannover)
[View Abstract]
Developing and emerging economies typically achieve much lower tax/GDP ratios than industrialized countries. Some scholars argue that corruption is one of the major obstacles to achieve higher revenue levels. The phenomenon of corruption in relation to tax revenues so far was mostly considered in relation to macro-economic variables. Recent taxation reforms focused on the increase of the tax base in order to compensate for reduced revenues from trade tariffs.
Hence the public budgets increasingly rely on the compliance of smaller-scale tax payers.These people also are vulnerable to become victims of petty corruption if they need to make payments to corrupt public servants in order to get access to public services. These extortion experiences may prevent them from contributing to the public budget. This study explores how petty corruption affects tax morale in sub-Saharan Africa where the phenomenon is quite prevalent. Based on the data from Afrobarometer 5 this paper finds that individual corruption experiences as well as the perception of the government and the tax department in general have a sizable impact on tax morale.
Price Discrimination across Political Action Committees
Sarah Moshary
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] The rapid growth of Political Action Committees – expenditures neared $500 million in the 2012 presidential election – is center-stage in the debate over money in American politics. The effect of PACs on elections depends on regulation and its interaction with imperfect competition. Congress requires stations to treat candidates to the same office equally, and to sell campaigns airtime at lowest unit rates (LURs) within sixty days of a general election. This paper examines pricing to PACs, which are not protected under the law, and the impact of political advertising regulation, in particular, lowest unit rate regulation. Using novel data on prices paid for individual ad spots from the 2012 presidential election, I find that stations price discriminate substantially across PACs for indistinguishable purchases. On average, PACs pay 40% markups above regulated rates. Republican PACs pay 14% higher prices on average relative to their Democrat counterparts, but there is substantial idiosyncratic variation in prices paid across ad spots. I develop and estimate a model of political demand for ad spots, exploiting misalignments of state borders and media markets to address potential price endogeneity. Findings indicate that pricing to PACs reflects buyer willingness-to-pay for viewer demographics. Taken together, these results indicate the current regulatory regime differentially subsidizes candidates depending on the characteristics of their base.
Incumbents' Performance and Political Polarization
Marina Dodlova
(German Institute of Global and Area Studies)
Galina Zudenkova
(University of Mannheim)
[View Abstract]
[Download Preview] This paper studies the relationship between incumbents' performance and political polarization, both with theory and data. The theory is based on a spatial model of political competition in which the voters use the incumbent's performance in office to update their beliefs about his competence. A better performance leads to the incumbent's electoral advantage and so allows him to announce a more extreme platform closer to his bliss point. Therefore, conditioned on reelection, a better incumbent's performance leads to higher political polarization. We use the data on the incumbents' performance in natural disaster relief and the ideological positions they take in the U.S. House of representatives in 1953-2010. The empirical evidence shows that a better performance in post-disaster recovery is associated with more extreme ideological positions of the corresponding incumbents. These and other empirical results are in line with the model predictions.
Quiet Riot: Estimating a Causal Effect of Protest Violence
Emiliano Huet-Vaughn
(Middlebury College)
[View Abstract]
[Download Preview] Recent protests that have taken a violent form in the United States and elsewhere have renewed interest in the study of such low-level political violence and its efficacy. However, estimating the effect of violent forms of political protest on protest success is complicated by endogeneity and omitted variable bias. In this work, I utilize instrumental variables methods to estimate a causal effect of violent protest on the likelihood that protesters win policy concessions. Using daily French protest data and a set of school holiday and weather instruments, I find a significant and negative relationship between property destruction associated with protests and the chance of near-term success in changing policy. The IV estimates are larger than OLS estimates and are robust to a variety of alternative specifications. Such findings are predicted by several posited endogeneity channels, and, they suggest that political violence does not, in fact, pay off.
Optimal Size of Rebellions
Congyi Zhou
(University of Chicago)
[View Abstract]
[Download Preview] This paper studies a regime change model in which, when a rebel leader mobilizes civilians, he faces a trade-off between the increasing number of potential supporters and the risk of information leak. The authority may then decide to use one of two punitive approaches: 1) harsh collective punishment, in which both rebel participants and those associated with them are punished, or 2) lenient punishment, in which only the rebel participants are held accountable for their actions. I find that harsh punishment results in a smaller rebel group size compared to lenient punishment, which is subject to the free rider problem. Meanwhile, choosing harsh punishment comes at a price, by forcing many to side with the insurgency, which may decrease the authority’s survival chances. My findings also indicate that lenient punishment is more useful to prevent a revolution by ordinary citizens, while collective punishment should be adopted to prevent a coup staged by the politicians. Furthermore, when both authorities and rebel leaders compete for support by threatening retribution against the non-supporters, both parties tend to prefer the use of harsh methods to force civilians to choose sides.
Jan 05, 2016 8:00 am, Hilton Union Square, Imperial B
American Economic Association
Predictive Cities
(H7, C1)
Presiding:
Edward L. Glaeser
(Harvard University)
Crowdsourcing City Government: Using Tournaments to Improve Inspection Accuracy
Edward L. Glaeser
(Harvard University)
Andrew Hillis
(Harvard University)
Scott Duke Kominers
(Harvard University)
Michael Luca
(Harvard University)
[View Abstract]
City governments regularly conduct inspections to assess and improve public safety. Inspected entities range from hotels and restaurants to hospitals and schools. Often, inspectors target entities randomly, and have a set number of inspections per entity per year. We examine the potential for newly available data sources, machine learning, and crowdsourcing to improve inspection targeting.
In collaboration with Yelp and the City of Boston, we ran an open tournament with a prize awarded for the algorithm that most effectively uses Yelp review text to predict Boston restaurant health and sanitation violations. Participants in the tournament had six weeks to develop and submit their algorithms, which were then evaluated based on future health inspection results. We report on the tournament process and results, and more generally assess the potential of crowdsourcing and machine learning for the design and implementation of public policy.
Personalized Risk Assessments in the Criminal Justice System
Sharad Goel
(Stanford University)
Justin M. Rao
(Microsoft Research)
Ravi Shroff
(New York University)
[View Abstract]
[Download Preview] Decisions throughout the criminal justice system suffer from real and perceived inequities
and inefficiencies. In an effort to address these concerns, judges and correctional officers have increasingly turned to statistical risk assessment tools to help improve bail, sentencing, and parole decisions. At a high-level, it is straightforward to develop and apply these tools. Historical, individual-level data are first used to estimate the likelihood of a particular adverse outcome. The fitted model is then used to compute personalized risk scores, which are in turn used to inform decisions. Here we examine New York City's stop-and-frisk program, and propose two new use cases for personalized risk assessments. First, we show that risk assessment tools can help police make considerably better real-time stop decisions, whereas traditional applications rely on detailed administrative data such as an individual's criminal record. Second, we show that risk assessment tools can not only be used to make upcoming decisions, but also to audit past actions. We argue that a significant fraction of New York City police stops were conducted on the basis of relatively weak evidence, in possible violation of constitutional protections.
Using Wide Data to Target Crime Control
Aaron Chalfin
(University of Chicago)
Zubin Jelveh
(New York University)
Michael Luca
(Harvard University)
Jens Ludwig
(University of Chicago)
[View Abstract]
In partnership with a large US city, we are developing and evaluating a machine-learning algorithm to identify people who are at elevated risk of crime involvement for the purposes of efficiently targeting crime-control resources; this paper reports on results.
StreetScore: Quantifying Urban Perception using Computer Vision and Crowdsourcing
Nikhil Naik
(Massachusetts Institute of Technology)
Jade Philipoom
(Massachusetts Institute of Technology)
Ramesh Raskar
(Massachusetts Institute of Technology)
Cesar Hidalgo
(Massachusetts Institute of Technology)
[View Abstract]
Social science literature has shown a strong connection between the visual appearance of a city’s neighborhoods and the behavior and health of its citizens. Yet, this research is limited by the lack of methods that can be used to quantify the appearance of streetscapes across cities or at high enough spatial resolutions. In this paper, we describe ‘StreetScore’, a computer vision algorithm that predicts the perceived safety of a streetscape, using training data from an online survey with contributions from more than 7000 participants. Using StreetScore, we create high resolution maps of perceived safety for 21 cities in the Northeast and Midwest of the United States at a resolution of 200 images/square mile, scoring more than 1 million images from Google Streetview. Our interactive dataset can be found at http://streetscore.media.mit.edu. Using the same online survey, we also develop algorithms that can predict the perception of wealth, beauty and liveliness in cities. We demonstrate that algorithms to quantify urban perception can help us study crime patterns, gentrification and other phenomena of interest for urban economists, urban planners and architects.
Discussants:
Susan Athey
(Stanford University)
Jan 05, 2016 8:00 am, Hilton Union Square, Continental – Parlor 2
American Economic Association
Pricing and Quantity Puzzles in International Trade and Macroeconomics
(F1, F4)
Presiding:
Giancarlo Corsetti
(University of Cambridge)
Trade Adjustment Dynamics and the Welfare Gains from Trade
George Alessandria
(Rochester University)
Horag Choi
(Monash University)
Kim Ruhl
(New York University)
[View Abstract]
[Download Preview] We build a micro-founded two-country dynamic general equilibrium model in which trade responds more to a cut in tariffs in the long run than in the short run. The model introduces a time element to the fixed-variable cost trade-off in a heterogeneous producer trade model. Thus, the dynamics of aggregate trade adjustment arise from producer-level decisions to invest in lowering their future variable export costs. The model is calibrated to match salient features of new exporter growth and provides a new estimate of the exporting technology. At the micro level, we find that new exporters commonly incur substantial losses in the first three years in the export market and that export profits are backloaded. At the macro level, the slow export expansion at the producer level leads to sluggishness in the aggregate response of exports to a change in tariffs, with a long-run trade elasticity that is 2.9 times the short-run trade elasticity. We estimate the welfare gains from trade from a cut in tariffs, taking into account the transition period. While the intensity of trade expands slowly, consumption overshoots its new steady-state level, so the welfare gains are almost 15 times larger than the long-run change in consumption. Models without this dynamic export decision underestimate the gains to lowering tariffs, particularly when constrained to also match the gradual expansion of aggregate trade flows.
Ricardian Exchange Rate Redux
Matthieu Bussiere
(Banque de France)
Guillaume Gaulier
(Banque de France)
Maurice Obstfeld
(University of California-Berkeley)
Katheryn N. Russ
(University of California-Davis)
[View Abstract]
We derive a structural model of exchange rates and prices in a Ricardian model where heterogeneous firms compete under oligopolistic competition. We use the model as the foundation for an analysis of disaggregate industry-level, bilateral trade data to demonstrate that pass-through is higher for imports from the North into developing countries than for exports to the North from developing countries, even controlling for the composition of goods. The purpose of the model is to quantify the welfare implications of exchange rate regimes when strategic pricing limits exchange rate pass-through for the least efficient firms, opening a channel for exchange rate variability to affect the size of the domestic manufacturing base.
From Micro to Macro: Demand and Supply-Side Determinants of the Trade Elasticity
Maria Bas
(CEPII)
Thierry Mayer
(Sciences Po)
Mathias Thoenig
(University of Lausanne)
[View Abstract]
[Download Preview] This paper combines two firm-level customs datasets for French and Chinese exporters to estimate the trade elasticity of exports with respect to tariffs at the firm-level. This elasticity reveals the consumer's response to a change in trade cost: a demand side parameter. We then show that, when dropping the assumption of Pareto-distributed heterogeneity, this parameter is important to explain the aggregate reaction of bilateral exports to trade cost shocks. Furthermore, in this No-Pareto case, the trade elasticity is not constant, and varies across country pairs. Using our estimated demand-side parameter and a key supply-side parameter measuring the degree of dispersion of firms' productivity, we construct the predicted bilateral elasticities under the assumption of log-normally distributed productivity. The prediction on the aggregate elasticities, and its decomposition into different margins fits well with our aggregate estimates using French and Chinese data, suggesting that both demand and supply-side determinants matter in the reaction of trade patterns to trade costs variations, and that micro-data is a key element in the estimation of the macro-level elasticity.
International Competitiveness and Monetary Policy
Giancarlo Corsetti
(University of Cambridge)
Paul R. Bergin
(University of California-Davis)
[View Abstract]
[Download Preview] Can a country gain international competitiveness by the design of optimal monetary stabilization rules? This paper reconsiders this question by specifying an open-economy monetary model encompassing a ‘production relocation externality,’ developed in trade theory to analyze the benefits from promoting entry of domestic firms in the manufacturing sector. In a macroeconomic context, this externality provides an incentive for monetary authorities to trade-off output gap with pro-competitive profit stabilization. While helping manufacturing firms to set competitively low prices, optimal pro-competitive stabilization nonetheless results in stronger terms of trade, due to the change in the country’s specialization and composition of exports. The welfare gains from international policy coordination are large relative to the case of self-oriented, strategic conduct of stabilization policy. Empirical evidence confirms that the effects of monetary policy design on the composition of trade predicted by the theory are present in data and are quantitatively important.
Discussants:
Robert C. Feenstra
(University of California-Davis)
Fabio Ghironi
(University of Washington)
Jonathan Eaton
(Brown University)
Javier Cravino
(University of Michigan)
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 21
American Economic Association
Recessions, Youth Unemployment, and the Welfare State
(J6, H1)
Presiding:
Tito Boeri
(Bocconi)
The Role of Job Mobility and Shocks in Young Workers' Careers
Till von Wachter
(University of California-Los Angeles)
Benjamin S. Smith
(University of California-Los Angeles)
Jae Song
(Social Security Administration)
[View Abstract]
Entering the labor market in recessions can have persistent effects on young workers' earnings. However, the channels through which this effect occurs are not well understood. Existing research points to job mobility as an important contributor to young workers' earnings growth. Several recent studies document that recessions are associated with a decline in aggregate job creation by high-quality firms. Hence, changes in the composition of jobs and resulting reductions in the pace and quality of job changes could be an important channel in explaining the lasting earnings effect from an unlucky start into the labor market. This paper evaluates the effect of entering the labor market in recessions and the underlying mechanisms using a matched longitudinal employer-employee data set from the U.S. Social Security Administration ranging from 1980 to 2012. The paper begins by updating information on the role of job mobility in young workers' careers from a seminal paper in this literature based on data from the 1950s-1970s. It then assesses the role of firm quality in early career growth. Finally, it analyzes to what extent changes in mobility patterns can explain lasting effects on earnings from entering the labor market in a recession either at the state or national level.
Youth Unemployment and Employment Legislation Protection
Pierre Cahuc
(CREST and Ecole Polytechnique)
Franck Malherbet
(Université de Rouen)
Julien Prat
(CREST)
[View Abstract]
[Download Preview] Young workers are exposed to higher risk of unemployment than prime age workers in large part because the job separation rate declines with age. Employment protection legislation may amplify this problem. When dismissal costs increase with tenure, young people are more likely to be laid off than the prime age workers. This phenomenon is especially true on segmented labor markets, where the high dismissal costs of permanent jobs increase the instability of temporary jobs. We provide and estimate a search and matching model that reproduces the negative relation between job separation and tenure. The model is estimated for the labor market of unskilled workers in France over the period 2003-2012. We use a discontinuity in the relation between tenure and dismissal costs to identify the red-tape costs of employment protection legislation. In France, the employers have to pay at least six months' salary to the employees in case of unfair dismissal on a permanent job if the tenure is beyond two years. Before this threshold, no minimum amount is required. This implies that employees have strong incentives to go to court in case of contract termination only when the tenure is beyond two years. Accordingly, red-tape dismissal costs increase significantly at the two-year threshold. We show that this hike in red-tape costs translates into a strong increase in the job separation rate before the two-year threshold and a huge drop just after this threshold. Our model allows us to identify, together with the drop in the job separation rate after the two-year threshold, the red-tape layoff costs. Once the layoff costs are identified, we run counterfactual analysis to evaluate their impact on labor market flows and on youth unemployment. We find that job protection has a significant impact on youth unemployment. This impact is bigger in downturns than in upturns.
Dualism, Safety Nets and Poverty: a Stress Test of the Welfare State
Tito Boeri
(Bocconi University)
Paolo Pinotti
(Bocconi University)
[View Abstract]
We draw on the performance of Social Europe(s) during recessions as a stress test of the welfare state. We focus on the responsiveness of poverty to output falls and rising unemployment in Northern and Southern Europe which have in common a dual contractual structure, but a much different social policy mix. In these two-tier labor markets unemployment increases are borne entirely by younger generations, contrary to the experience of Anglo-Saxon and Continental countries. However in Southern Europe limited unemployment insurance for workers under fixed term contracts exacerbates the impact of dualism on poverty of younger generations, whilst in Scandinavia national safety nets cushioned the effects of dualism on welfare of younger generations. We document that these holes in safety nets for young people in dual labor markets also create a problem of adequacy of pensions in the long-run.
Jan 05, 2016 8:00 am, Hilton Union Square, Golden Gate 8
American Economic Association
Technical Change and Labor Markets in History
(O3)
Presiding:
Robert Margo
(Boston University)
Time for Growth
Lars Boerner
(London School of Economics)
Battista Severgnini
(Copenhagen Business School)
[View Abstract]
[Download Preview] This paper investigates the impact of the early adaption of high-technology machines on long run economic growth. In particular we study the effect of population growth after the introduction of mechanical clocks during the late Middle Ages in European cities. Mechanical clocks were introduced in Europe for the first time at the end of the thirteen century and spread all over Europe during the following two centuries. Mechanical clocks belong to the most important general purpose technologies of the last millennium: defined as the prototypical computers by Landes (1983), mechanical clocks were the main drivers of improvement in production process and in coordination of market transactions.
To test the impact of clocks on economic growth (approximated by urban population growth), we construct a unique data-set collected from several historical sources and exempted by selection bias, where we identify the date of the adoption of the mechanical clock for all cities which have at least 5,000 inhabitants in Europe between the late 13th and the end of the 15th century. We study the causal relationship between this technology and the economic performance based on city population growth controlling for a set of institutional and geographical variables.
In our study we deal with the endogeneity problems very carefully. We use the distance from the first adapters and the geographical areas affected by different of appearance of solar eclipses as an instrument for the implementation of clocks. Historians have convincingly shown that the creation of so-called astrolabes, which were the predecessors (and technological basis) of the mechanical clocks were triggered by solar eclipses. We use these insights and use the geographical data provided by NASA of solar eclipses from 800 until the end of the 13th century.
Off the Waterfront: The Long-Run Impact of Technological Change on Dock Workers
Zouheir El-sahli
(Lund University (Sweden))
Richard Upward
(University of Nottingham)
[View Abstract]
[Download Preview] We investigate how individual workers and local labour markets adjust over a long time period to a discrete and plausibly exogenous technological shock, namely the introduction of containerisation in the UK port industry. This technology, which was introduced rapidly between the mid-1960s and the late-1970s, had dramatic consequences for specific occupations within the port industry. Using longitudinal micro-census data we follow dock-workers over a 40 year period and examine the long-run consequences of containerisation for patterns of employment, migration and mortality. Preliminary results show that the job guarantees in place up until 1989 successfully protected dock-workers’ employment up until 1991. More surprisingly, using a matched comparison of workers in comparable unskilled occupations reveals that, even after job guarantees were removed, dock-workers did not fare worse than the comparison group in terms of their labour market outcomes. Our results suggest that job guarantees may significantly reduce the cost to workers of sudden technological change, albeit at a significant cost to the industry.
Local Effects of a Military Spending Shock: Evidence from Shipbuilding in the 1930s and 1940s
Christopher Biolsi
(University of Houston)
[View Abstract]
[Download Preview] I estimate the effect of government spending at the county level using a previously little studied spending program, the Vinson-Trammell Act of 1934. This act aimed to build up the United States Navy to treaty allowances, and this effort was stimulated by fears about Japanese military expansion. From historical and contemporary sources, I identify local areas in the United States that hosted active shipyards in 1934, which I use to estimate the local effects of government spending in a time of considerable economic slack. I find that manufacturing output, value added, employment, and earnings all rise faster over the course of the 1930s in counties hosting shipyards at the time of the bill’s passage. Also, I see significantly faster growth in county level retail sales, supporting the use of a model that allows for complementarity between labor and consumption. These effects do not persist past World War II, and a study of separate ship spending during the course of the war does not reveal such positive effects. This suggests that the effects of government spending are dependent on economic conditions. Interpreting my results in the context of the model of Nakamura and Steinsson (2014), I can roughly translate them to an aggregate government spending multiplier that may be as high as 7 to 9 when the monetary authority pursues a constant nominal interest rate policy.
The Local Economic Impacts of Military Personnel Contractions
Ben Zou
(University of Maryland)
[View Abstract]
[Download Preview] The Post-Reagan military personnel contractions in the United States between 1988 and 2000 shrank the size of the U.S. military by 30 percent, hundreds of local economies hosting military bases were affected. As military personnel pull out of a locale, demands for local labor, housing, and locally-traded goods decline. This paper jointly estimates the impacts of this personnel reduction on the short-run dynamic and long-run equilibrium quantities and prices of local labor markets, local housing markets, and local product markets, and calculate welfare impacts on variables local economic stakeholders. Empirically, this paper shows that the widely used shift-share instrument, which uses the product between local historical levels and contemporaneous macro changes to instrument for local changes, can be invalid and thus lead to inconsistent estimates. This is because local historical levels can be driven by some unobservable local characteristics that affect the outcome variable via other channels. In order to establish causal identification, this paper proposes and estimates a two-step empirical model combining synthetic control and instrumental variables methods. I find that Military personnel contractions have sizable effects on civilian employment levels and the numbers of private businesses. But this employment reduction translates into out-migration of local civilian residents to other jurisdictions, resulting in a drop in rental prices that is larger than the drop in wages. This paper then builds a simple spatial equilibrium model that describes the equilibrium conditions and derives expressions for welfare calculation. Relating them to the econometric estimates, it is shown that the welfare cost on workers is small while that on landowners is sizable. Finally, a dynamic analysis shows that local economies achieve new equilibria within two to three years after the shock.
Jan 05, 2016 8:00 am, Hilton Union Square, Yosemite B
American Economic Association
The Economics of Peer to Peer Markets
(D2)
Presiding:
John Joseph Horton
(New York University)
Peer-to-Peer Rental Markets: Some Simple Economics of the “Sharing Economy”
John Joseph Horton
(New York University)
Richard Zeckhauser
(Harvard University)
[View Abstract]
The emergence of peer-to-peer rental markets allow owners of durable goods to rent out their excess capacity to non-owners. When the rental market emerges, both owners and non-owners economize on their usage until the market clears. Rental rates are increasing in consumer valuations, as a higher valuation increases demand or reduces supply among non-owners and owners, respectively. If the pre-rental market excess capacity of owners exceeds the capacity demanded by non-owners, a glut is possible. In the long-run, all consumers can revise their ownership decisions and when this occurs, the rental rate equals the product market purchase price and ownership does not depend on consumer valuation. The fraction of consumers owning in the long-run is the population average usage rate. If the market-clearing short-run rental rate is above the purchase price, ownership will increase in the long-run. In the long-run and short-run rental markets, the unlocked social surplus is increasing in the valuation of former non-owners and decreasing in the valuation of owners, though both groups see welfare increase in both the long- and short-runs. In the long-run P2P rental market a higher product market price is supportable, as owners can partially offset the purchase price through rental income. Because long-run rental rates equal the purchase price and consumers derive consumption value from the good even without rental, firms are not competitive in the long-run rental market.
Market Structure with the Entry of Peer-to-Peer Platforms: The Case of Hotels and Airbnb
Chiara Farronato
(Harvard Business School)
Andrey Fradkin
(Massachusetts Institute of Technology)
[View Abstract]
Online marketplaces have reduced entry costs across a variety of industries. These marketplaces allow small and part-time service providers (peers) to participate in economic exchange, often in competition with more traditional suppliers. For example, Airbnb and Uber allow almost anyone to become a hotelier or a cab driver. We first characterize market conditions favoring the entry of peer producers. In the context of the accommodation industry, we verify that across US major cities larger Airbnb presence is associated with low opportunity costs of renting out spare rooms, high investment costs of building hotels, and high demand volatility. We then provide reduced form evidence on the effect of Airbnb entry on hotels revenue, and highlight important city heterogeneity. We then derive a simple model of competition between a peer-to-peer marketplace and hotels to explain our reduced form findings. Lastly, we discuss preliminary work in estimating this model. This model allows us to determine the efficient market structure conditional on the level and variability of demand, and to quantify the welfare gains from peer-to-peer entry in the accommodation industry.
Outsourcing Tasks Online: Matching Supply and Demand on Peer-to-Peer Internet Platforms
Zoe Cullen
(Stanford University)
Chiara Farronato
(Harvard Business School)
[View Abstract]
[Download Preview] We study a central economic problem for peer-to-peer online marketplaces: how to create successful matches when demand and supply are highly variable. To do this, we develop a parsimonious model of a frictional matching market for services, which lets us derive the elasticity of labor demand and supply, the split of surplus between buyers and sellers, and the efficiency with which requests and offers for services are successfully matched. We estimate the model using data from TaskRabbit, a rapidly expanding platform for domestic tasks, and report three main findings. First, supply is highly elastic: in periods when demand doubles, sellers work almost twice as hard, prices hardly increase and the the probability of requested tasks being matched only slightly falls. Second, we estimate average gains from each trade to be $37. Because of the matching frictions and search costs needed to find potential matches, the ex-ante gains are more modest, but are maximized by the elastic labor supply: if the number of hours worked were held constant, there would be 15 percent fewer matches in equilibrium. Third, we find that platform success varies greatly across cities. The cities which grow fast in the number of users are also those where the market fundamentals promote efficient matching of buyers and sellers. This heterogeneity in matching efficiency is not attributable to scale economies, but is instead related to two measures of market thickness: geographic density (buyers and sellers living close together), and level of task standardization (buyers requesting homogeneous tasks).
Peer-to-Peer Rental Markets in the Sharing Economy
Samuel Fraiberger
(New York University)
Arun Sundararajan
(New York University)
[View Abstract]
[Download Preview] To investigate whether peer-to-peer rental markets for durable goods are welfare-improving, we develop a new dynamic model of such markets in which users with heterogeneous utilization rates may also trade in secondary markets. We calibrate our model with US automobile industry data and transaction-level data from Getaround, a large peer-to-peer car rental marketplace. Counterfactual analyses illustrate significant shifts away from asset ownership as access to the 'sharing economy' grows. Used-good prices fall and replacement rates rise, while gains in consumer surplus range from 0.8\% to 6.6\%. The changes in consumption mix and the surplus increases are significantly more pronounced for below-median income consumers.
Discussants:
Hal Varian
(Google)
Chris Nosko
(University of Chicago)
Tom Blake
(eBay)
Jonathan Hall
(Uber Technologies)
Jan 05, 2016 8:00 am, Hilton Union Square, Continental Parlors 7 & 8
American Economic Association
Trade and Growth
(F1, O1)
Presiding:
John Van Reenen
(London School of Economics)
Trade Collapse and Policy Uncertainty in the Great Recession
Jeronimo Carballo
(University of Colorado)
Kyle Handley
(University of Michigan)
Nuno Limão
(University of Maryland)
[View Abstract]
[Download Preview] The recent "Great Recession" and slow recovery renewed concerns about the impact of uncertainty on economic activity. Most frameworks used to study such impacts focus on uncertainty from purely economic shocks but omit uncertainty about future policy. This paper models the interaction of economic and policy uncertainty, estimates their impact on firms' international trade decisions during the Great Recession, and examines whether trade agreements mitigated the effects of uncertainty.
We first document the trade dynamics of U.S. firms during the recent Great Trade Collapse (GTC) and recovery. Among other things, we find that a considerable share of the drop in U.S. export value during the collapse is due to the net exit of firms from trading. We then develop a dynamic model with sunk costs of entry and exit into foreign markets where heterogeneous firms face demand uncertainty in both policy and economic conditions. The model predicts that the impact of economic uncertainty shocks on firm entry and exit is amplified if lower income is associated with higher trade protection, as was the case in the Great Depression and until recently. For example, the possibility of trade wars or rising protectionism were widely discussed at the start of the GTC. Agreements where countries credibly fix their trade barriers may reduce both the direct impact of trade policy uncertainty and dampen the effect of economic uncertainty.
Using model-consistent measures of uncertainty we estimate the impact of economic and policy uncertainty on firms' export entry and exit decisions. We find that uncertainty has a negative impact on the number of firm-product varieties exported by the US and that its effect increased during the GTC compared to the baseline period of 2002-2008. The effect peaks during the first four quarters of the GTC and then decreases. Moreover, the negative impact of economic and policy uncertainty during the GTC is weaker for export to countries where the US has preferential trade agreements (PTAs); this differential effect disappears by 2011. The impact of uncertainty is relatively stronger in industries where the importer has higher potential tariffs; this difference is only present in non-PTA countries, as expected if PTAs have low probability of a trade war. The findings suggest that PTAs reduced uncertainty by providing insurance against protectionism and in doing so also mitigated the effects of economic uncertainty.
Commuting, Migration and Local Employment Elasticities
Ferdinando Monte
(Johns Hopkins University)
Stephen J. Redding
(Princeton University)
Esteban Rossi-Hansberg
(Princeton University)
[View Abstract]
[Download Preview] Many changes in the economic environment are local, including policies and infrastructure.
The effect of these changes depends crucially on the ability of factors to move in response. Therefore
a key object of interest is the elasticity of local employment to these changes in the economic
environment, which depends on commuting and migration. We develop a quantitative general
equilibrium model that incorporates spatial linkages between locations in goods markets (trade)
and factor markets (commuting and migration). We find substantial heterogeneity across locations
in local employment elasticities depending on their characteristics. We show that this heterogeneity
is important for the effects of a variety of policies and exogenous shocks. We show that treating
locations as independent spatial units in cross-section regressions can lead to quantitatively relevant
discrepancies between the true and predicated impacts of local economic shocks.
Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade
David Donaldson
(Stanford University)
Rodrigo Adao
(Massachusetts Institute of Technology)
Arnaud Costinot
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] We develop a methodology to construct nonparametric counterfactual predictions, free of functional-form restrictions on preferences and technology, in neoclassical mod- els of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China’s recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.
Managing Trade in China and the U.S.
Nicholas Bloom
(Stanford University)
Kalina Manova
(Stanford University)
Stephen Sun
(Stanford University)
John Van Reenen
(London School of Economics)
Zhihong Yu
(University of Nottingham)
[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 1999-2008 and over 10,000 US firms in 2010. Better managed firms are more likely to export, sell more products to more markets, and have higher export sales. Management plays a distinct role from TFP and is disproportionately more important for exporting than for overall output. Better managed Chinese firms charge higher export prices within narrow destination-product markets, but do not sell higher quantities. By contrast, better managed US firms sell higher quantities within narrow destination-product markets, but do not charge higher prices. Better managed firms in both China and the US use more imported inputs and import more expensive inputs from more and richer countries of origins. These results suggest that superior managerial practices enhance firms’ trade performance by allowing them to more efficiently produce more complex goods of higher quality, but that US and Chinese firms operate at different segments of the quality distribution. Inferior managerial practices may thus be an important obstacle for developing nations that depend on trade for economic growth.
Jan 05, 2016 8:00 am, Hilton Union Square, Golden Gate 1 & 2
American Economic Association
Using Information Technology to Improve Public Programs: Evidence from Asia, Africa, and Latin America
(O1, H8)
Presiding:
Karthik Muralidharan
(University of California-San Diego)
Can E-Governance Reduce Capture of Public Programs? Experimental Evidence from a Financial Reform of India's Employment Guarantee
Abhijit Banerjee
(Massachusetts Institute of Technology)
Esther Duflo
(Massachusetts Institute of Technology)
Clement Imbert
(Oxford University)
Santosh Mathew
(Government of India)
Rohini Pande
(Harvard University)
[View Abstract]
Traditionally, fund flow to local bodies responsible for implementing social programs is based on intended expenditure ratified by higher levels of administration. This paper reports on a field experiment which evaluated an e-governance reform of the fund-flow system for the workfare program in the Indian state of Bihar. The reform changed the traditional fund flow practice by instead conditioning fund disbursement for wage payments on incurred expenditure as reflected in worker detail entry on a new electronic platform. This reform reduced the number of administrative tiers associated with wage disbursement and changed the informational requirements for requesting and disbursing program funds. We find that fund transfers to local bodies declined by 38%, program expenditure and reported employment declined by 25%, but with no discernible impact on actual employment as measured by independent surveys. Our results suggest that e-governance can improve public funds management and reduce leakages but may not by itself improve public service delivery.
Pay for Locally Monitored Performance? A Welfare Analysis for Teacher Attendance in Uganda
Jacobus Cilliers
(Georgetown University)
Ibrahim Kasirye
(Economic Policy Research Center)
Clare Leaver
(Oxford University)
Pieter Serneels
(University of East Anglia)
Andrew Zeitlin
(Georgetown University)
[View Abstract]
[Download Preview] To improve service delivery public sector organizations often rely on reports from interested parties that are costly to verify. If accurate, this information can then serve the dual purpose of incentivizing performance and reducing policy mistakes. Received wisdom suggests that the benefit of raising performance via financial incentives should be balanced against the risk of collusion between agent and monitor, resulting in false reporting. We evaluate two different forms of local monitoring by head-teachers of Ugandan primary schools, randomly varying whether reports of teacher attendance trigger financial incentive payments or not. A theoretical model provides a normative framework to make welfare comparisons, taking into account teacher attendance, the cost of monitoring, as well as policy mistakes due to false reporting. Consistent with the model, we find that teacher attendance, monitoring frequency, and the number of false reports all increased with the introduction of financial incentives. More surprisingly, but again consistent with the theory, we find that the number of policy mistakes actually decreases with incentives: there were more false reports but this effect was counter-balanced by more reports in general and (hence) fewer mistakes caused by a lack of information. We combine empirical estimates with the theoretical framework to bound welfare gains from attaching financial incentives to local reports, and conclude that welfare was higher with financial incentives.
General Equilibrium Effects of (Improving) Public Employment Programs: Experimental Evidence from India
Karthik Muralidharan
(University of California-San Diego)
Paul Niehaus
(University of California-San Diego)
Sandip Sukhtankar
(Dartmouth College)
[View Abstract]
How do public employment programs affect the markets in which the poor live and work? Progress on this question has been slow, as non-experimental estimates based on program rollout are often sensitive to methodology and unable to capture the effects of mature, steady-state implementation. In this paper we exploit an unusual opportunity to estimate general equilibrium effects experimentally, using large-scale randomized assignment of an improvement to the implementation of India's public employment scheme. We find that this intervention raised private-sector wages (5.4%) and household earnings (13%) substantially. The vast majority (88%) of the earnings increase came from private sector as opposed to program earnings, underscoring the importance of measuring general equilibrium impacts. Interestingly, we do not find evidence of corresponding labor market distortions, with private sector labor supply weakly increasing and overall agricultural activity, as proxied by vegetation, increasing significantly. We discuss both practical policy implications and connections to older debates over equity, efficiency, and political economy in the process of development.
Discussants:
Paul Niehaus
(University of California-San Diego)
Clement Imbert
(Oxford University)
Ashok Kotwal
(University of British Columbia)
Jan 05, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Bankruptcy and Distress
(G3)
Presiding:
Nittai Bergman
(Massachusetts Institute of Technology)
Debtor Protection, Credit Redistribution, and Income Inequality
Hamid Boustanifar
(BI Norwegian Business School)
Geraldo Cerqueiro
(Universidade Católica Portuguesa)
Maria Penas
(Tilburg University)
[View Abstract]
[Download Preview] A debtor-friendly bankruptcy regime limits the amount of assets creditors can seize from distressed individuals. In response, creditors may redistribute credit towards richer and more able individuals. We show that increasing the amount of asset protection in bankruptcy (exemptions) leads to higher income inequality in the state. Using geographic variation in banking market structure and variation in capital needs across industries, we show that the increase in income inequality is mediated by a credit market channel. We analyze different population groups and find that the increase in inequality is driven by a growing income gap between unskilled and skilled individuals that affects both self-employed and wage workers. We also find a drop in the employment rate and in the relative wage of unskilled workers.
Our results indicate that the redistribution of credit leads to an imbalance in economic opportunities among entrepreneurs that reduces the aggregate demand for unskilled labor.
Cashing Out: The Rise of M&A in Bankruptcy
Stuart Gilson
(Harvard University)
Edie Hotchkiss
(Boston College)
Matthew Osborn
(Boston College)
[View Abstract]
The use of M&A in bankruptcy has increased dramatically, leading to concerns that Chapter 11 leads to excessive liquidation of viable firms. In this paper, we argue that the rise of M&A has blurred traditional distinctions between “reorganization” and “liquidation”. We examine the drivers of M&A activity, based on factors specific to Chapter 11 as well as more general factors that drive M&A waves for non-distressed firms. M&A in bankruptcy is counter-cyclical, and is more likely when the costs of financing a reorganization are greater than financing costs to a potential acquirer. Consistent with a senior creditor liquidation bias, the greater use of secured debt leads to more sales in bankruptcy – but, this result holds only for sales that preserve going concern value. We also show that overall creditor recovery rates are higher, and unsecured creditor recoveries and post-bankruptcy survival rates are not different, when bankrupt firms sell businesses as going concerns.
Are US Industries Becoming More Concentrated?
Gustavo Grullon
(Rice University)
Yelena Larkin
(Pennsylvania State University)
Roni Michaely
(Cornell University)
[View Abstract]
[Download Preview] More than 90% of U.S. industries have experienced an increase in concentration levels over the last two decades. Firms in industries with the largest increase in product market concentration have enjoyed higher profit margins, positive abnormal stock returns, and more profitable M&A deals, suggesting that market power is becoming an important source of value. This phenomenon has been mainly driven by the consolidation of publicly-traded firms into larger entities. The increased level of concentration due to public firms' consolidation has not been offset by a larger presence of private or foreign firms. Overall, our findings suggest that the nature of U.S. product markets has undergone a structural shift that has weakened competition.
Discussants:
Felipe Severino
(Dartmouth College)
Yaniv Grinstein
(Cornell University and IDC Hertzliya)
Rajkamal Iyer
(Massachusetts Institute of Technology)
Jan 05, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Banks, Downturns, and Disasters
(G2)
Presiding:
Philipp Schnabl
(New York University)
Pledgeability, Industry Liquidity , and Financing Cycles
Douglas Diamond
(University of Chicago)
Yunzhi Hu
(University of Chicago)
Raghuram Rajan
(University of Chicago and RBI)
[View Abstract]
[Download Preview] Why are downturns following episodes of high valuations of firms, which were forecast to likely persist, so severe and prolonged? In this paper, we provide a non-traditional approach to debt overhang (which extends to more general financial contracts). It links current access to finance to high prior valuations of an industry and to previous (rational) optimism about its value. In doing so, we differentiate between the control rights over asset sales, which are sufficient to enforce external claims only in a boom, and a firm’s choice of pledgeability (control rights over cash flows) which enables the enforcement of external claims in a downturn. The endogenous choice of pledgeability causes debt built up in a boom to have long-drawn adverse effects in a downturn, which may not be resolved by renegotiation.
Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market
Giovanni Favara
(Federal Reserve Board)
Mariassunta Giannetti
(Stockholm School of Economics)
[View Abstract]
[Download Preview] We provide evidence that lenders di¤er in their ex post incentives to internalize price-
default externalities associated with the liquidation of collateralized debt. Using the
mortgage market as a laboratory, we conjecture that lenders with a large share of
outstanding mortgages on their balance sheets internalize the negative spillovers as-
sociated with the liquidation of defaulting mortgages and are thus less inclined to
foreclose. We find that zip codes with higher concentration of outstanding mortgages
experience fewer foreclosures, more renegotiations of delinquent mortgages, and smaller
house prices declines. These results are not driven by prior local economic conditions,
mortgage securitization or unobservable lender characteristics.
Aggregate Implications of Corporate Debt Choices
Nicolas Crouzet
(Northwestern University)
[View Abstract]
This paper studies the transmission of financial shocks in a model where corporate credit is intermediated via both banks and bond markets. In choosing between bank and bond financing, firms trade the greater flexibility of banks in case of financial distress against the lower marginal costs of large bond issuances. I find that, in response to a contraction in bank credit supply, aggregate bond issuance increases, but not enough to avoid a decline in aggregate borrowing and investment. Retiring bank loans while keeping total leverage constant would expose firms to a larger risk of financial distress; they set this by reducing total borrowing. A calibration of the model to the Great Recession indicates that this precautionary mechanism can account for one-third of the total decline in investment by firms with access to public debt markets.
Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters
Kristle Cortes
(Federal Reserve Bank of Cleveland)
Philip Strahan
(Boston College)
[View Abstract]
[Download Preview] Multi-market banks reallocate capital when local credit demand increases after natural disasters. Following such events, credit in unaffected but connected markets declines by about 50 cents per dollar of additional lending in shocked areas, but most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear better able than smaller ones to shield credit supplied to their core markets (those with branches) by aggressively cutting back lending outside those markets.
Discussants:
Adriano Rampini
(Duke University)
Amir Kermani
(University of California-Berkeley)
Pablo Kurlat
(Stanford University)
Andres Liberman
(New York University )
Jan 05, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Behavioral Finance: Investor Behavior and Asset Prices
(G1)
Presiding:
Cary Frydman
(University of Southern California)
Endowment Effects in the Field: Evidence from India's IPO Lotteries
Santosh Anagol
(University of Pennsylvania)
Vimal Balasubramaniam
(University of Oxford)
Tarun Ramadorai
(University of Oxford)
[View Abstract]
[Download Preview] Winners of randomly assigned initial public offering (IPO) lottery shares are significantly
more likely to hold the shares of the company than lottery losers 1, 6, and
even 24 months after the lottery allocation. These effects persist in samples of wealthy
and highly active players, and we provide additional evidence that this type of “endowment”
effect is not driven by wealth effects or inertia alone. The effect decreases
as experience in the IPO market increases, but persists even for the most experienced
players. These results suggest that players’ preferences and/or beliefs about an asset
are not independent of ownership, providing field evidence derived from the behavior
of 1.5 million Indian stock investors which is in line with the large laboratory literature
that documents such effects.
Asset Pricing with Horizon-Dependent Risk Aversion
Marianne Andries
(Toulouse School of Economics)
Thomas Eisenbach
(Federal Reserve Bank of New York)
Martin Schmalz
(University of Michigan)
[View Abstract]
[Download Preview] We study general equilibrium asset prices in a multi-period endowment economy when agents’ risk aversion is allowed to depend on the horizon of the risk. In our pseudo-recursive preference framework, agents are time inconsistent for intra- temporal tradeoffs but time consistent for inter-temporal tradeoffs. Under standard log-normal consumption growth, we find that horizon-dependent risk aversion affects the pricing of risk if and only if volatility is stochastic. When risk aversion decreases with the horizon – as indicated by lab experiments – and the elasticity of intertemporal substitution is greater than 1, our model results in a downward sloping term structure of risk prices. The model can therefore explain the recent empirical results on the term structure of risky asset returns.
Pre-Earnings Announcement Over-Extrapolation
Aytekin Ertan
(London Business School)
Stephen Karolyi
(Carnegie Mellon University)
Peter Kelly
(Yale University)
Robert Stoumbos
(Yale University)
[View Abstract]
We uncover evidence that individual investors over-extrapolate from past returns. Specifically, we study the relation between previous earnings announcement returns and investor beliefs regarding subsequent earnings announcement returns. Consistent with models of over-extrapolation, we find that investors become overly optimistic about the firm's future prospects after positive earnings announcement returns. This leads to predictable patterns in returns both before and after earnings announcements: If a firm is in the top decile of our extrapolated return measure, we expect a 5-day pre-earnings announcement return 27 basis points more than all other 5-day pre-earnings announcement returns, and a 5-day post-earnings announcement return 23 basis points lower than all other 5-day post-earnings announcement returns.
Discussants:
Ulrike Malmendier
(University of California-Berkeley)
Nikolai Roussanov
(University of Pennsylvania)
Robin Greenwood
(Harvard Business School)
Jan 05, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Competition, Contracting Frictions, and Commodity Markets: Implications for Asset Prices
(G1)
Presiding:
Frederico Belo
(University of Minnesota and NBER)
The Globalization Risk Premium
Jean-Noel Barrot
(Massachusetts Institute of Technology)
Erik Loualiche
(Massachusetts Institute of Technology)
Julien Sauvagnat
(ENSAE-CREST)
[View Abstract]
[Download Preview] We investigate how globalization is reflected in asset prices. We use shipping costs to measure U.S. firms' exposure to globalization. We find that firms in low shipping cost industries carry a 7.8 percent risk premium, suggesting that their cash-flows covary negatively with the representative investor's marginal utility. To understand the origins of this globalization risk premium, we develop a dynamic general equilibrium model of trade and asset prices. Guided by the model, we find that the premium emanates from the risk of displacement of least efficient firms triggered by import competition. These findings suggest that foreign productivity shocks are perceived as being associated with lower consumption growth by the representative U.S. investor.
Competition, Markups and Predictable Returns
Alexandre Corhay
(University of British Columbia)
Howard Kung
(London Business School)
Lukas Schmid
(Duke University)
[View Abstract]
Imperfect competition is a significant source of time-varying risk premia in asset markets. We embed a structural IO setup of imperfectly competitive industries into a general equilibrium production-based asset pricing model with recursive preferences. Movements in profit opportunities affect business formation and industry composition, and hence firms' competitive environment. We
find that endogenous variation in industry concentration and competitive pressure amplifies and propagates macroeconomic risk asymmetrically. Endogenous countercyclical
markups slow down demand and recoveries during downturns while procyclical profits render financial assets risky. The model predicts a sizeable and endogenously countercyclical equity premium which is forecastable with measures of markups and the intensity of new firm creation (entry), and a U-shaped term structure of equity returns. We find strong empirical support for these predictions in the data.
Carlstrom and Fuerst meets Epstein and Zin: The Asset Pricing Implications of Contracting Frictions
Joao Gomes
(University of Pennsylvania)
Ram Yamarthy
(University of Pennsylvania)
Amir Yaron
(University of Pennsylvania)
[View Abstract]
Models with financial frictions have been shown to create persistence effects in macroeconomic fluctuations. We test the ability that Costly State Verification (CSV) has to generate empirically plausible risk exposures in asset markets, when households have recursive preferences and productivity shocks are in the style of Long Run Risks. After embedding these mechanisms into a macroeconomic model with financial intermediation, we find that the CSV friction is negligible in realistically augmenting the equity risk premium. While the friction acts as a micro-foundation for adjustment costs to capital, its contribution to asset markets is not significant. Instead direct costs of capital adjustment are much more meaningful in reaching quantitative targets at the business cycle frequency.
Oil Consumption, Economic Growth, and Oil Futures
Robert Ready
(University of Rochester)
[View Abstract]
[Download Preview] I present evidence that increases in the cost of hedging oil price exposure in futures markets from 2005 to 2012 coincided with increases in uncertainty about long-run oil supplies. Motivated by these results, I provide new evidence on the relations between oil consumption, oil prices, and economic growth, and build on this evidence to develop a quantitative real business cycle model to study oil price risk. Calibrated model results can match relations between oil prices and economic quantities, and can rationalize behavior in equity and futures markets as a consequence of changing risk premia driven by increases in long-run oil supply uncertainty.
Discussants:
Maria Cecilia Bustamante
(University of Maryland)
Francisco Palomino
(University of Michigan)
Hengjie Ai
(University of Minnesota)
Lars Lochstoer
(Columbia University)
Jan 05, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
Corporate Control - Governance
(G3)
Presiding:
Alex Edmans
(London Business School)
Do Long-Term Investors Improve Corporate Decision Making?
Jarrad Harford
(University of Washington)
Ambrus Kecskes
(York University)
Sattar Mansi
(Virginia Tech)
[View Abstract]
[Download Preview] We study the effect of investor horizons on a comprehensive set of corporate decisions. Long-term investors have the means and motive to monitor corporate managers, which generates corporate decisions that are consistent with shareholder value maximization. We find that long-term investors restrain numerous corporate misbehaviors such as earnings management and financial fraud and strengthen internal governance. They discourage a range of investment and financing activities but encourage payouts. Shareholders benefit through higher stock returns, greater profitability, and lower risk. Firms diversify their operations. We use a popular identification strategy to establish causality of our results.
Wolf Pack Activism
Alon Brav
(Duke University)
Amil Dasgupta
(London School of Economics)
Richmond Mathews
(University of Maryland)
[View Abstract]
[Download Preview] It is alleged that institutional investors coordinate with each other when intervening in a target firm, with one acting as the “lead” activist and others as peripheral activists, or “wolf pack” members. We present a model of wolf pack activism. Our model formalizes a source of complementarity across the engagement strategies of activists and highlights the catalytic role played by the lead activist. We also characterize share acquisition by wolf pack members and the lead activist, providing testable implications on ownership and price dynamics in wolf pack formation.
Donor Governance and Financial Management in Prominent U.S. Art Museums
David Yermack
(New York University)
[View Abstract]
[Download Preview] [Download PowerPoint] I study “donor governance,” which occurs when contributors to non-profit firms place restrictions on their gifts to limit the discretion of managers. In a study of U.S. art museums, I find that this practice has grown significantly in recent years, and it represents the largest source of permanent capital in the industry. When donor restrictions are strong, museums shift their cost structures away from administration and toward program services, and they exhibit very high savings rates, retaining in their endowments 45 cents of each incremental dollar donated. Retention rates are near zero for cash generated from other activities. Restricted donations appear to stabilize non-profits and significantly influence their activities, but they reduce management flexibility and may contribute to lower profit margins. Rising donor governance in U.S. art museums may represent a reaction by contributors to the industry’s high rates of financial distress, weak boards of trustees, and large private benefits of control enjoyed by managers.
Board Groupthink
Jeffrey Coles
(University of Utah)
Naveen Daniel
(Drexel University)
Lalitha Naveen
(Temple University)
[View Abstract]
[Download Preview] Corporate boards are comprised of individual directors but make decisions as a group. The
quality of their decisions affects firm value. In this study, we focus on one aspect of board
structure–– director overlap––the overlap in service for a given pair of directors in a given firm,
averaged across all director pairs in the firm. Greater overlap among directors can lead to
negative synergies through groupthink, a mode of thinking by highly cohesive groups where the
desire for consensus potentially overrides critical evaluation of all possible alternatives.
Alternatively, greater overlap can lead to positive synergies through a reduction in coordination
and communication costs, resulting in more effective teamwork. We hypothesize that: (i)
director overlap will have a more negative effect on firm value for dynamic firms, which value
critical thinking and hence stand to lose more from groupthink; and (ii) director overlap will
have a more positive effect on firm value in complex firms, which have higher coordination costs
and hence benefit from better teamwork. We find results consistent with our predictions. Our
results have implications for the term limits of directors because term limits impose a ceiling on
director overlap.
Discussants:
Andrew Winton
(University of Minnesota)
Amy Dittmar
(University of Michigan)
Michael Weisbach
(Ohio State University)
David Denis
(University of Pittsburgh)
Jan 05, 2016 8:00 am, Marriott Marquis, Nob Hill A & B
American Finance Association
Hedge Funds
(G1)
Presiding:
Bing Liang
(University of Massachusetts-Amherst)
The Capacity of Trading Strategies
Augustin Landier
(Toulouse School of Economics)
David Thesmar
(HEC and CEPR)
[View Abstract]
[Download Preview] [Download PowerPoint]
Due to non-linear transaction costs, the financial performance of a trading strategy decreases with portfolio size. Using a dynamic trading model a la Garleanu-Pedersen (2012), we derive closed-form formulas for the performance-to-scale frontier reached by a trader endowed with a signal predicting stock returns. The decay with scale of the realized Sharpe ratio is slower for strategies that (1) trade more liquid stocks (2) are based on signals that do not fade away quickly and (3) have strong frictionless performance. For an investor ready to accept a Sharpe reduction by 30%, portfolio scale (measured in dollar volatility) is given by SR*/(10 lambda phi)^2, where SR* is the frictionless Sharpe, lambda a measure of price impact, and phi a measure of the speed at which the signal fades away. We apply the framework to four well-known strategies. Because stocks have become more liquid, the capacity of strategies has increased in the 2000s compared to the 1990s. Due to high signal persistence, the capacity of a ``quality" strategy is an order of magnitude larger than the others and is the only one highly scalable in the mid-cap range.
The Role of Hedge Funds in the Security Price Formation Process
Charles Cao
(Pennsylvania State University)
Yong Chen
(Texas A&M University)
William N. Goetzmann
(Yale University)
Bing Liang
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] Using a comprehensive dataset of stock holdings by hedge funds, we examine the role of hedge funds in the price formation process. Compared to other institutional investors, hedge funds tend to hold stocks that plot above the security market plane, i.e., positive-alpha stocks. Focusing on positive-alpha stocks provides a setting in which theory makes clear predictions about how arbitrageurs should hold and trade mispriced assets, and how their activities should predict future stock returns. We find that in the cross-section of stocks, hedge fund ownership and trades are positively related to the degree of mispricing and arbitrage costs. A portfolio of positive-alpha stocks with high hedge fund ownership generates an out-of-sample risk-adjusted return of 0.48% per month, significantly higher than a counterpart of low hedge fund ownership. Hedge fund ownership and trades also precede the dissipation of positive alpha. By contrast, all these patterns are nonexistent or much weaker in stocks held by non-hedge fund institutions. The findings are robust to alternative benchmark models and alpha measures. Overall, our results suggest that hedge funds exploit and reduce stock mispricing.
Arbitrage Trading: The Long and the Short of it
Yong Chen
(Texas A&M University)
Zhi Da
(University of Notre Dame)
Dayong Huang
(University of North Carolina-Greensboro)
[View Abstract]
[Download Preview] We measure arbitrage trading on both the long- and the short-sides by merging hedge fund equity holdings with short interest. Over time, aggregate hedge fund holdings track aggregate short interest well, and both have grown dramatically since the early 1990s. In the cross section, the difference between abnormal hedge fund holdings and abnormal short interest, which captures net arbitrage trading activity on a stock, strongly predicts future stock returns. When examining a broad set of asset pricing anomalies, we find anomaly returns to come exclusively from about 30% of the anomaly stocks that are traded by arbitrageurs. These stocks are also hard to arbitrage on average. Overall, our findings confirm that mispricing arises from limits to arbitrage and arbitrage trading is informative about mispricing.
Volatility of Aggregate Volatility and Hedge Fund Returns
Vikas Agarwal
(Georgia State University)
Yakup Arisoy
(Université Paris Dauphine)
Narayan Y Naik
(London Business School)
[View Abstract]
[Download Preview] This paper investigates empirically whether uncertainty about volatility of the market portfolio can explain the performance of hedge funds both in the cross-section and over time. We measure uncertainty about volatility of the market portfolio via volatility of aggregate volatility (VOV) and construct an investable version of this measure by computing monthly returns on lookback straddles on the VIX index. We find that VOV exposure is a significant determinant of hedge fund returns at the overall index level, at different strategy levels, and at an individual fund level. After controlling for a large set of fund characteristics, we document a robust and significant negative risk premium for VOV exposure in the cross-section of hedge fund returns. We further show that strategies with less negative VOV betas outperform their counterparts during the financial crisis period when uncertainty was at its highest. On the contrary, strategies with more negative VOV betas generate superior returns when uncertainty in the market is less. Finally, we demonstrate that VOV exposure-return relationship of hedge funds is distinct from that of mutual funds and is consistent with the dynamic trading of hedge funds and risk-taking incentives arising from performance-based compensation of hedge funds.
Discussants:
Lasse Pedersen
(Copenhagen Business School and New York University)
David McLean
(DePaul University)
Byoung-Hyoun Hwang
(Cornell University)
Gurdip Bakshi
(University of Maryland)
Jan 05, 2016 8:00 am, Marriott Marquis, Nob Hill C & D
American Finance Association
Networks and Local Knowledge
(G1)
Presiding:
Johan Walden
(University of California-Berkeley)
Network Centrality and Pension Fund Performance
David Blake
(Pensions Insitute)
Alberto Rossi
(University of Maryland-College Park)
Allan Timmermann
(University of California-San Diego)
Ian Tonks
(University of Bath)
Russ Wermers
(University of Maryland)
[View Abstract]
[Download Preview] We analyze the relation between the location of a pension fund in its network and the investment performance, risk taking, and flows of the fund. Our approach analyzes the centrality of the fund's management company by examining the number of connections it has with other management companies through their commonality in managing for the same fund sponsors or through the same fund consultants. Network centrality is found to be positively associated with risk-adjusted return performance and growth in assets under management, after controlling for size and past performance, for domestic asset classes; however, we do not find this relation for foreign equity holdings. These findings indicate that local information advantages, which are much stronger among managers holding locally based stocks, exhibit positive externalities among connected managers. Of particular note is that we do not find that the centrality of a manager within one asset class (e.g., domestic bonds) helps the performance of the manager in another asset class (e.g., domestic equity), further indicating that our network analysis uncovers information diffusion effects. Network connections established through consultants are found to be particularly significant in explaining performance and fund flows, consistent with consultants acting as an important information conduit through which managers learn about each other's actions. Moreover, the importance of network centrality is strongest for larger funds, controlling for any economic scale effects. Better connected funds are also better able to attract higher net inflows for a given level of past return performance. Finally, more centrally placed fund managers are less likely to be fired after spells of low performance. Our results indicate that networks in asset management are one key source of the dissemination of private information about security values.
The Risk Sharing Benefit Versus the Collateral Cost: The Formation of the Inter-Dealer Network in Over-the-Counter Trading
Zhuo Zhong
(University of Melbourne)
[View Abstract]
The decentralized over-the-counter (OTC) market generates a trading network among dealers. In this paper, I model the driver behind the formation of this inter-dealer network (the selling network in particular) as the need for dealers to share risk. The trade-off between the benefit of risk-sharing and the funding cost of collateral determines the shape of the inter-dealer network. In equilibrium, dealers’ markups and trading volumes increase with the number of links they have to other dealers, whereas dealers’ inventory risks decrease as they form links. In addition, when capacity of providing liquidity differentiates dealers, the network formed exhibits the empirically observed core- periphery structure. Specifically, dealers with large capacity comprise the core of the network, connecting them to all other dealers, while dealers who have small capacity operate at the periphery. My model matches recent empirical findings on the negative relationship between order sizes and markups. More importantly, I show that there may be structural breaks in this negative relationship as variations in order sizes may alter the inter-dealer network. These results suggest that empirical studies on OTC markets should control for the stability of an inter- dealer network to avoid model misspecification.
Social Network, Herding and Competition
Henry Cao
(Cheung Kong Graduate School of Business)
Dongyan Ye
(Cheung Kong Graduate School of Business)
[View Abstract]
[Download Preview] We analyze conditions under which fund managers herd to acquire information and trade on the same stock. This happens when fund managers have highly complementary signals, that is each manager has very imprecise information but taken together they have perfect information. However, the number of managers herding on the same stock cannot exceed three due to competition. When information sharing in a social network is introduced among managers, herding can occur for arbitrary number of managers and the set of parameters under which herding occurs is strictly larger. The benefit of social network increases with the social network size for highly complementary information. The optimal social network size decreases with the precision of managers' signals. With social network, fund managers can act in unison and maximize their combined profits. We then allow information sharing to be noisy and show that noisy communication of signals can be optimal and further expanding the set of parameters for herding to be optimal. We extend our model to multi-period and continuous time trading and show that our main results still go through in dynamic trading although the opportunity set that favors herding will be smaller due to more intensive competition. In addition, in continuous time trading, investors will not herd unless there is a social network to share information. However, they will never share their information to all in the network due to the resulting rat race among the managers.
Local Information Advantage, Investor Attention and Stock Returns
Yuqin Huang
(Central University of Finance and Economics)
Tong Li
(Peking University)
[View Abstract]
We construct a measure of abnormal relative attention (ARA), reflecting unusual changes in attention paid to a stock by local relative to non-local investors, to measure local information advantages. An increase in this measure predicts higher returns in the short term. This predictive power is more prominent for local-name stocks and is robust to alternative implementations. Furthermore, trading strategies based on ARA still generate significant excess returns after controlling for various risk factors.
Discussants:
Ankur Pareek
(Rutgers University)
Peter Kondor
(London School of Economics)
Paolo Colla
(Bocconi University)
M. Deniz Yavuz
(Purdue University)
Jan 05, 2016 8:00 am, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Uncovering Alpha: Informed Traders across the World
(G1)
Presiding:
Lauren Cohen
(Harvard Business School)
Sparse Signals in the Cross-Section of Returns
Alexander Chinco
(University of Illinois-Urbana-Champaign)
Adam Clark-Joseph
(University of Illinois)
Mao Ye
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] This paper applies the least absolute shrinkage and selection operator (LASSO) to identify rare, short-lived, “sparse” signals in the cross-section of returns. The LASSO is an ordinary-least-squares (OLS) regression combined with a penalty function that shrinks small OLS coefficients to be exactly zero, so it is well-defined even when there are many more predictors than observations. Using the LASSO increases out- of-sample predictability in minute-by-minute NYSE returns by a factor of 1.5, from an adjusted R-squared of 5.43% to an adjusted R-squared of 8.08%, and generates trading-strategy returns of 0.30% per month net of trading costs. This predictive power comes from quickly identifying the right predictors at the right time, not from better estimating the effects of some persistent factor. The LASSO typically forecasts a stock’s returns using the lags of only 11 other stocks (a mere 0.5% of all possible choices), and 90% of these predictors last 4 minutes or less. This success implies that returns have a sparse structure and suggests a new way of thinking about the economic forces behind returns.
Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice
David Schumacher
(McGill University)
[View Abstract]
[Download Preview] In their foreign portfolios, international mutual funds overweight industries that are comparatively large in their domestic stock market. This Foreign Industry Bias is akin to a “Home Bias Abroad” and explains between 13% and 47% of foreign benchmark deviations. The bias is associated with superior performance primarily driven by stock-picking within foreign industries by funds with a simultaneous “Home Bias” in the domestic portfolio. Such funds outperform foreign market indices and active local country funds when investing in large domestic industries abroad. The results suggest that domestic stock market compositions proxy for the comparative advantages of international investors when they invest abroad.
Are Friday announcements special? Overcoming selection bias
Roni Michaely
(Cornell University)
Amir Rubin
(Simon Fraser University)
Alexander Vedrashko
(Simon Fraser University)
[View Abstract]
[Download Preview] We report reduced market response to Friday announcements of dividend changes, seasoned equity offerings, open-market share repurchases, earnings, and mergers, which is seemingly consistent with the notion of investor inattention on Fridays. However, we show that these findings are an outcome of selection bias. Firms that make announcements on Fridays experience reduced market response on any weekday and have common unobserved characteristics across announcement types. After correcting for selection bias, there is no evidence that investors pay less attention to announcements made on Fridays relative to other weekdays. The method introduced here is applicable to other studies in which an exogenous factor influencing firm performance can actually be associated with firm characteristics.
Longs, Shorts, and the Cross-Section of Stock Returns
Mahdi Nezafat
(Michigan State University)
Tao Shen
(Tsinghua University)
Qinghai Wang
(University of Wisconsin-Milwaukee)
Juan (Julie) Wu
(University of Georgia)
[View Abstract]
Short sellers and active long investors often disagree. We show that on average more than half of the heavily shorted stocks have high long positions by hedge funds from 2000 through 2011 (and over the extended sample period of 1990 to 2011). Heavily shorted stocks with high hedge fund holdings do not underperform and the heavily shorted stocks experience significant negative abnormal returns only if they have low hedge fund holdings. The results suggest that disagreements of active investors and the actions they take help to incorporate both positive and negative information in stock prices. We further show that the results on the relation between disagreements of active investors and stock returns differ from the results based on other measures of different opinions such as analyst forecasts.
Discussants:
Bryan Kelly
(University of Chicago)
Huaizhi Chen
(London School of Economics)
Stefano DellaVigna
(University of California-Berkeley)
Karl Diether
(Dartmouth College)
Jan 05, 2016 8:00 am, Parc 55, Powell I
American Real Estate & Urban Economic Association
Empirical Methods for Housing Markets
(R3, C1)
Presiding:
Edward Coulson
(University of Nevada-Las Vegas)
Error Correction Models of MSA Housing
Serguei Chervachidze
(CBRE Economic Advisors)
Gleb Nechayev
(Berkshire Group)
William Wheaton
(Massachusetts Institute of Technology)
[View Abstract]
MSA-level estimates of a housing supply schedule must offer a solution to the twin problems of simultaneity and non-stationarity that plague the time series data for local housing prices and stock. A Vector Error Correction Model (VECM) is suggested to handle both the non-stationarity and endogeneity problems. This model also nicely distinguishes between (very) long-run elasticities and a variety of short-term impacts. We estimate this model separately for 68 US MSAs using quarterly data on housing prices and residential construction permits since 1980. We also estimate a single equation. Error Correction Model (ECM) for house prices in which stock is exogenous in order to test the robustness of prices to alternative stock growth scenarios. The results of both models provide long-run supply elasticity estimates for each market that are better bounded than previous panel based attempts and also correspond with much conventional thought. We find these elasticities are well explained by geographic and regulatory barriers, and that inelastic markets exhibit greater price volatility over the last two decades. Using the models’ short- run dynamics we make several forecasts of prices over the next decade. In current dollars, some MSAs will still not recover to recent peak (2007) house price levels by 2024, while others should exceed it by as much as 40%.
Cointegration of Matched Home Purchases and Rental Price Indexes
Jing Li
(Singapore Management University)
Badi Baltagi
(Syracuse University)
[View Abstract]
[Download Preview] This paper exploits the homogeneity feature of the Singapore private residential condominium market and constructs matched home purchase price and rental price series using the repeated sales method. These matched series allow us to conduct time series analysis to examine the long-term present value relationship in the housing market. Three key findings are obtained. First, we fail to establish a cointegrating relationship between the home purchase price and rental price based on nationally estimated indexes. Second, area-specific indexes demonstrate strong cross-correlations, invalidating the use of first generation panel unit root tests that ignore these cross-correlations. Third, Pesaran's CIPS test indicates that the unit root hypothesis is rejected for the first difference of both indexes. We also do not reject the hypothesis that home purchases and rental price indexes are cointegrated with a cointegrating vector (1,-1).
The Repeat Time-On-The-Market Index
Paul Carrillo
(George Washington University)
Benjamin Williams
(George Washington University)
[View Abstract]
[Download Preview] [Download PowerPoint] We propose two new indices that measure the evolution of housing market liquidity. The key features of both indices are a) their ability to control for unobserved heterogeneity exploiting repeat listings, b) their use of censored durations (listings that are expired and/or withdrawn from the market), and c) their computational simplicity. The first index computes proportional displacements in the home sale baseline hazard rate. The second estimates the relative change in median marketing time. The indices are computed using about 1.8 million listings in 15 US urban areas. Results suggest that both accounting for censoring and controlling for unobserved heterogeneity are key to measure housing market liquidity.
Supply Constraints Are Not Valid Instrumental Variables for Home Prices Because They Are Correlated With Many Demand Factors
Thomas Davidoff
(University of British Columbia)
[View Abstract]
[Download Preview] Economists often assume that strictly regulated housing markets near mountains and oceans are expensive because they are costly places to build, not because they are nice places with productive firms and workers. However, supply constrained markets have seen more, not less, construction than other markets, indicating constraints are correlated with demand growth. Supply constraints are highly correlated with historical education levels, immigration, and national growth in local industries. Using constraints to form instrumental variables for home prices thus does not identify the causal effects of prices on variables that depend on local productivity. The relationship between supply constraints and price volatility is significantly weaker after accounting for observable demand factors.
Discussants:
Joshua Gallin
(Federal Reserve Board)
Tien Foo Sing
(National University of Singapore)
Jiro Yoshida
(Pennsylvania State University)
Albert Saiz
(Massachusetts Institute of Technology)
Jan 05, 2016 8:00 am, Parc 55, Powell II
American Real Estate & Urban Economic Association
Portfolio Choice
(R3, G1)
Presiding:
Shaun Bond
(University of Cincinnati)
Reducing the Impact of Real Estate Foreclosures with Amortizing Participation Mortgages
Rafal Wojakowski
(University of Surrey)
M. Shahid Ebrahim
(Durham University)
Mark Shackleton
(Lancaster University)
[View Abstract]
We employ Amortizing Participating Income Mortgage (APIM) to offer a novel ex post renegotiation method of a foreclosure. APIM belongs to the family of home loan credit facilities advocated in the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010. In our framework, APIM reduces the endemic agency costs of debt by improving affordability. These benefits increase the demand for real estate and reduce fragility of the financial system thereby forestalling foreclosures. We evaluate APIM in a stochastic control framework and provide solutions for an optimal amortization schedule. We extend our approach to partially amortizing and commercial mortgages. Finally, we provide concrete numerical examples of home loan modifications. We also offer detailed sensitivity analysis to market parameters such as house price volatility and interest rates.
Optimal Portfolio Choices and the Determination of Housing Rents in the Context of Price Uncertainty
Xiaoying Deng
(Wuhan University)
Gangzhi Fan
(Konkuk University)
Seow Eng Ong
(National University of Singapore)
Ming Pu
(Southwestern University of Finance and Economics)
[View Abstract]
[Download Preview] This paper develops a utility indifference-based model to investigate the pricing problem of house rents in the context of housing price uncertainty. Our model not only allows for the crucial features in the housing market, such as illiquidity, market incompleteness, and idiosyncratic property risks, but also the interaction of investors¡¯ house tenure choices with their financial asset holdings. Our model provides interesting insights into the hedging of house resale risk and determination of various housing rental prices. In addition to the parameters describing the expected changes and volatility on stock and house prices, we also show that the investors¡¯ precautionary savings motive, idiosyncratic property risks, and the correlation between stock and housing price has important implication for the determination issue of housing rentals.
Employment Status, Income Stability, and Mortgage Default
Meagan McCollum
(Baruch College)
[View Abstract]
Debate exists on the relative importance of employment status and house price declines in accounting for the large number of mortgage defaults during the Great Recession. To avoid the complexities posed by potential interactions among house prices, employment status, and income, I propose the natural experiment of examining the default decisions of homeowners with job security and income stability. Specifically, I observe governmental workers employed in Clark County Nevada in FY2009-2010, during the Great Recession, and compare the sensitivity of their default decisions to changes in house values to the general population. Relative to the overall population, those homeowners with known income stability exhibit a somewhat lower rate of default than the general public, but both groups are equally sensitive to price in their default decisions.
Portfolio Choice with House Value Misperception
Carles Vergara-Alert
(IESE Business School)
Stefano Corradin
(European Central Bank)
Jose Fillat
(Federal Reserve Bank of Boston)
[View Abstract]
[Download Preview] We use data on self-reported and market house values to present empirical evidence of house value misperception at the household level. We build an optimal portfolio choice model that features misperception, as observed in the data. In the model, households make consumption and portfolio decisions on housing and non-housing assets with transaction costs in the housing adjustments. Households use subjective housing valuations, which may differ from market values, and decide each period whether to pay for observing the market value or not. Our model delivers several empirical implications that we test using household-level data: more misperception results, on average, in higher housing wealth over total wealth, lower share of risky stock holdings, and lower household leverage.
Discussants:
Robert Van Order
(George Washington University)
Jamie Alcock
(University of Sydney)
Meta Brown
(Federal Reserve Bank of New York)
Mehmet Saglam
(University of Cincinnati)
Jan 05, 2016 8:00 am, Parc 55, Divisadero
Association for Comparative Economic Studies
Money, Income and Exchange Rates in Transition Economies
(E5, F3)
Presiding:
Byung-Yeon Kim
(Seoul National University)
Assessing Inflation Uncertainty in the Three Transitional Central and East European Countries: The Weighted Skew Normal Distribution Approach
Wojciech Charemza
(University of Leicester)
Carlos Díaz
(University of Leicester)
Svetlana Makarova
(University College London)
[View Abstract]
[Download Preview] Uncertainty about future inflation adversely affects economic decisions and well-being of both businesses and consumers. It is therefore important that monetary policy-makers carefully assess and forecast inflation uncertainty. In this study, we consider the three post-communist countries -- Poland, Russia, and Ukraine -- and the US as a benchmark for comparison of our findings. The data are monthly and cover 1994-2012. We derive measures of inflation uncertainty from the distribution of ex-post (pseudo out of sample) forecast errors. Among the three post-communist countries, only Poland conducted a reasonably successful monetary policy with a clearly defined inflation target. Russia, although officially pursuing inflation stabilization, was, in fact, targeting exchange rate stabilization, which resulted in inflation fueled by a ‘dirty float.’ Ukraine’s monetary policy was the least transparent: the exchange rate targeting was followed by the exchange rate pegging and then by inflation targeting. The study uses a novel econometric technique for modelling macroeconomic uncertainty with the use of the weighted skew normal <br /><br />
(WSN) distribution. The advantage of this approach is that the parameters of the estimated WSN distribution are directly interpretable in the context of monetary policy. Our results show that WSN provides a good fit for Poland and the US (the estimated probabilities of hitting the inflation target are about 60 percent), but not for Russia and Ukraine. Furthermore, the estimates of the distributional parameters suggest the prevalence of anti-inflationary policy over the output-stimulating policy for Poland, while the opposite seems to be true for the US.
The Impact of Economic Sanctions and Oil Prices on the Ruble and Hryvnia
Jarko Fidrmuc
(Zeppelin University)
Christian Dreger
(DIW Berlin)
Konstantin Kholodilin
(DIW Berlin)
Dirk Ulbricht
(DIW Berlin)
[View Abstract]
[Download Preview] [Download PowerPoint] The Ruble is of critical importance for the Russian economy. Since January 2014, the currency lost 50 percent of its value against the US Dollar. Similarly, the Ukranian Hryvnia lost about two thirds of its value. The fall of both currencies started with the military conflict between Russia and Ukraine, and may be insofar shaped by the sanctions imposed by Western countries against Russia. However, oil prices also declined since summer 2014. Since Russia is heavily dependent on natural resources, the oil price decline can be another factor behind the deterioration. By using high frequency data on nominal exchange rates and news concerning the conflict and the introduction of sanctions, we explore the driving forces of the exchange rate dynamics in both countries. The analysis is based on VAR models, where fundamental long run relationships are taken into account. The results indicate that the bulk of the depreciations is caused by the decline of oil prices. Short run dynamics are mainly driven by conflict news. While both exchange rates appear to be cointegrated, the Ruble is weakly exogenous to the long run relationship.
Russian Monetary Policy Rules: Taylor Versus McCallum?
Iikka Korhonen
(Bank of Finland)
Riikka Nuutilainen
(Bank of Finland)
[View Abstract]
We estimate four different types of monetary policy reaction functions for Russia from January 2000 until January 2015 using a monthly data gives us 170 observations. Our contributions are manifold. We are able to show that for the whole data sample money-based rules, such as McCallum rule, provide more accurate depiction of Russia’s monetary policy. This result is familiar also from many other emerging market countries. However, also Taylor rule garners some support when estimations are done for the whole sample. To complement the analysis, we perform rolling regressions for the monetary rules. From the estimations we can see that Russia’s monetary policy has changed over years. Price-based monetary policy instruments have become more important, and Taylor rule seems to depict actual conduct of monetary policy better. Perhaps even more significantly, in recent times Russia’s monetary policy seems to react e.g. to oil price shocks in the manner predicted by standard macroeconomic theories. Therefore, our results shows that Russia’s monetary policy has undergone significant changes during the past two years, which corresponds also to the rhetoric of the central bank.
Regional Wage Differentials in Poland
Thomas Hyclak
(Lehigh University)
Vera Adamchik
(University of Houston-Victoria)
[View Abstract]
[Download Preview] [Download PowerPoint] We examine regional wage differentials and their dynamics in Poland from 1994 to 2007. This period takes us from the beginning of robust economic growth in Poland following the transitional shock therapy of the Balcerowicz Plan, through Poland’s accession to the EU up until the Financial Crisis. We use annual micro data from the Polish Labor Force Surveys to estimate regional wage differentials, controlling for a large number of observed worker characteristics. We find that composition-corrected regional wage differentials persist throughout this period with little evidence of persistent convergence due to labor migration or firm location decisions. In fact, wage dispersion across regions is found to increase substantially after 2001 such that wage dispersion in 2007 was greater than in 2004.
In the second part of the paper we use the estimated annual regional relative wage coefficients as the dependent variable in an exploratory examination of the determinants of inter-regional wage premiums in Poland. We are able to use region-specific price data to examine both nominal and real relative wage patterns. New economic geography theory hypothesizes a positive correlation between wage differentials and proximity to large foreign and domestic markets. On the other hand, spatial equilibrium models emphasize the effects of worker movements in response to local amenities. Our cross-region empirical analysis finds that regional nominal and real wage differentials are negatively correlated with the region’s distance from Warsaw and Brussels and positively related to location on the Baltic coast and the EU border, which we interpret as evidence for the market proximity hypothesis. In addition, wage differentials are responsive to migration factors -- lower in regions with greater housing supply and a warmer climate and higher in regions with higher rates of international emigration. There is no evidence that the impact of cross-region relative wage determinants changed with Poland's entry into the EU.
Discussants:
Thomas Hyclak
(Lehigh University)
Martin Stuermer
(Federal Reserve Bank of Dallas)
Michael Plante
(Federal Reserve Bank of Dallas)
Wojciech Charemza
(University of Leicester)
Jan 05, 2016 8:00 am, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Historical Analysis of Institutions
(B5, B2)
Presiding:
Tae-Hee Jo
(State University New York-Buffalo State)
Inside the Institutions of Organization of Institutional Economics: Why Are There Two Institutionalist Associations?
Felipe Almeida
(Federal University of Paraná-Brazil)
Eduardo Angeli
(Federal University of Paraná-Brazil)
[View Abstract]
[Download Preview] Nowadays, institutionalists are organized into two associations. One is the Association for Evolutionary Economics, founded in 1965. The other is the Association for Institutional Thought, founded in 1979. Using archival evidence, this study provides detailed historical reasons why there are two institutionalist associations.
"Institutions" in Development: Divergences, Congruities and the Case for a Common Taxonomy
Tara Natarajan
(Saint Michaels College)
Wayne Edwards
(University of Hartford)
[View Abstract]
The paper compares the meaning of ‘institutions’ among both divergent and convergent schools of thought. The comparison is aimed at establishing differences in viewing individuals as either ‘agents’ in a social context or as people who are ontologically non-individualistic. Do congruencies in usage and ensuing implications for economic practice, call for a common taxonomy?
Wallace Peterson: Post-Keynesian Institutionalist
Charles J. Whalen
(Congressional Budget Office)
[View Abstract]
This paper reviews the books and articles of Wallace C. Peterson to profile his work as a trailblazer for post-Keynesian institutionalism. The paper considers his contributions in three areas: the foundations of economics, analyzes of the U.S. economy, and discussions of public policy. It concludes by highlighting lessons for today.
An Intellectual History of Post-Keynesian Theory of Endogenous Money after Keynes
Louis-Philippe Rochon
(Laurentian University)
[View Abstract]
This paper begins with a definition of endogenous money, then looks at the development of this concept starting with Keynes’s General Theory, and analyses the various contributions in the 1950s (Kaldor, Robinson, Kahn and Minsky), 1960s (Davidson, Rousseas), 1970s (Kaldor, Moore), and the horizontalist and sructuralist debates in the 1980s.
Commodity Futures Market: Analysis of a Capitalist Institution from Heterodox Perspectives
Ted P. Schmidt
(State University New York-Buffalo State)
[View Abstract]
[Download Preview] The purpose of this paper is to compare and contrast the analyses of commodity futures markets by Hilferding (1909) and Keynes (1930) in order to glean insight into the workings and transformation of modern commodity futures markets, which have been transformed through deregulation (the 2000 CFMA).
Discussants:
Tae-Hee Jo
(State University New York-Buffalo State)
Robert Dimand
(Brock University)
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 5 & 6
Association of Environmental & Resource Economists
The Economics of Water Pollution
(Q5)
Presiding:
Joseph S. Shapiro
(Yale University)
Consequences of the U.S. Clean Water Act and the Demand for Water Quality
Joseph S. Shapiro
(Yale University)
David Keiser
(Iowa State University)
[View Abstract]
Since the 1972 U.S. Clean Water Act, government and industry have invested over $1 trillion to abate water pollution, or $100 per person-year. But over half of US stream and river miles still have water quality so poor that they violate standards. This paper assembles the most comprehensive set of files ever compiled on water quality and its determinants to study changes in water pollution since the Clean Water Act, their causes, and their welfare consequences. The paper obtains three sets of findings. First, most types of water pollution have fallen dramatically since 1972, though were declining at nearly the same rate before then. Second, we study the contribution of the Clean Water Act to these declines. Third, we compare the willingness-to-pay for these declines in water pollution, as measured through the housing market, against their costs.
Does Water Quality Matter? Evidence from Micro Panel Data
Joseph Herriges
(Michigan State University)
Daniel Phaneuf
(University of Wisconsin)
Catherine Kling
(Iowa State University)
[View Abstract]
In this paper we exploit a unique panel database that was constructed over the course of
several years for the purpose of examining the relationship between lake water quality and
recreation. A random sample of Iowa residents provided information on recreation visits made to
lakes in the state for the years 2002, 2003, 2004, 2005, and 2009. Trip records were gathered for
each time period using annual surveys containing identical questions on individuals’ visits to each
of 127 primary lakes in the state. To our knowledge this is the only micro level, spatially
explicit, panel recreation database in existence. At the same time that the behavioral data was
gathered a coordinated limnology survey of lakes in the state was undertaken. This effort provided
water quality measures for the primary lakes in Iowa for the same years that we surveyed behavior.
Thus in addition to the panel feature of the visitation data, we are able to match water quality
measures at spatial and temporal scales that correspond to the destination and timing of our trip
observations. These two features of our data allow us to convincingly overcome the endogeneity and
measurement error problems that have threatened the validity of previous revealed preference
studies.
We first carry out several analyses designed to measure the causal effect of water quality on
recreation behavior. We find convincing evidence that better water quality leads to a higher
likelihood that an individual will visit a particular lake. For our preferred specifications the
elasticity of participation with respect to water quality is consistently around 0.09. We also
find evidence that better water quality leads to a higher frequency of visits to a destination.
With a causal relationship established we then use a simple structural model to measure visitors’
willingness to pay for lake water
Has Surface Water Quality Improved Since the Clean Water Act?
Kerry Smith
(Arizona State University)
Carlos Valcarcel
(Arizona State University)
[View Abstract]
On the fortieth anniversary of the Clean Water Act this paper reports the first quantitative
assessment of the aggregate trends in water quality in the U.S. using a single standard
over the years 1975 to 2011. The analysis suggests that fresh water lakes for the nation as
a whole are about at the same quality levels as they were in 1975. In short, viewed in the
aggregate, nothing has changed. An assessment of the factors influencing the aggregates
also suggests that water quality appears to be affected by the business cycle. This result
calls into question the simple descriptions of the change in environmental quality with
economic growth that are associated with the Environmental Kuznets Curve.
The Effectiveness of Overlapping Pollution Regulation: Evidence from the Ban on Phosphate in Dishwasher Detergent
David Keiser
(Iowa State University)
Alex Cohen
(Yale University)
[View Abstract]
[Download Preview] This paper examines the failure of command-and-control pollution policies in
the presence of overlapping regulations. We study the case of recent bans on phosphate in
household dishwasher detergent. We show that the effectiveness of the bans in reducing
effluent depends critically on existing pollution regulations at receiving wastewater
treatment facilities. Some facilities face limits on how much phosphorus they can emit.
As cost minimizers, limit facilities face no incentive to deviate from this standard. Using
novel datasets on wastewater treatment facilities, we show that bans have weak effects on
phosphorous effluent, especially in the most polluted waterways.
Discussants:
Sheila Olmstead
(University of Texas-Austin)
Michael Hanemann
(Arizona State University)
Maureen Cropper
(University of Maryland)
Maximilian Auffhammer
(University of California-Berkeley)
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 19
Econometric Society
Ancient States and Civilizations
(A1)
Presiding:
Luigi Pascali
(Warwick University)
The Paradox of Civilization. Pre-Institutional Sources of Security and Prosperity
Pablo Hernandez
(New York University)
Ernesto Dal Bo
(University of California, Berkeley)
Sebastian Mazzuca
(Johns Hopkins)
[View Abstract]
[Download Preview] The rise of civilizations involved the dual emergence of economies that could produce surplus ("prosperity") and states that could protect surplus ("security"). But the joint achievement of security and prosperity had to escape a paradox: prosperity attracts predation, and higher insecurity discourages the investments that create prosperity. We study the trade-offs facing a proto-state on its path to civilization through a formal model informed by the anthropological and historical literatures on the origin of civilizations. We emphasize pre-institutional forces, such as physical aspects of the geographical environment, that shape productive and defense capabilities. The solution of the civilizational paradox relies on high defense capabilities, natural or man-made. We show that higher initial productivity and investments that yield prosperity exacerbate conflict when defense capability is fixed, but may allow for security and prosperity when defense capability is endogenous. Some economic shocks and military innovations deliver security and prosperity while others force societies back into a trap of conflict and stagnation. We illustrate the model by analyzing the rise of civilization in Sumeria and Egypt, the first two historical cases, and the civilizational collapse at the end of the Bronze Age.
Cereals, Appropriability, and Hierarchy
Omer Moav
(University of Warwick)
Joram Mayshar
(Hebrew University of Jerusalem)
Zvika Neeman
(Tel Aviv University)
Luigi Pascali
(Warwick University)
[View Abstract]
[Download Preview] We propose that the development of social hierarchy following the Neolithic Revolution was
an outcome of the ability of the emergent elite to appropriate cereal crops from farmers and
not a result of land productivity, as argued by conventional theory. We argue that cereals are
easier to appropriate than roots and tubers, and that regional di§erences in the suitability of
land for di§erent crops explain therefore di§erences in the formation of hierarchy and states. A
simple model illustrates our main theoretical argument. Our empirical investigation shows that
land suitability for cereals relative to suitability for tubers explains the formation of hierarchical
institutions and states, whereas land productivity does not.
Climate-Driven Technical Change: Seasonality and the Invention of Agriculture
Andrea Matranga
(New Economic School)
[View Abstract]
[Download Preview] During the Neolithic Revolution, seven populations independently invented agriculture. In this paper, I argue that this innovation was a response to a large increase in climatic seasonality. Unable to find food during the cold or dry season, hunter-gatherers in the most affected regions became sedentary in order to store food and smooth their consumption. Sedentarism and storage are preconditions for any successful agricultural society, so these adaptations made the invention of agriculture more likely. I present a model capturing the key incentives for adopting agriculture, and I test the resulting predictions against a global panel dataset of climate conditions and Neolithic adoption dates. I find that invention and adoption were both systematically more likely in places with higher seasonality. The findings of this paper imply that seasonality patterns 10,000 years ago were amongst the major determinants of the present day global distribution of crop productivities, ethnic groups, cultural traditions, and political institutions.
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 20
Econometric Society
Health in Developing Economies
(A1)
Presiding:
Simone Schaner
(Dartmouth College)
Troubled Waters? Pollution, Legislation and Child Mortality in India
Shareen Joshi
(Georgetown University)
Quy-Toan Do
(World Bank)
[View Abstract]
India's rivers are heavily polluted. One of the most polluted sites is the river Ganges as it runs through the city of Kanpur. The river receives large amounts of toxic waste from the city's domestic and industrial sectors. The tannery industry in particular, unleashes highly toxic pollutants into the river. We study the impact of a landmark piece of environmental legislation in this city. M C Mehta v Union of India ordered the tanneries to either clean its waste or shut down. The local municipality was required to clean city sewers and reduce the level of water pollution. We explore the mortality burden of this ruling in Kanpur district as well as districts downstream. We find a decline in Kanpur's rate of infant mortality immediately after the verdict. The decline in mortality also extends downstream. To explore the extent to which river pollution may affect children's mortality, we expand our sample to the set of all Indian districts with major rivers. Since pollution may be endogenous, we construct an instrument for water quality using water quality upstream of that district. Two-stage least squares (2SLS) regression reveals a positive district-level association between one-month infant mortality and the concentration of fecal coliforms in river water. This association strongly holds for both national demographic surveys that we use to compile infant mortality data. We interpret the association to be causal: The average effect of a one-percent increase in fecal coliforms is an additional 3-5 deaths per 100,000 births in a given month. In comparison, the corresponding downstream infant mortality impact is approximately 1-2 deaths per 100,000 births.
Abolishing User Fees, Fertility Choice, and Educational Attainment
Shinsuke Tanaka
(Tufts University)
Takahiro Ito
(Kobe University)
[View Abstract]
[Download Preview] This study examines the effect of abolishing user fees from health care services on fertility and educational attainment as a test of the quantity-quality tradeoff model. Exploiting sudden improvements in nutritional status among South African children post-apartheid as producing an exogenous decline in the price of quality investments, we document evidence consistent with the model showing that parents lowered fertility and increased their investment in education. The absence of treatment effects on both fertility and education among children not subject to the health policy eliminates channels through heterogeneous preexisting trends or unobserved concurrent changes. In addition, we explore and reject a number of alternative hypotheses that may account for the observed relationship. Important policy implications of our findings are: (i) parents in developing countries successfully adjust their fertility behavior in response to increased returns to child learning; and (ii) health policy serves as a motivating force underlying the demographic transition and human capital development.
ARV Treatment, Selection into Testing and Clinic Spillovers
Susan Godlonton
(Williams College)
[View Abstract]
Over the last decade, there has been a strong push to expand access to life-saving antiretroviral drugs. This expansion of access has contributed to a decline in HIV-related mortality and has had substantial welfare impacts. One of the debates regarding the effects of ARV rollout is the impact on preventive behavior, and in particular on HIV testing. Treatment availability has two main implications for HIV testing: first it may affect the number of testers (‘level’ effect), and second it may affect the composition of testers (‘selection’ effect). Theoretical predictions about the level effect are ambiguous: more people may get tested because treatment availability increases the value of knowing one’s HIV status but increasing access to treatment reduces the costs of contracting HIV, which in turn reduces the perceived importance of timely engagement in preventive behavior (de Walque, 2011). The predictions about the selection effect are clearer: treatment availability should lead to more HIV+ and others with greater expected returns to treatment selecting into treatment. If on average individuals who test in response to treatment availability are more likely to be HIV positive, this has implications for disease spread. We offer an alternative approach by using a dataset that combines data on clinic-level ARV availability in Lilongwe, Malawi over the course of ARV expansion, with rich clinic-month data on the number and composition of testers. This dataset affords us a unique opportunity to study how HIV testing responds to increased availability of treatment. It also allows us to study clinic level spillovers. Despite its importance, clinic-level spillovers of ARV availability in one clinic on use of services at nearby clinics have not been previously studied. Using rich clinic-month data, we study the effect of the introduction of ART on HIV testing rates and the composition of testers.
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 14
Econometric Society
Multi-Product Search
(A1)
Presiding:
Garth Baughman
(University of Pennsylvania)
Dispersion in Relative Prices: Evidence and Theory
Leena Rudanko
(Federal Reserve Bank of Philadelphia)
Greg Kaplan
(Princeton University)
Guido Menzio
(University of Pennsylvania)
Nicholas Trachter
(Federal Reserve Bank of Richmond)
[View Abstract]
[Download Preview] We extend the literature on price dispersion both empirically and theoretically: First, we use a comprehensive dataset on US retail pricing to document that there exists significant dispersion in the overall price level across stores, as well as in the prices of individual goods relative to the store average. While the overall price-level varies by approximately 6% across stores, the prices of individual goods vary by as much as 14% around the store average, making the latter form of ’relative price dispersion’ dominant. This suggests non-trivial scope for households to economize by visiting multiple stores and buying goods where they are cheapest. To rationalize these observations, we propose a novel theory of equilibrium multi-product search. Relative price dispersion arises in the model as a result of spatial price discrimination by stores seeking to take advantage in heterogeneity households’ willingness to shop around for individual goods.
Consumer Search and Retail Market Structure
Andrew Rhodes
(Toulouse School of Economics)
Jidong Zhou
(Yale University)
[View Abstract]
[Download Preview] This paper proposes a framework for studying how consumer search and multiproduct purchase affect retail market structure. To provide one-stop shopping convenience and attract more consumers, single-product shops supplying different products can merge to form a multiproduct retailer. The merger, however, also changes the market structure and affects price competition. When the search friction is not too high, the equilibrium market structure is asymmetric and multiproduct and single-product retailers coexist. This often leads to the weakest price competition and is the worst for consumers among all possible market structures. Due to the endogeneity of the market structure, reducing the search friction does not necessarily induce lower market prices and higher consumer welfare.
Noisy Search for Multiple Products
Kenneth Burdett
(University of Pennsylvania)
Garth Baughman
(U Pennsylvania)
[View Abstract]
Almost all retailers offer multiple products, and consumers search for low prices on a basket of goods. Kaplan and Menzio (2014) document a great deal of price dispersion both within and across stores offering multiple products. This paper extends Burdett and Judd (1983), a canonical model of equilibrium price dispersion, to the case of multiple products. As shown in Burdett and Malueg (1981), when sequentially searching for multiple products, consumers (a) face a lower cost of search per good and (b) may capitalize on low prices for one good while continuing to search for an acceptable price on the others. This leads multi-product consumers to set one reservation price for a basket of goods, and a higher (per good) reservation price for each good alone. This paper characterizes firms' pricing decisions in light of this search behavior. In a simple version of the model where all firms offer every good, the marginal distribution of each price is unique and of the same form as would obtain in a simple single product model, and any joint distribution with support contained in the acceptance set of consumers satisfies equilibrium. This provides theoretical foundation for the common empirical focus on marginal price distributions -- as only these are determined in equilibrium. While the structure of equilibrium is unaffected by the addition of single good demanders, the addition of single good firms can lead to one of several pricing patterns depending on parameters. A consistent prediction is that, if enough firms can offer only a single good, these single product firms crowd out the bottom of the price distribution, with the interesting equilibrium effect of also lowering the highest prices charged by multi-product firms -- an effect which would not obtain in the single product case. Various comparative statics are considered.
Rational Buyers Search When Prices Increase
Luis Cabral
(New York University)
Sonia Gilbukh
(New York University)
[View Abstract]
Motivated by observed patterns in business-to-business transactions, we develop a dynamic model of pricing and buyer search. Seller costs are perfectly correlated and evolve according to a Markov process. In every period, each buyer observes (for free) the price set by their current supplier, but not the other sellers' prices or the sellers' (common) cost level. Moreover, by paying a cost $s$ the buyer becomes a searcher and benefits from (Bertrand) competition among sellers. We show that there exists a semi-separating equilibrium whereby sellers increase price very rapidly when costs increase but decrease price very slowly when costs decrease. Moreover, buyers search when prices increase but not otherwise. These patterns are consistent with two stylized facts: (a) prices adjust to cost changes asymmetrically ("rockets and feathers"); and (b) buyers search in response to large price increases. Finally, contrary to the intuition that more information is beneficial, we find that pooling equilibria (where prices reveal no information) Pareto dominate separating equilibria.
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 15
Econometric Society
Search and Matching Markets with Informational Asymmetries
(A1)
Presiding:
Benoit Julien
(University of New South Wales)
Frictional Goods Markets: Theory and Applications
Michael Choi
(University of Iowa)
Zachary Bethune
(University of Virginia)
Randall Wright
(U Wisconsin)
[View Abstract]
[Download Preview] We analyze goods markets consistent with salient features of retail trade: there is price dispersion; there is some random and some directed search; both money and credit are used in payments; and the terms of trade are often posted, but there is some bargaining. Money and credit coexist because the former (latter)\ bears an inflation tax (transaction cost). Other phenomena arise because of informational heterogeneity. The model is used to study the effects of changing inflation, information and credit conditions. Theory delivers sharp qualitative predictions. Calibrated versions yield novel quantitative results and new insights into the effects of monetary policy.
Posted Prices, Search and Bargaining
Derek Stacey
(Ryerson University)
[View Abstract]
[Download Preview] A model of a decentralized market is developed that features search frictions, advertised prices and bargaining. Sellers can post ask prices to attract buyers through a process of directed search, but ex post there is the possibility of negotiation. Similarly, buyers can post negotiable bid prices to attract sellers. Even when transaction prices often differ from quoted prices, bid and ask prices play a crucial role in directing search and reducing trading frictions. The theory provides insight about the prevalence of posted prices in the absence of full commitment by market participants to transact at the posted price. The features and predictions of the model align well with aspects of the secondary market for transferable taxicab license plates in Toronto. This provides a useful and unique context for studying the relationships between advertised and actual prices in a decentralized market.
Competitive Search Equilibrium and Moral Hazard
Guillaume Roger
(University of Sydney)
Benoit Julien
(UNSW Australia, UNSW Business School)
[View Abstract]
[Download Preview] Principals seek to enter a productive relationship with agents by posting general incentive contracts. A contract must solve both the ex post moral hazard in production and the ex ante competitive search problem (participation). Menus of contracts do not help hence (single) contract posting is optimal; the optimal contract is characterized and includes compensatory transfers to agents who meet a principal but fail to contract. To generate rents to attract agents, principals distort both the transfer function and the productive action. This implies lower welfare; the allocation is Pareto optimal conditional on the action but not constrained-efficient precisely because of this trade off. A planner is immune to principal competition and so implements the standard solution instead. The loss of efficiency is severe: no instrument can correct the market allocation. We also establish a connection between the meeting technology and the set of feasible contracts, and recover an augmented conditional Hosios condition for a subset of (suboptimal) contracts.
Markets with Multidimensional Private Information
Veronica Guerrieri
(University of Chicago)
Robert Shimer
(University of Chicago)
[View Abstract]
[Download Preview] This paper explores price formation when sellers are privately informed about their preferences and the quality of their asset. There are many equilibria, including a semi-separating one in which each seller's price depends on a one-dimensional index of her preferences and asset quality. This multiplicity does not rely on off-the-equilibrium path beliefs and so is not amenable to standard signaling game refinements. The semi-separating equilibrium may be not Pareto efficient, even if it is not Pareto dominated by any other equilibrium. Instead, efficient allocations may require transfers across uninformed buyers, inconsistent with any equilibrium.
Discussants:
Sephorah Mangin
(Monash University)
Benoit Julien
(University of New South Wales)
Ronald Wolthoff
(University of Toronto)
Kyungmin Kim
(University of Iowa)
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 16
Econometric Society
Topics in Industrial Organization
(A1)
Presiding:
John Lazarev
(New York University)
Research Proximity and Productivity: Long-Term Evidence From Agriculture
Alexander Whalley
(University of California-Merced)
Shawn Kantor
(Florida State University)
[View Abstract]
The spatial concentration of ideas is central to economic geography. Yet, how proximity to research affects productivity is not well studied. We use the late 19th century establishment of agricultural experiment stations in the United States to estimate the importance of proximity to research for productivity growth. Our analysis of county-level agricultural census data from 1870 to 2000 reveals three results. First, research proximity effects from permanent station opening grew for about 20 years and then subsequently declined until becoming largely absent today. Second, proximity to station-based innovations affected local farmers' productivity for 20 to 40 years after the discovery. Third, research proximity effects remain today where stations historically focused on basic research and where nearby farmers were producing with frontier technology. Persistence in research proximity effects depend not just on research infrastructure, but also persistence in idea production and the cumulative effects of learning.
Input Allocation and Downstream Market Structure: The Unintended Consequences of Congestion Management in the Airline Industry
John Lazarev
(New York University)
[View Abstract]
To help manage airport congestion and reduce delays, airlines operating at four U.S. airports must obtain from the FAA operating authorizations called slots to take off or land. Currently, the FAA allocates the slots using the "use-it-or-lose-it" rule. Because of that, the current system of slot control may inadvertently make these airports more congested as it creates incentives for the airlines to hoard the slots. The goal of the paper is to theoretically and empirically investigate the link between input allocation and the downstream market structure. I estimate a structural econometric model of airline competition. Using this model, I recalculate the downstream equilibrium for a set of alternative mechanisms of slot allocation.
Experiments as a Bridge from Market Design Theory to Market Design Practice: Changing the Course Allocation Mechanism at Wharton
Eric Budish
(University of Chicago)
Judd Kessler
(The Wharton School, University of Pennsy)
[View Abstract]
[Download Preview] This paper reports on an experimental test of a new market design that is attractive in theory but without direct precedent and “complex” in ways that question its suitability for practice. These challenges led to a novel experimental design that used real market participants, tested their ability to accurately report complex preferences, and searched for unintended consequences the theory might have missed. Despite imperfect preference reporting, the new mechanism outperformed the status quo on all quantitative measures of efficiency and fairness and various qualitative measures of satisfaction. The experiment successfully brought the new market design from theory to practical implementation.
Measuring the Bias of Technological Change
Ulrich Doraszelski
(University of Pennsylvania)
[View Abstract]
[Download Preview] Technological change can increase the productivity of the various factors of production in equal terms or it can be biased towards a specific factor. We directly assess the bias of technological change by measuring, at the level of the individual firm, how much of it is labor augmenting and how much is factor neutral. To do so, we develop a framework for estimating production functions when productivity is multi-dimensional. Using panel data from Spain, we find that technological change is biased, with both its labor-augmenting and its factor-neutral component causing output to grow by about 2% per year.
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 3 & 4
Health Economics Research Organization/American Economic Association
Evidence on Health Spending Growth and Slowdown Using Medicaid, Medicare, and Household Data
(I1, H5)
Presiding:
Donald E. Yett
(University of Southern California)
Medicaid Expansions and Health Spending Growth
Amanda Kowalski
(Yale University)
Mikhail Golosov
(Princeton University)
[View Abstract]
[Download Preview] [Download PowerPoint] US health care expenditures are high, currently around 18 percent of GDP, and they are growing. Most of what we know about the causes of health spending growth began with Newhouse (1992), which decomposed health spending growth by insurance, income, demographics, and a residual referred to as “technology.” It showed that technology is the largest driver of health spending growth and that insurance only explains about ten percent. Subsequent work by Finkelstein (2007) found that the spread of insurance explains much more of the increase in health spending, around 50 percent. Both studies used different sources of variation to examine the role of insurance: Newhouse relied on partial equilibrium variation from the Rand Health Insurance Experiment, and Finkelstein relied on general equilibrium variation from the inception of Medicare.
We revisit the role of insurance in explaining health spending growth using variation from the inception and subsequent expansion of Medicaid, which induced more general equilibrium variation than the Rand Health Insurance Experiment but potentially less general equilibrium variation than the inception of Medicare. We construct a new calculator that includes rich variation in Medicaid eligibility across states, across demographic groups, and across time from the inception of Medicaid in 1965 to the present. Using all legislative variation in our calculator, we find that insurance explains about 20 percent of the overall growth in total health care spending from 1964 to the present. Our Medicaid variation allows us to dig deeper into the mechanisms for how insurance affects health spending growth by isolating the impact of various subsets of the full variation. We find that Medicaid expansions to adults explain a much greater share of health spending growth than expansions to children. We also examine mechanisms by examining several alternative measures of health spending and its components, which we compiled from a wide variety of sources. We find evidence that Medicaid increased health spending growth through spillovers to private spending.
Measuring the Incremental Benefit of Medicare Expenditures: Evidence from the Healthcare Cost Slowdown
Amitabh Chandra
(Harvard University)
Carrie Colla
(Dartmouth College)
Jonathan Skinner
(Dartmouth College)
[View Abstract]
To judge the efficiency of the U.S. Medicare program, many researchers have asked the seemingly simple question: What is the health consequence of an incremental Medicare dollar? Using a wide array of research designs, cohorts, and outcomes, studies have demonstrated a wide range of estimates. Some estimate a positive association between spending and outcomes, and others show a paradoxical negative association. We reconsider this question in Medicare fee-for-service heart attack patients from 2007-11, a period of stagnant Medicare cost growth. We demonstrate theoretically that in the presence of productive inefficiency –hospitals use too little effective care, or too much inefficient care -- empirical estimates of the marginal productivity of health care spending are not informative. Instead, we develop a model of productive and allocative efficiency, and test it using a novel dataset with hospital-year data on treatments ranging from those with documented effectiveness (e.g., beta blocker and statin use) to those with documented poor efficiency (e.g., home health care predictive of fraud). A remarkably large degree of productive inefficiency across hospitals can be explained solely by differences in input choices. Medicare expenditures yield substantial value in some hospital systems, but other hospitals (those that underuse effective treatments and overuse expensive treatments with little evidence of clinical effectiveness) display low returns to spending. Reassuringly, hospitals that reduced spending on heart attack patients during this period experienced survival gains equal to hospitals increasing spending.
Is Recession Responsible for Reducing the Growth of Medical Care Spending? Evidence from Household Data
Asako Moriya
(Agency for Healthcare Research and Quality)
Lan Liang
(Agency for Healthcare Research and Quality)
Kosali Simon
(Indiana University)
[View Abstract]
The growth rate of medical spending in the United States has experienced a marked slowdown in recent years. It is unclear whether this is due to the recent recession, structural changes embedded in the Affordable Care Act or other factors. Studying the impact of the recession on medical care use and spending at the individual level will provide insight on this question. We use data from the Medical Expenditure Panel Survey Household Component (MEPS-HC) from 2007 to 2012 together with state and county measures of economic activity to analyze quarterly medical care use and spending. We examine each of the following categories: hospitalization; emergency room visits; ambulatory medical visits; home health visits; and prescription medications. We separately examine spending by source, including total vs. out of pocket spending. Our method of analysis follows the literature on the impact of the macroeconomy on health: we examine how changes within state or county over time in our key independent variables (state or county level unemployment rates) affects medical care use and spending.
Discussants:
Martin Gaynor
(Carnegie Mellon University)
Joshua Gottlieb
(University of British Columbia)
M. Kate Bundorf
(Stanford University)
Jan 05, 2016 8:00 am, Parc 55, Balboa
Labor & Employment Relations Association
Work Schedules: New Options, New Problems for Workers
(J2)
Presiding:
Eileen Appelbaum
(Center for Economic Policy Research)
The Impact of Full-day Kindergarten Reform on Maternal Labour Supply
Tingting Zhang
(University of Toronto)
Elizabeth Dhuey
(University of Toronto)
Jessie Lamontagne
(University of Toronto)
[View Abstract]
[Download Preview] We study the impact of offering full-day rather than half day kindergarten in Ontario, Canada and find
no impact on the labor force participation of mothers at the extensive margin, with some intensive
responses in specificc sub-groups. The heterogeneous response we observe is consistent with
constraints over many dimensions: monetary, time, availability of space in early childhood
education centers. The women who are able to change the number of hours they work are the
least constrained: mothers with one or two children, and another adult in the household.
Work Schedule Instability and Underemployment in Canada
Elaine McCrate
(University of Vermont)
Susan J. Lambert
(University of Chicago)
Julia R. Henly
(University of Chicago)
[View Abstract]
We ask how work schedule instability and unpredictability are associated with the relatively
neglected side of hours constraints – preferences for additional hours of work that are
not provided by the employer – among workers paid by the hour. Schedule instability and
unpredictability undermine workers’ actual and perceived economic security, fueling a desire
to work additional hours for additional pay. At the same time, employers seek to match
hours worked to variations in demand, while they also screen for workers willing to provide
high levels of work intensity (that is, to work only when the value of the marginal product
is greater than the wage -- roughly, when dem d is expected to be high). We hypothesize
that this is associated with underemploymen mployers exercise their autonomous
preferences for short hours, while some workers accept labor intensity and instability,
hoping for more hours and greater economic security. We use data from Canada’s 2003
Workplace and Employee Survey (WES), a representative survey of business locations and
their employees. The WES is well suited to test our hypotheses because it includes both
information on hours constraints and measures of schedule instability and unpredictability.
Having documented that unstable and unpredictable schedules are strongly associated with
involuntary underemployment, we proceed to ask whether workers on such schedules are
rewarded with additional hours (or higher wages), using a fixed effects model. Because the
WES provides a two-year panel, we can test whether unstable schedules with insufficient
hours are stepping-stones to higher incomes and greater economic security.
Free to Flex? Work Practices and Career Consequences in an IT Workplace
Erin Kelly
(Massachusetts Institute of Technology)
Anne Kaduk
(University of Minnesota)
Katie Genadek
(University of Minnesota)
Phyllis Moen
(University of Minnesota)
[View Abstract]
Free to Flex? Work Practices and Career Consequences in an IT Workplace
Discussants:
Clair Brown
(University of California-Berkeley)
Susan Houseman
(WE Upjohn Institute for Employment Research)
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 18
Middle East Economic Association
Economic Development in MENA Region
(O1)
Presiding:
Mahdi Majbouri
(Babson College)
Islam and Democracy: Evidence from a New Dataset
Moamen Gouda
(Hankuk University of Foreign Studies)
Rahel Schomaker
(Cologne Business School)
[View Abstract]
[Download Preview] The past three decades have been marked by a scholarly debate concerning the relationship between Islam and democracy. Constitutions differ among Muslim-majority countries and by no means all Muslim-majority countries exhibit an “Islamic Constitution”. By using a newly developed coding of the degree to which Muslim-majority countries incorporate Islam into their constitutions, we investigate the relationship between Islam and democracy in Muslim-Majority countries. We find evidence that supports the theories stating that a high level of Islamicity, mirrored by the constitution of a respective country, may reduce the probability of this country to be a democracy. This relation remains robust when controlling for other variables known to affect democracy, including education, per capita GDP, oil abundance, and degree of globalization.
The Economic Analysis of Transportation Projects in Egypt: Application of an Interregional CGE Model on the Proposed Development Corridor
Dina Elshahawany
(Zagazig University)
Michael Lahr
(Rutgers University)
Eduardo Haddad
(University of Sao Paulo)
[View Abstract]
[Download Preview] [Download PowerPoint] The paper develops a framework for analyzing the economic analysis of the highway network of the proposed Development Corridor for Egypt. The analysis is based on the interregional computable general equilibrium model (ICGE) model for Egypt’s economy that was developed by Haddad et al., (2015). An important feature of our MCGE model is its ability to explicit estimate costs of moving products based on origin-destination pairs according to transportation margins. That is, the model accounts for the specific cost structure of the flow of each traded commodity. This paper innovates, by physically constrained that structure by the available transportation network, which is modeled in a stylized geo-coded transportation module. We examine the trade flows with and without the proposed Development Corridor. The model’s integration with a GIS network helps quantify the spatial effects of transportation cost change. Moreover it enables us to explicit model commodity-based transportation costs within the ICGE model, which are based on origin-destination flows. Thus, the model intrinsically accounts for the spatial structure of the Egyptian economy. That is, inclusion of the transportation network within the ICGE augments the general model framework for understanding the equilibrating role of transportation (and hence transportation investments) in regional economic development. <br />
The transport module measures minimum travel times between regions using actual road routes. The ICGE model estimates the long-run spatial spread of national Gross Domestic Production (GDP) (and/or other measures of economic activity) caused by expected changes in regional economic activity. Combined it is possible to examine the spatial effects of transportation cost reductions in Egypt induced by transportation infrastructure improvements. We adopt a cost-competitiveness approach that reviews possible relative changes in the regional costs and on different demand structures.
Can Islamic Banking Increase Financial Inclusion?
Sami Ben Naceur
(International Monetary Fund)
Adolfo Barajas
(International Monetary Fund)
Alexander Massara
(International Monetary Fund)
[View Abstract]
The paper analyses existing country-level information on the relationship between the
development of Islamic banking and financial inclusion. In Muslim countries—members
of the Organization for Islamic Cooperation (OIC)—various indicators of financial
inclusion tend to be lower, and the share of excluded individuals citing religious reasons
for not using bank accounts is noticeably greater than in other countries; Islamic banking
would therefore seem to be an effective avenue for financial inclusion. We found,
however, that although physical access to financial services has grown more rapidly in the
OIC countries, the use of these services has not increased as quickly. Moreover, regression
analyis shows evidence of a positive link to credit to households and to firms for financing
investment, but this empirical link remains tentative and relatively weak. The paper
explores reasons that this might be the case and suggests several recommendations to
enhance the ability of Islamic banking to promote financial inclusion.
Helping the Poor with Selfish Intentions: Trade, Foreign Aid and Growth
Ozan Hatipoglu
(Bogazici University)
Alp Eren Akyuz
(Bogazici University)
[View Abstract]
[Download Preview] Departing from explanations that involve either altruistic or political motivations
of donors, we link a donor’s willingness to give aid to economic incentives and returns.
Since targeted aid might increase the returns from trade and FDI linkages for donors,
there exists a non-altruistic basis for helping poor countries. We explore this idea by
developing a two-country dynamic strategic interaction model of foreign aid and trade.
We endogenize aid-tying process by incorporating it into the donor’s optimization problem.
We analyze the dynamics of aid composition and show how different components
of foreign aid, such as education, investment, commodity and general budget support
are optimally supplied over time. We show even under donor-ideal conditions aid might
fail to generate growth for the recipient.
The Effect of Economic Reform Programs on Arab Economies Development from 1980 to 2010
Islam Abdelbary
(Arab Academy for Science and Plymouth University)
James Benhin
(Plymouth University)
[View Abstract]
Arab countries (ACs) had started their developmental process a long time ago; however, they still suffer from numerous economic problems. The study quantify the contribution of socioeconomic reform programs in the Arab region over the past three decades on the growth pattern and development by estimating a conditional convergence equation. In addition, describe the development challenges facing the Arab Countries and examine the constraints of the development model in the region in terms of meeting these development challenges. <br />
The Study used a quantitative method, which combines analytical, and econometrics methods. The model variables aim at explaining the differences across countries in the long-term level of GDP per capita, in addition to the composite economic reform indicators, as well as the physical infrastructure and human capital indicators. The originality of the study approach has consisted in generating aggregated reform indicators using principal component analysis. This methodology permits the aggregation of basic indicators in a more rigorous way than would a subjective scoring system. It also avoids multicollinearity problems when estimating an equation that includes several disaggregated indicators. <br />
Economic reforms have been insufficient to boost the growth performance of the countries. This is the case for macroeconomic reforms, and for structural reforms during the entire period. On the other hand, the estimations reveal a low impact of some economic reforms. This is the case when structural reforms are implemented in a volatile macroeconomic and when macroeconomic reforms are implemented without a sufficient level of structural reform. <br />
The empirical analysis carried out in this paper has clearly underlined the importance of economic reforms, human capital, and physical infrastructure to improve the growth prospects of the economies. These factors have been shown to have a powerful impact on growth. They have greatly contributed to the growth process in ACs.
Discussants:
Hassan Y. Aly
(Ohio State University)
Wassim Shahin
(Lebanese American University)
Erhan Aslanoglu
(Piri Reis University)
Khusrav Gaibulloev
(American University of Sharjah)
Fatma Dogruel
(Marmara University)
Jan 05, 2016 8:00 am, Hilton Union Square, Union Square 13
National Economic Association
Topics in Stratification Economics
(Z1)
Presiding:
Darrick Hamilton
(New School)
The Federal Legal Services Program Influence on Riots and Voter Turnout in the 1960s
Jamein P. Cunningham
(Portland State University)
[View Abstract]
In 1965 the Neighborhood Legal Services Program (LSP) was introduced as part of the War on Poverty to provide the poor with legal channels to remediate grievances, especially those resulting in riots. Historically, the poor had limited access to legal institutions due to financial constraints and discrimination. At the time, many viewed the lack of legal recourse produced demonstrations that escalated into riots in poor black communities. In response, the LSP was mandated to facilitate better relationships between poor blacks and the bureaucracies that they interacted with. This paper uses newly collected data on the communities receiving legal service grants in the between 1965 and 1975 to evaluate the effectiveness of the federal anti-rioting program. Preliminary result shows that the legal service program was an effective program in reducing the likelihood of riots. Results also show that cities that received legal services grants are associated with higher property values by 1980 relative to cities that never received a legal services grant. Further analysis will look at voter turnout at local mayoral elections in the 1960s as well as state and national elections as a measure of community empowerment. So far these results are consistent with the historical narrative of legal service lawyer’s involvement in community empowerment and advocacy as well as the program effectiveness with mitigating the damages of riots that occurred in the 1960s.
The Impact of the Great Recession on the Occupational Segregation of Black Men
Michelle Holder
(City University of New York-John Jay College)
[View Abstract]
[Download Preview] 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.
Intergroup Inequality in Israel
Wifag Adnan
(Zayed University)
[View Abstract]
The Stratification Economics literature largely attributes intergroup inequality to the social status of group membership. Specifically, individuals are social categorized into “in-groups” and “out-groups” such that the former and dominant group is endowed with a greater number of resources due to a higher social status as well as a number of persistent discriminatory policies towards the latter group. This theory has been used to explain intergroup inequality based on race, gender and ethnicity in the US. In the same spirit, this paper argues that the tools employed in the emerging subfield of Stratification Economics can also be utilized to explain the persistent and growing inequalities—in multiple dimensions including wealth, income, earnings, educational, occupational, and land ownership--between the Jewish majority and non-Jewish minority in Israel by extending the theory to incorporate national identity relative to the state’s identity.
Does the EITC Buffer Against Neighborhood Transition? Evidence from Washington, D.C
LaTanya Brown-Robertson
(Bowie State University)
Marcus Casey
(University of Illinois-Chicago)
Bradley Hardy
(American University)
Daniel Muhammad
(District of Columbia Government)
[View Abstract]
Since 2000, the socioeconomic and demographic characteristics of District of Columbia (DC) residents have changed relative to the 1980s and 1990s. For example, from 2007 to 2013 the city absorbed roughly 1000 new residents per month – many of them college-educated – and, racially, by 2011 the city was no longer predominantly black for the first time in 51 years. Concerns surround these trends and the adverse consequences of neighborhood change or “gentrification,” insofar as low and moderate income residents lack the financial resources to remain in economically growing and transitioning neighborhoods amid rising prices for housing, goods, and services. Over the same time period, DC enacted the nation’s most generous local Earned Income Tax Credit (EITC) supplement for the working poor and near-poor, equivalent to 40 percent of the federal credit. Although the EITC is linked to increased employment, higher net income and liquidity, and lowered poverty, it is also possible that EITC receipt buffers against low-income out-migration from transitioning DC neighborhoods experiencing rising economic growth. To test this, we use longitudinal administrative tax panel data for DC from 2001 to 2013 to assess the combined effect of the DC supplemental earned income tax credit (EITC) and the federal EITC on geographic displacement and migration deriving from neighborhood economic growth (“gentrification”). We geocode the tax data to explore the influence of EITC policy on migration across Census tract, city neighborhood, and Ward. Data on the characteristics of residents are aggregated to provide indicators of economic change at the neighborhood level. Given that the federal EITC is currently the nation’s largest federal cash transfer program for low and moderate income working families, the added liquidity low-income working DC families receive may have positive externalities extending to housing choice and location.
Discussants:
Lisa D. Cook
(Michigan State University)
Charles Betsey
(Howard University)
Darrick Hamilton
(New School)
Trevon Logan
(Ohio State University)
Jan 05, 2016 8:00 am, Marriott Marquis, Sierra I
Society of Government Economists
Occupational Demands among Older Workers
(J2, J1)
Presiding:
Matthew S. Rutledge
(Boston College)
What Explains the Educational Differences in the Propensity to Work among Older Adults?
Richard Johnson
(Urban Institute)
Nadia Karamcheva
(Congressional Budget Office)
Benjamin Southgate
(Urban Institute)
[View Abstract]
The labor force participation of older adults in the US showed a marked increase over the last twenty years. Yet, the trend towards delayed retirement has not affected all groups equally and large differences remain in labor force participation rates between those with low and high education. Using data from the Health and Retirement Study, including restricted-access occupational codes matched with job demands information derived from the Occupational Information Network (O*NET), this study examines what factors account for the educational differences in old-age employment. The results show that almost a half of the employment gap can be accounted for by differences in self-reported health and work-restricting health conditions. Differences in O*NET job demands and in self-reported job characteristics account for about a third of the gap, with difficult working conditions and self-reported physical job demands being the strongest predictors.
Does Age-Related Decline in Ability Correspond with Retirement Age?
Anek Belbase
(Center for Retirement Research)
Geoffrey Sanzenbacher
(Center for Retirement Research)
[View Abstract]
[Download Preview] In many occupations, both blue- and white-collar, abilities that decline relatively early in a worker’s life are very important. Workers in these occupations may find it difficult to continue to work longer even if financial circumstances, like the increasing Full Retirement Age (FRA), dictate that they should. Yet, past research on retirement timing has typically bucketed workers into the groups “blue-” and “white-” collar, even though this distinction ignores important differences in ability decline within each group. Instead, this study uses the Health and Retirement Study linked to the O*NET job attributes to develop a “Susceptibility Index” to identify occupations that are especially vulnerable to ability decline prior to the FRA. The study uses this Index to explore whether workers in occupations that value abilities that decline early will be forced to retire earlier, regardless of their financial circumstances and regardless of whether the occupation is blue- or white-collar. It also uses the Index to explore whether workers have shifted into or away from jobs susceptible to early ability decline in the last two decades, as working longer has become more important.
How Does Occupational Access for Older Workers Differ by Education?
Matthew S. Rutledge
(Boston College)
Steven A. Sass
(Boston College)
Jorge D. Ramos-Mercado
(Boston College)
[View Abstract]
[Download Preview] Changing jobs after age 50 has become increasingly common. To assess the employment opportunities of older job-changers in the years prior to retirement, this study examines the how the breadth of occupations in which they find employment narrows as they age past their prime working years and how this differs by gender and educational attainment. The results indicate that workers who change jobs in their early 50s find employment in a reasonably similar set of occupations as prime-age workers, with opportunities narrowing at older ages. They also indicate that job opportunities broadened significantly for better-educated older workers since the late 1990s. While job opportunities now narrow significantly for less-educated men in their late 50s, this narrowing primarily occurs in the early 60s for women and better-educated men. Consistent with previous research, the study finds that employer policies that emphasize hiring from within create barriers to the hiring of older job-seekers; and that older workers are less likely to be hired in jobs requiring exposure to hazards. In contrast to earlier work, we find little evidence that computer use and numeracy requirements limit older workers’ job opportunities. The study also finds that the narrowing of job opportunities is not associated with a general decline in job quality as measured by median occupational earnings. Occupations that disproportionately hire older workers pay less and an increasing share of older job changers find employment in such occupations. But enough older workers find employment in higher-paying occupations to keep the overall average largely unaffected.
Discussants:
Matthew S. Rutledge
(Boston College)
Joanne Hsu
(Federal Reserve Board of Governors)
David Burk
(Congressional Budget Office)
Jan 05, 2016 8:00 am, Marriott Marquis, Sierra J
Union for Radical Political Economics/International Association for Feminist Economics
Envisioning Alternative Economic Systems
(P2) (Panel Discussion)
Panel Moderator:
Elissa Braunstein
(Colorado State University)
John Willoughby
(American University)
Stephanie Seguino
(University of Vermont)
Gerald Epstein
(University of Massachusetts-Amherst)
Caren Grown
(World Bank)
Nancy Folbre
(University of Massachusetts-Amherst)
Jan 05, 2016 8:00 am, Marriott Marquis, Sierra K
Union for Radical Political Economics
Heterodox Macroeconomics
(E3)
Presiding:
Fred Moseley
(Mount Holyoke College)
Limits to Growth, Ratio of Accumulation, and the Tendency for the Rate of Profit to Fall
Minqi Li
(University of Utah)
[View Abstract]
Marx famously proposed the law of the tendency for the rate of profit to fall as a result of the capital-intensive bias of capitalist technical change. Empirical studies of long-term movements of the profit rate and the output-capital ratio (as a proxy for the inverse of Marx’s organic composition of capital) in the leading capitalist economies have found little evidence of a definite long-term trend although there has been some evidence of falling output-capital ratio and falling profit rate during certain historical periods. This paper proposes a new approach to study the movement of the profit rate by considering how the relative movement of the growth rate of the capitalist profit and the growth rate of capital stock drives both the short-term and the long-term profit rate. Historical evidence from the US and the Chinese economy will be used to demonstrate the usefulness of this approach in analyzing capitalist accumulation and crisis. Moreover, the approach allows for the interaction between different dimensions of the capitalist contradictions. For example, it will be shown that the ecological limits to growth may contribute to the validation of Marx’s 19th century “law of the tendency for the rate of profit to fall” in the context of the 21st century.
Marxian Exploitation in a Harrod-Style Keynesian Growth Model
James Devine
(Loyola Marymount University)
[View Abstract]
This paper translates the Marxian macroeconomic model of exploitation of labor in my chapter in Kaufman’s forthcoming book from a static context to a dynamic one of economic growth. The original assumed that the “Keynesian short run” prevailed, with a given stock of fixed capital despite the occurrence of accumulation. This problem cannot be solved by neoclassical growth theory (e.g., Solow, 1956) without major modification. Crucially, that theory assumes continuous full employment. In contrast, the existence of unemployment requires persistent involuntary unemployment in my model. To solve this problem, I use Harrod’s Keynesian Essay in Dynamic Theory as a basis for the dynamics to my model. However, some neoclassical assumptions are employed: if Marxian exploitation can exist despite the assumption of an idealized aggregate Cobb-Douglas production function with economies of scale and competitive markets shows that the phenomenon can exist even in more realistic circumstances.
Systemic Fragility in the 21st Century Global Economy
Jack Rasmus
(St. Marys College)
[View Abstract]
[Download Preview] Traditional fiscal and monetary policies in the advanced economies and China have failed to generate a sustained global recovery since 2009. That failure is the result of a growing Systemic Fragility in the global economy, which is stunting both multiplier effects and interest rate growth elasticities. Systemic Fragility is defined quantitatively and qualitatively, and explained as the outcome of the dynamic interaction between financial, consumption, and government balance sheet forms of fragility. The presentation explains how 9 key global trends have been contributing to the growth of Systemic Fragility, and how financial asset prices serve as a key transmission mechanism between the fragility forms and the 9 key trends. Global shadow banking, the proliferation of forms of financial asset, and the expansion of liquid financial markets worldwide are offered as the institutional basis for analysis, and the rise of a new global finance capital elite, of very- and ultra-high net worth professional investors, is offered as the primary agency variable. Based on expanded Solow Growth Models, a set of simultaneous equations is offered that represent the interaction of the various forms of fragility and that, together, the development of Systemic Fragility.
Some Controversial Aspects of the Financial Meltdown of 2008
John Komlos
(University of Munich)
[View Abstract]
[Download Preview] The Great Meltdown happened at a time when most macroeconomists (including Nobel Prize winner Bob Lucas as well as none other than the current Fed Chairman Ben Bernanke) were writing about the “Great Moderation,” i.e., that business cycles have vanished for all practical purposes. They were obviously dead wrong along with thousands of their colleagues. The Queen of England famously asked why those responsible for financial stability failed to see such a big bubble coming. This the talk focuses on four aspects of the crisis that are often skirted in presentations: 1) the role of ideology in why Greenspan and Bernanke overlooked the coming of the crisis; 2) who were the Cassandras whose warnings were disregarded; 3) the counterfactual policy that would have done a better job of rescuing not only Wall Street but also Main Street and would have avoided what according to Paul Krugman has become a “sour economy” seven years into the crisis; and 4) have we morphed into an economic regime of secular stagnation?
Discussants:
Jack Rasmus
(St. Marys College)
Anwar Shaikh
(New School)
Gary Dymski
(Leeds University)
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 20
American Economic Association
Assessing the Costs and Benefits of Occupational Licensing and Certification
(J1, K2)
Presiding:
Edward Timmons
(Saint Francis University)
Analyzing the Duration of Occupational Licensing on the Labor Market
Suyoun Han
(University of Minnesota)
Morris Kleiner
(University of Minnesota and NBER)
[View Abstract]
The study examines the economic impact of the duration of occupational licensing laws for ten major licensed occupations in the U.S. labor market. Time from the passage of occupational licensing laws, which we term duration, is important in analyzing occupational licensing because states often enact grandfather clauses that protect existing practitioners and new workers have higher entry standards than existing practitioners, thus increasing the costs to new entrants. This process limits the supply of labor and those in the occupation can gain economic rents. Using historical data on the year that an occupation was licensed by a state and the data available from the American Community Survey and the Current Population Survey from 1950-2010, we develop estimates of the impact of licensing duration on wages. Our multivariate regression estimates combined with non-parametric Kernel estimation techniques suggest that it takes at least 10 years to realize the full economic wage effects of occupational licensing.
Occupational Regulation in the EU and UK: Prevalence and Impact on Labour Migration
Amy Humphris
(University of Brighton)
Maria Koumenta
(Queen Mary University of London)
Mario Pagliero
(University of Turin and Collegio Carlo Alberto)
[View Abstract]
Occupational regulation is a dominant labour market institution affecting many workers around the globe. In the US, occupational licensing directly affects 29 per cent of workers (Kleiner and Krueger 2013), more than those affected by other labour market institutions such as the minimum wage or unionization. Similarly, about a third of the UK’s workforce is subject to occupational regulation and this figure has been has been systematically growing for the past 30 years (Forth et al., 2011). However, no comprehensive information exists as to the proportion of the EU labour force that is subject to occupational regulation. This paper provides the first estimates of the prevalence and characteristics of occupational regulation in the EU. We do so by using information from the European Commission’s Database of Regulated Occupations and match it with data from the 2012 European Labour Force Survey. Our results show that between 9 and 24 per cent of EU 27 workers are subject to occupational regulation, which is between 19 and 51 million individuals. When examining the effects of occupational regulation on mobility, we find that the strictness of regulation does not appear to be linked to employment-related movement to the UK or else, licensing, compared to other forms of regulation, has not deterred entry during this period. While only descriptive, this is a clearly encouraging finding for the UK labour market. No links were found between the licensing status of an occupation and the proportion of EU-migrants within it.
Occupational Licensing and Quality: Distributional and Heterogeneous Effects in the Teaching Profession
Bradley Larsen
(Stanford University and NBER)
[View Abstract]
[Download Preview] This paper examines a common form of entry restriction: occupational licensing. The paper studies two questions: first, how occupational licensing laws affect the distribution of quality, and second, how the effects of licensing on quality vary across regions of differing income levels. The paper uses variation in state licensing requirements for teachers and two national datasets on teacher qualifications and student outcomes from 1983--2008. Two measures of quality are used: the qualifications of candidates entering the occupation (input quality) and the quality of service provided (output quality). Results show that more restrictive licensing laws---in the form of certification tests required for initial licensure---may lead some first-year teachers of high input quality to opt out of the occupation. In the sample of teachers who remain in the occupation multiple years, stricter licensing appears to increase input quality at most quantiles of the teacher quality distribution. Output quality, as measured by student test scores, also changes with stricter occupational licensing, revealing a widening of the distribution. For most forms of licensing studied, input and output quality improvements due to stricter licensing requirements occur in high-income rather than low-income school districts.
Licensure or License: Reconsidering Occupational Regulation
Dante DeAntonio
(Lehigh University)
Robert Thornton
(Lehigh University)
Edward Timmons
(Saint Francis University)
[Download Preview] TBD
2011 ACGME Residency Work Restrictions Associated with Increased Inpatient Mortality at Teaching Institutions
David N. van der Goes
(University of New Mexico)
John P. Ney
(University of Washington)
TBD
Discussants:
Mindy Marks
(University of California-Riverside)
Robert Thornton
(Lehigh University)
David Harrington
(Kenyon College)
Marek Zapletal
(Brattle Group)
Edward Timmons
(Saint Francis University)
Jan 05, 2016 10:15 am, Hilton Union Square, Continental – Parlor 3
American Economic Association
Automobile Fuel-Use and Pollution Policies
(Q4, L9)
Presiding:
Antonio M. Bento
(Cornell University)
Weathering the Storm: Production Reallocation in the Face of Demand Shocks
Christopher R. Knittel
(Massachusetts Institute of Technology)
Jeremy West
(Massachusetts Institute of Technology)
Matthew Zaragoza-Watkins
(Massachusetts Institute of Technology and Environmental Defense Fund)
[View Abstract]
Because motor vehicles differ in fuel-efficiency, there is a heterogeneous relationship between gasoline prices and new-vehicle demand. Within each model-year production cycle, the set of product offerings and prices is largely fixed, such that substitution between vehicle models is the primary adjustment margin. In this paper, we study firms' production decisions in response to demand shocks induced by gasoline prices. Using monthly data on plant-level production, inventories, and sales at the vehicle-model level, we evaluate how manufacturers reallocate production within and across plants. We pay particular attention to firm-level heterogeneity in this response and investigate the extent to which financial markets reflect these firm-specific adjustment costs.
Abatement Strategies and the Cost of Environmental Regulation: Emission Standards on the European Car Market
Mathias Reynaert
(Toulouse University)
[View Abstract]
[Download Preview] Emission standards are one of the major policy tools to reduce greenhouse gas emissions from transportation. The welfare effects from this type of regulation depend on how firms choose to abate emissions: by changing relative prices, by downsizing their fleet or by adopting technology. This paper studies the response of firms to a new emission standard in the European car market using panel data covering 1998-2011. The data show that firms choose to comply with the regulation by adopting new technology. To evaluate the welfare effects of the regulation I estimate a structural model using data from before the policy announcement and explicitly test the ability of the model to explain the observed responses. I find that, because the abatement is done by technology adoption, consumer welfare increases and overall welfare effects depend on market failures in the technology market. The design of the regulation matters to induce technology adoption.
The Effect of Saturday Driving Restrictions on Air Quality in Mexico City
Lucas Davis
(University of California-Berkeley)
[View Abstract]
Mexico City's driving restrictions have now been in place for 25 years, and have spurred similar restrictions in Santiago, Sao Paulo, Bogota, Medellin, San Jose, Beijing, Tianjin, and Quito. The format differs across cities, but most of these programs follow Mexico City's approach and restrict driving during weekdays based on the last digit of the license plate. The initial rationale for Mexico City’s restrictions was to reduce local air pollution, but studies have found little evidence of air quality improvements (Davis, 2008, Gallego, Montero, and Salas, 2013). Drivers do not appear to have switched to the subway or bus system. Instead, they used taxis more and bought additional cars so that they could drive every day. Despite the lack of empirical support, the program was expanded in the summer of 2008 to include Saturdays. Again, the primary rationale was air quality, with the Mexico City government attempting to address Saturday air pollution levels that had increased during the 2000s to reach and often exceed typical weekday levels. This paper measures the effect of these new restrictions on air quality using high-frequency data from monitoring stations. We compare impacts between neighborhoods with different types of traffic patterns and test for intertemporal substitution toward Fridays and Sundays.
The Effect of Fuel Economy Standards on Vehicle Weight Dispersion and Accident Fatalities
Antonio M. Bento
(Cornell University)
Kenneth Gillingham
(Yale University)
Kevin Roth
(University of California-Irvine)
[View Abstract]
It has long been argued that increasing the CAFE standards to reduce gasoline consumption in automobiles leads to a down-weighting of the fleet, increasing accident fatalities. Yet recent studies in the “Arms Race” literature point to vehicle weight dispersion, rather than the mean weight, as the primary determinant of multi-vehicle accident fatalities. This paper is the first to not only measure the effect of CAFE standards on weight dispersion across the vehicle fleet, but also translate these results into fatalities. We use the recently developed recentered influence function (RIF) regression approach for studying unconditional quantiles (Firpo et al. 2009), along with comprehensive data on vehicle attributes and sales for major manufacturers from 1960 to 2011. Our estimates suggest that the changes in vehicle weight are considerably more complex than a uniform down-weighting. For the domestic car fleet we find that CAFE standards resulted in substantial down-weighting of vehicles in the 25-50th quantiles, corresponding to a roughly 25 to 81 lbs per mpg increase in the lower quantiles. Asian manufacturers, with a fuel economy above the standard, show little response to standards. They do, however, respond to the stringency on the domestic firms suggesting that competition over attributes has the possibility to partly mitigate the effect of the standards. Using the resulting counterfactual weight dispersion and detailed data on police-reported accidents, we find that CAFE standards increased fatalities significantly more than previously believed. This finding emphasizes the distortions caused by CAFE standards, but may provide some support for the new footprint-based standard, which disincentivizes reducing vehicle size in the middle and lower end of the weight spectrum.
Discussants:
Kenneth Gillingham
(Yale University)
Shanjun Li
(Cornell University)
Paulina Oliva Vallejo
(University of California-Santa Barbara)
James Sallee
(University of Chicago)
Jan 05, 2016 10:15 am, Hilton Union Square, Continental – Parlor 9
American Economic Association
Chinese Economic Data: Users' Guide
(P2, E2)
Presiding:
Ronald Michael Schramm
(Xian Jiao Tong Liverpool University (IBSS))
Strengths and Weaknesses in Chinese Statistics
Thomas G. Rawski
(University of Pittsburgh)
[View Abstract]
The strengths of Chinese statistics are clear – growing technical capacity at NBS and elsewhere; convergence to international norms facilitates comparative work; growing availability- albeit sometimes through the “back door” – of data that sometimes go beyond what is generally available in “transparent” societies – for example I recently attended a seminar on R&D issues in which the presenter said that the work is hindered by inability to find US data to match the detail available on the Chinese side (and this author reads no Chinese!).<br />
<br />
On the pitfalls side, we have<br />
<br />
Some data subject to wide error margins – perhaps most obvious – scale and share of farm employment; also provincial and urban population totals (do they include migrants?)<br />
<br />
Some data show impossible break points due to improved data collection without adjustment of previously reported totals – Carsten has noted this for adjustments to GDP data; I’ve noted the same issue in some of the transport statistics; I’ve just stumbled across another – the reported share of overall outlay on R&D financed by industry jumps from 30+% to about 55% between 1999 and 2000 – this obviously did not happen but must reflect some sort of updating in which NBS either redefines R&D outlay for industry or expands its coverage (see J. of South Asian Development 1.1 (2006): 23 by Pranab Bardhan, citing NBS Annual Statistics of Science and Technology in China 2006. In these instances, NBS efforts to improve and upgrade their data create unexpected difficulties for non-specialist researchers.<br />
<br />
Issue of possible political intervention – which arises in multiple contexts, including disputes (e.g. between myself and Nick
Capital Stock Measures for China, 1952-2013
Carsten A. Holz
(Hong Kong University of Science and Technology)
[View Abstract]
Capital stock measures are derived for China for the years 1952-2013, economy-wide and with a sectoral breakdown. The sectoral breakdown comprises the three major economic sectors (primary/secondary/tertiary sectors), all approximately twenty first-digit sectors, and for the years since 1985 all second-digit sectors. The physical capital stock measures include productive capital stock (capital services) as well as wealth capital stock. Methodological issues raised by the OECD (2009) recommendations for calculating capital services are addressed. A great number of issues with Chinese data on investment and gross fixed capital formation are resolved, ranging from choice of variables to changes in the sectoral classification system and the handling of breaks in statistical coverage. The consequences of applying methodological alternatives to Chinese investment and gross fixed capital formation data in constructing capital measures are explored. The resulting capital series are contrasted and conclusions are drawn on the most appropriate measure of capital services for China for productivity and growth analysis. (Depending on progress with the separate construction of employment data, my presentation may also include findings on productivity developments.)
A Comparison of Household Surveys
Shi Li
(Beijing Normal University)
Chuliang Luo
(Beijing Normal University)
[View Abstract]
The purpose of this paper to measure and estimate the distribution of personal income and related economic factors in both rural and urban areas of the People's Republic of China. Data were collected through a series of questionnaire-based interviews conducted in rural and urban areas at the end of 2002. There are ten separate datasets. The first four datasets were derived from the urban questionnaire. The first contains data about individuals living in urban areas. The second contains data about urban households. The third contains individual-level economic variables copied from the initial urban interview form. The fourth contains household-level economic variables copied from the initial urban interview form. The fifth dataset contains village-level data, which was obtained by interviewing village leaders. The sixth contains data about individuals living in rural areas. The seventh contains data about rural households, as well as most of the data from a social network questionnaire which was presented to rural households. The eighth contains the rest of the data from the social network questionnaire and is specifically about the activities of rural school-age children. The ninth dataset contains data about individuals who have migrated from rural to urban areas, and the tenth dataset contains data about rural-urban migrant households.
Agglomeration, Public Expenditure and Productivity Spillover in Space: Firm-Level Evidence from China's Electric Apparatus Industry
Yang Chen
(Xian Jiao Tong Liverpool University and IBSS)
Ming He
(Xian Jiao Tong Liverpool University (IBSS))
[View Abstract]
[Download Preview] The article consists of two parts. Part I examines the {\it Chinese Annual Survey of Industrial Firms database} (CASIF). We start with a brief description of the coverage and key variables, followed by a review of recent applications of the data set in empirical studies. We then discuss the quality and the limitations of the dataset and propose a data cleaning procedure that identifies the key information of each firm. In Part II, linking a sub-sample of this micro-level data set with two other databases-Chinese Prefecture City and County Fiscal Statistical Material and county geographic information, we explore the productivity propagation process in space in China's electric apparatus industry during 1999-2007. The impacts of firm-specific characteristics on productivity growth, the external market conditions and the institutional factor are all considered. Within the general nested spatial framework, we propose modifications to the \citeauthor{Kelejian}'s \citeyearpar{Kelejian} FE-2SLS procedure and the \citeauthor{Mutl}'s \citeyearpar{Mutl} RE-FG2SLS procedure to cope with the unbalanced panel and find the statistical evidence strongly favors the fixed effects over the random effects model. The main results indicate (1) there are significantly positive within-region as well as between-region productivity spillovers; (2) market competition and public expenditure in the local and neighboring districts/counties are important sources to boost productivity growth; and (3) the externality in productivity growth attenuates in spatial distance. Notably, the between-regional spillover effects are found to be more significant in smaller than in larger administrative units and more pronounced in urban districts than in counties.
Discussants:
Ronald Michael Schramm
(Xian Jiao Tong University and IBSS)
Jan 05, 2016 10:15 am, Hilton Union Square, Golden Gate 8
American Economic Association
Gender Economics
(J7)
Presiding:
KimMarie McGoldrick
(University of Richmond)
Gender Differences in Networking at Work
Friederike Mengel
(University of Essex and Maastricht University)
[View Abstract]
Gender differences in networking have been cited as one of the main reasons for gender earnings and promotion gaps. Despite this fact there is little evidence on whether such differences exist and how exactly they look like. We conduct an experiment to gain insight into these questions. In our experiment participants interact in simulated work environments, where promotion and earnings depend on performance, networking or designation in different treatments. We do find evidence of gender earnings and promotion gaps in treatments where networking is important in determining promotion. However, we do not find evidence of gender differences in networking. Women and men do not differ in terms of their in- or out-degree nor in terms of their centrality in the network. Earnings and promotion gaps appear, because there is homophily in networks and male, but not female decision-makers, reward their network neighbours with increased earnings as well as promotion.
Gender Biases in Student Evaluations of Teachers and their Impact on Teacher Incentives
Anne Boring
(Sciences Po)
[View Abstract]
This paper uses a unique database from a French university to analyze gender biases in student evaluations of teachers (SETs). The results of generalized ordered logit regressions and fixed-effects models suggest that male teachers tend to receive higher SET scores because of students' gender biases. Male students in particular express a strong bias in their favor: male students are approximately 30% more likely to give an excellent overall satisfaction score to male teachers compared to female teachers. The different teaching dimensions that students value in men and women tend to correspond to gender stereotypes. The teaching dimensions for which students perceive a comparative advantage for women (such as course preparation and organization) tend to be more time-consuming for the teacher, compared to the teaching dimensions that students value more in men (such as class leadership skills). Men are perceived as being more knowledgeable (male gender stereotype) and obtain higher SET scores than women, but students appear to learn as much from women as from men, suggesting that female teachers are as knowledgeable as men. Finally, I find that if women increased students' continuous assessment grades by 7.5% compared to the grades given by their male colleagues, they could obtain similar overall satisfaction scores as men. Yet, women do not act on this incentive (men and women give similar continuous assessment grades), suggesting that female teachers are unaware of students' gender biases. These biases have strong negative consequences for female academics, who may spend more time on teaching to try to obtain high SET scores, reducing time available for research. The results suggest that better teaching is not necessarily measured by SETs.
How Stress Affects Performance and Competitiveness across Gender
Jana Cahlikova
(Max Planck Institute for Tax Law and Public Finance)
Lubomir Cingl
(Charles University-Prague)
Ian Levely
(Charles University-Prague)
[View Abstract]
We study how psycho-social stress affects willingness to compete and performance under tournament incentives across gender. We use a laboratory economic experiment in which a task is compensated under both tournament and piece-rate schemes and elicit subjects' willingness to compete. Stress is exogenously introduced through a modified version of the Trier Social Stress Test, and stress response is measured by salivary cortisol levels. We find that stress reduces willingness to compete. For female subjects, this can be explained by performance: while tournament incentives increase output in the control group, women in the stress treatment actually perform worse when competition is introduced. For males, output is not affected by the stress treatment and lower competitiveness seems to be preference-based. These results may explain previous findings that men and women react differently to tournament incentives in experiments, as well as gender gaps on the labor market, since many key career events involve competition in stressful settings (e.g. entrance exams or job interviews).
Gender Differences in Credit for Group Work
Heather Sarsons
(Harvard University)
[View Abstract]
[Download Preview] Within academia, men are tenured at higher rates than women in most quantitative fields, including economics. Researchers have attempted to identify the source of this disparity but find that 30% of the gap remains unexplained even after controlling for family commitments and differences in productivity.
I use data from academic economists' CVs to test whether coauthored and solo-authored publications matter differently for tenure for men and women. While solo-authored papers send a clear signal about one's ability, coauthored papers are noisy in that they do not provide specific information about each contributor's skills. I find that men are tenured at roughly the same rate regardless of whether they coauthor or solo-author. Women, however, suffer a significant penalty when they coauthor: a woman who coauthors nearly all of her papers has a 40% chance of receiving tenure while a man has a 70% chance. A woman who solo-authors all of her papers receives tenure at roughly the same rate as a man. The results hold after controlling for productivity, research quality, field of study, tenure institution, and tenure year. The result is most pronounced for women coauthoring with only men and diminishes the more women there are on a paper. Furthermore, women are no more likely to coauthor with senior economists, suggesting that the results are not driven by a simple “seniority” effect.
I repeat the analysis for sociology and management papers where coauthors are listed in order of contribution rather than in alphabetical order. The coauthor penalty is significantly diminished under these authorship styles.
The paper concludes by proposing a model of statistical discrimination in which employers must make promotion decisions based on noisy signals. I test the model's predictions and discuss how the model reconciles previous discrimination models with trends we see in the data.
Jan 05, 2016 10:15 am, Hilton Union Square, Imperial A
American Economic Association
Income Inequality, Wealth Inequality and Innovation
(E2, J3)
Presiding:
Peter J. Klenow
(Stanford University)
Distributional National Accounts: Methods and Estimates for the United States, 1913-2013
Emmanuel Saez
(University of California-Berkeley)
Gabriel Zucman
(London School of Economics)
Thomas Piketty
(Paris School of Economics)
[View Abstract]
This paper combines tax, survey, and national accounts data to build new series on the distribution of national income in the United States since 1913. In contrast to previous attempts, our "Distributional National Accounts" estimates capture 100% of national income recorded in the national accounts. This allows us to provide decompositions of growth by income groups consistent with total economic growth used in macroeconomic analysis. We compute both pre-tax and post-tax per adult incomes. We find an overall U-shape for pre-tax top income shares over the century 1913-2012, although less marked than the Piketty-Saez series. Growth for the bottom 90% incomes has been slower than for upper income groups since the 1970s. However, in contrast to survey and individual tax data, we find substantial increase in average real pre-tax incomes for the bottom 90% since the 1970s.
Lifetime Inequality and Income Dynamics
Fatih Guvenen
(University of Minnesota)
Greg Kaplan
(Princeton University)
Jae Song
(Social Security Administration)
[View Abstract]
In this paper we use data on the earnings histories of US workers that span their entire working life. These data come from administrative records and therefore does not suffer from problems typical in survey data (survey response error, attrition, top coding, etc.). Our paper makes two contributions. First, we document the evolution of lifetime inequality for 26 cohorts that entered the labor market between 1957 and 1982. We find that (i) inequality in lifetime earnings is much higher than what has been documented in the previous literature based on indirect methods, and (ii) the rise in inequality has been smaller than previously thought. The second contribution of our paper is to focus on top earners in this sample and estimate the dynamics of their earnings over the lifecycle. The resulting stochastic process for top earners should help guide research on the economic behavior of top earners and on top end inequality.
Innovation and Top Income Inequality
Philippe Aghion
(College de France)
Ufuk Akcigit
(University of Chicago)
Antonin Bergeaud
(London School of Economics)
Richard Blundell
(University College London)
David Hemous
(University of Zurich)
[View Abstract]
In this paper we use cross-state panel data to show that top income inequality is (at least partly) driven by innovation. We first establish a positive and significant correlation between various measures of innovativeness and top income inequality in cross-state panel regressions. Second, we argue that this correlation at least partly reflects a causal effect of innovation-led growth on top income inequality. Third, we show that the effect of innovation is strongest after two years and disappears after five years. Finally, we show that innovation does not increase broader measures of inequality which do not focus on top incomes, and that innovation is positively correlated with social mobility, but less so in states with more intense lobbying activities.
Living "American Dream" in Finland: The Social Mobility of Innovators
Philippe Aghion
(College de France)
Ufuk Akcigit
(University of Chicago)
Otto Toivanen
(KU Leuven)
[View Abstract]
This paper matches individual patenting data with individual revenue data in Finland over the period 1990-1999 to analyze how innovation affects an individual's wage income and the probability that she reaches a top income bracket. We compare the upward social mobility of inventors versus non-inventors, and we also analyze how factors such as innate ability, family situation, gender, education, parental education or parental income affect the probability for an inventor to make it to top income brackets.
Discussants:
John Sabelhaus
(Federal Reserve Board)
Stefanie Stantcheva
(Harvard University)
John Van Reenen
(London School of Economics)
Chad Jones
(Stanford University)
Jan 05, 2016 10:15 am, Hilton Union Square, Plaza B
American Economic Association
Inequality, Public Policy, and the Future of Economics: In Memory of Barbara R. Bergmann (1927-2015)
(J2, J7) (Panel Discussion)
Panel Moderator:
Diana Strassmann
(Rice University)
Myra H. Strober
(Stanford University)
The Economic Emergence of Women
Kenneth Arrow
(Stanford University)
The Economics of Racial and Gender Discrimination
Nancy Folbre
(University of Massachusetts-Amherst)
Inequalities of Care: A Bergmannian Perspective
Alice Rivlin
(Brookings Institution)
Poverty, Inequality, and Social Insurance
Maria Floro
(American University)
Envisioning the Economy for the Next Generation
Jan 05, 2016 10:15 am, Hilton Union Square, Continental Parlors 7 & 8
American Economic Association
Infrastructure and Development
(O1)
Presiding:
Paul Joskow
(Massachusetts Institute of Technology)
Making Cities Livable: Clean Water, Expensive Infrastructure and Property Rights
Edward L. Glaeser
(Harvard University)
[View Abstract]
"The developing world is urbanizing at much lower income levels far below those that preceded mass urbanization in the West.
Consequently, developing world mega-cities must face the standard downsides of density, such contagious disease, congestion and crime, with scant resources and often weak governments. In 19th century western cities, the move to clean water and sanitation was aided by externality-related rules that penalized unhealthy older technologies, like cesspits, and ensured demand for new public or private infrastructure. The poor definition of property rights in the developing world makes it particularly difficult to use Pigouvian taxes to improve cities, which must instead rely on expensive and often wasteful subsidies. The effectiveness of infrastructure depends on institutional strength as well as engineering. "
Public and Private Infrastructure
Michael Kremer
(Harvard University)
Jack Willis
(Harvard University)
[View Abstract]
[Download Preview] Public and private infrastructure are often complements or substitutes. Latrines substitute for sewage connections, surrounding housing complements subway stations. In such cases optimal private behavior depends on expected future public behavior, and optimal public behavior depends on private behavior, creating a coordination game and the potential for multiple equilibria. If governments can commit early to public infrastructure, they may do so. If governments cannot commit, they may need to use other second best solutions such as constructing public infrastructure early or taxing certain types of private infrastructure. We consider these interactions in a generalized setup in a growing economy, focusing on how conditions affect the ensuing equilibria and whether efficient outcomes are attained. Particularly important are the technical efficiency of the solutions and the natural catchment area of public infrastructure, inequality, the growth rate of the economy and externalities of the infrastructure.
Understanding Electricity Expansion in Rural Kenya
Edward Miguel
(University of California-Berkeley)
Catherine Wolfram
(University of California-Berkeley)
Kenneth Lee
(University of California-Berkeley)
[View Abstract]
"600 million Africans remain without access to electrical
power and improving their connection rates is a major goal of both
government and foreign aid donor policy. Yet little remains known
about the demand for electricity; uses of power once households are
connected; impacts on living standards; or supply side constraints. We
focus on the last of these issues. We exploit an unusual field
experiment which allows us to quantify the magnitude of scale
economies in electrical grid expansion in rural Kenya. We show that
they are substantial. We present the novel dataset and methodological
approach that makes this possible, and elaborate on possible policy
implications, especially in light of recent donor electrification
initiatives."
Discussants:
Seema Jayachandran
(Northwestern University)
David Weil
(Brown University)
Hunt Allcott
(New York University)
Jan 05, 2016 10:15 am, Hilton Union Square, Continental – Parlor 2
American Economic Association
Intergenerational Transfers
(D1)
Presiding:
Laurence J. Kotlikoff
(Boston University)
The Effect of Wealth Shocks on Expected Bequests: Evidence from the Great Recession
Matthew Baird
(RAND)
Michael Hurd
(RAND)
Susann Rohwedder
(RAND)
[View Abstract]
A wealth effect on bequests is the change in bequests in response to an exogenous, unanticipated change in wealth. Normally, a wealth effect cannot be observed in household survey data because both wealth and bequests result from complicated life-cycle processes. However, in the Great Recession the stock and housing markets declined substantially, resulting in sharp, plausibly unanticipated wealth reductions. We will estimate how wealth shocks to financial wealth and housing wealth affected expected bequests. We will use data from the Health and Retirement Study on the subjective probability that a bequest will exceed thresholds, stated successively as $0, $10,000, $100,000 and $500,000. Using these and population distributions of wealth, we will construct expected bequests as stated at time t, and estimate the evolution of changes in expected bequests in panel in the panel where t = 1992, 1994 …2012. We will compare its evolution between 2008 and 2010 to its evolution over other time periods. We will estimate a wealth effect as the change in expected bequests as a function of changes in wealth, where wealth is, successively, housing wealth, financial wealth or total wealth, all observed at the household level in panel, taking account of household modifiers such as the number of (adult) children and macro modifiers such as the local unemployment rate. Taking active saving to be small compared with unanticipated changes in wealth permits OLS estimation, but we will also use IV estimation to control for any active saving. For example, because of differences in the timing of HRS interviews, households have different exposures to stock market price changes, permitting us to use stock price changes as an instrumental variable. Our results will show how a wealth shock is expected to be divided between bequests and future consumption.
Narrow Framing and Long-Term Care Insurance
Daniel Gottlieb
(University of Pennsylvania)
Olivia S. Mitchell
(University of Pennsylvania)
[View Abstract]
[Download Preview] We propose a model of narrow framing in insurance and test it using data from a new module we designed and fielded in the Health and Retirement Study. We show that respondents subject to narrow framing are substantially less likely to buy long-term care insurance than average. This effect is distinct from, and much larger than, the effects of risk aversion, or adverse selection, and it offers a new explanation for why people underinsure their later-life care needs.
Unequal Bequests
Marco Francesconi
(University of Essex)
Robert A. Pollak
(Washington University-St. Louis)
Domenico Tabasso
(University of Geneva)
[View Abstract]
[Download Preview] Using data from the Health and Retirement Study (HRS), we make two contributions to the literature on end-of-life transfers. First, we show that unequal bequests are much more common than generally recognized, with one-third of parents with wills planning to divide their estates unequally among their children. These plans for unequal division are particularly concentrated in complex families, which are of two types: families with stepchildren and families with genetic children with whom the parent has had no contact, e.g., children from previous marriages. We find that in complex families past and current contact between parents and children reduces or eliminates unequal bequests. Second, although the literature focuses on the bequest intentions of parents who have made wills, we find that many older Americans have not made wills. Although the probability of having a will increases with age, 30 percent of HRS respondents aged 70 and over have no wills. Of HRS respondents who died between 1995 and 2010, 38 percent died without wills. Thus, focusing exclusively on the bequest intentions of parents who have made wills may provide an incomplete and misleading picture of end-of-life transfers.
Intergenerational Transfers and Long-Term Care
Anne Laferrere
(INSEE and CREST)
[View Abstract]
The need for long-term care (LTC) is a significant risk for ageing populations. The risk is individual because of the emotional, physical and economic consequences of care needs. LTC provision systems vary across countries. In Europe health insurance covers health related expenses, but expenses related to care and accommodation costs in nursing homes are less uniformly covered by private or public insurances. Cost is not the only preoccupation: the quality and type of care provider are equally important.<br />
<br />
People who need care get it through a combination of informal care, mostly provided by family members, and formal care, partially of totally covered by public or private insurance systems. Depending on the level of needs, the care arrangements can leave some “unmet needs “and provide more or less incentives for the children to step in and help.<br />
<br />
Relying on 5 waves of data from the SHARE survey on health and retirement in Europe we define gradual levels of needs of LTC based on the respondents’ number of limitations in activities of daily living (ADL) and in instrumental activities of daily living (IADL). We then document the type of help received. Comparing level of needs and care received, we derive whether the needs are adequately met. Information on out of pocket expenses will also be taken into account.<br />
<br />
Forms of care and “unmet needs” will then be related to the respondents’ characteristics and the national LTC systems. Wealth level, hence prospective bequests, past intergenerational transfers and exchanges, living arrangements, will help disentangle the family motivations and relating them to the national welfare policy context.<br />
Discussants:
Meta Brown
(Federal Reserve Bank of New York)
Barbara Schone
(Georgetown University)
Mark O. Wilhelm
(Indiana University-Purdue University Indianapolis)
Robert Willis
(University of Michigan)
Jan 05, 2016 10:15 am, Hilton Union Square, Golden Gate 5
American Economic Association
Labor Mobility in Response to Shocks
(H2)
Presiding:
Jennifer Klein
(California State University-Sacramento)
Do High-Wage Jobs Attract More Applicants? Directed Search Evidence from the Online Labor Market
Benjamin Villena
(University of Chile)
Stefano Banfi
(Central Bank of Chile)
[View Abstract]
[Download Preview] Are workers applying more to high-wage jobs? While search directed to jobs offering higher wages in the theoretical literature has strong implications for labor market efficiency, the evidence supporting this sort of behavior is scarce and murky. In this paper, we first provide strong evidence of directed search in online job markets. Since most jobs do not post an explicit wage, selection bias is a potential threat to identification. Indeed, we show that job adds that post a wage explicitly require significantly lower education and experience. We surmount this critical empirical problem by using wages that employers expect to pay, which is available in our data, even if they choose not to make it visible for applicants. When wages are not explicitly declared, we still find a less intense but highly significant directed search evidence, suggesting that the text and requirements of the posted job add tacitly convey wages. While this evidence suggests a prevalent directed search behavior, standard theories of this sort cannot fit all the stylized facts we uncover. We advance a theoretical model of noisy wage posting that rationalizes both strategic wage posting, and directed search behavior intensity as qualitatively observed in the data.
Have U.S. Local Labor Markets Become Less Local? Examining Geographic Labor Market Integration Using A Two-Sided Matching Framework
Richard Mansfield
(Cornell University)
Evan Buntrock
(Cornell University)
[View Abstract]
This paper applies (and extends) Choo and Siow's (2006) empirical approach to estimating matching games with transferrable utility to determine the degree to which local labor markets have become more geographically integrated in the fifteen year period (1996-2010) corresponding to the rise of the internet. The matching framework can isolate changes in structural factors (relative tastes, costs, or productivities associated with particular types of matches/transitions) from changes in matching patterns (geographic job-to-job transition patterns) that are simply driven by the evolving composition of types on both sides of the labor market. Exploiting the LEHD database, our results reveal a consistent and sizable trend away from job-to-job transitions featuring a short distance (1-10 miles) between origin and destination employers and a corresponding trend toward transitions featuring moderate distance (25-100 miles). These results suggest that integration of local labor markets has primarily occurred at a sub-state and perhaps even sub-county level of geographic aggregation, which has prevented previous inter-state and inter-county analyses of job and residential mobility from detecting the trend. Finally, we show how the matching framework can be used to produce counterfactual simulations illustrating how the geographic incidence of local labor demand shocks is likely to have changed over time.
Corporate Taxes and Strategic Patent Location within Multinational Firms
Tobias Boehm
(University of Muenster)
Bodo Knoll
(University of Bochum)
Nadine Riedel
(University of Bochum)
Martina Baumann
(University of Bochum)
[View Abstract]
This paper complements a small but growing literature on the effect of corporate taxes on R&D investment and patent holdings. We provide evidence that patenting strategies are exploited as a device to transfer income to low-tax jurisdictions. Using data on the population of corporate patent applications to the European Patent Office, we show that the location of R&D investment and patent ownership is geographically separated in a non-negligible number of cases. Moreover, our results suggest that this geographical split is partly motivated by tax considerations. We find that countries which levy low patent income taxes attract ownership of foreign-invented patents, especially those patents that have a high earnings potential. Analogously, inventor countries with high patent income tax rates observe ownership relocations of high-quality patents from their borders. Moreover, our results suggest that the probability for a patent to be owned by a party in a tax haven country significantly decreases if the inventor country has implemented controlled foreign company laws.
Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland
Isabel Martinez
(University of California-Berkeley and University of St. Gallen)
[View Abstract]
[Download Preview] Tax competition raises the question to which extent taxpayers respond to differences in income tax rates by migrating to low-tax areas. This paper analyzes a large, two-step tax reform in the canton of Obwalden in central Switzerland in 2006 and 2008. The canton first introduced a regressive income tax scheme with the explicit purpose of attracting affluent taxpayers, followed by a change to a flat rate tax, thereby lowering taxes for all taxpayers. Using individual tax data from the cantonal tax administration, I apply a 2SLS approach to estimate how responsive migration was to the tax reduction. I estimate an elasticity of the stock of rich taxpayers in the canton with respect to the average net-of-tax rate of 2.4 in the first two years after the reform, increasing to 3.5 over the five post-reform years. The corresponding elsticities of the inflow of rich taxpayers are even larger. These estimates are larger than what the few studies on tax induced mobility elasticity have found so far. I can further rule out that these results are due to an exogenous positive income shock to top incomes. DiD estimations comparing the share of rich taxpayers and net income per taxpayer in Obwalden to two neighboring cantons confirm that the reform was successful in increasing the canton’s tax base. The large elasticities can be explained by two aspects. First, by the sizable pool of intentionally treated and the prevailing residence-based taxation, as opposed to source-based taxation. Through relocating to Obwalden, any Swiss and European citizen could take advantage of this tax scheme. Second, by the initially low share of rich taxpayers in and the small size of the canton.
Climate Variability and International Migration
Mariola Pytlikova
(CERGE-EI Prague and VSB-TU Ostrava)
[View Abstract]
[Download Preview] While there is considerable interest in understanding the climate-migration relationship, particularly in the context of concerns about global climatic change, little is known about underlying mechanisms. We analyze a unique and extensive set of panel data characterizing annual bilateral international migration flows from 163 origin countries to 42 destination countries covering the last three decades. We find a positive and statistically significant relationship between temperature and international outmigration only in the most agriculture-dependent countries, consistent with the widely-documented adverse impact of temperature on agricultural productivity. In addition, migration flows to current major destinations are especially temperature-sensitive. Policies to address issues related to climate-induced international migration would be more effective if focused on the agriculture-dependent countries and especially people in those countries whose livelihoods depend on agriculture.
Jan 05, 2016 10:15 am, Hilton Union Square, Imperial B
American Economic Association
Management and Productivity in Health Care
(I1, D2)
Presiding:
Nicholas Bloom
(Stanford University)
Chasing Ambulance Productivity
Nicholas Bloom
(Stanford University)
David Chan
(Stanford University)
Atul Gupta
(Stanford University)
[View Abstract]
The last several decades have witnessed a rapid development of Emergency Medical Services (EMS) across our nation as an increasingly important de facto link in integrated health care delivery. However, this system of prehospital care is often fragmented and highly inconsistent across geographic regions. Using ambulance dispatch, clinical outcome, billing, and personnel data on 15.1 million ambulance runs in a large ambulance chain, we evaluate variation in productivity across ambulance sites and personnel. The data include detailed information on time spent at the scene of emergency, travel times, and travel distance. We find significant differences in productivity within sites across workers, and that these differences are highly correlated across roles in ambulance teams. We further investigate the role of tenure in productivity and find evidence that suggests a non-monotonic pattern in productivity over tenure, with productivity first increasing then decreasing. Finally, we evaluate changes in manager identities and individual managerial interventions to study the impact of managerial decisions on site productivity.
Understanding Geographic Variation in Mortality
Amy Finkelstein
(Massachusetts Institute of Technology)
Matthew Gentzkow
(Stanford University)
Heidi Williams
(Massachusetts Institute of Technology)
[View Abstract]
Mortality outcomes differ dramatically across geographic areas within the US. In this paper,
we investigate the sources of this variation, using administrative data from the US Medicare
program to follow individuals as they move across areas. Our preliminary results relate
differences across destination locations to the average health care utilization of patients in each
destination. We show that moves to higher-spending destinations are associated with lower
post-move mortality.
The Impact of Consumer Inattention on Insurer Pricing in the Medicare Part D Program
Kate Ho
(Columbia University)
Fiona M. Scott Morton
(Yale University)
Joseph Hogan
(Columbia University)
[View Abstract]
[Download Preview] Medicare Part D presents a novel privatized structure for a government pharmaceutical
benefit. Incentives for firms to provide low prices and high quality are generated by consumers
who choose among multiple insurance plans in each market. To date the literature has primarily
focused on consumers, and has calculated how much could be saved if they chose better plans. In
this paper we take the next analytical step and consider how plans will adjust prices as consumer
search behavior improves. We use detailed data on enrollees in New Jersey to demonstrate
that consumers switch plans infrequently and imperfectly. We estimate a model of consumer
plan choice with inattentive consumers. We then turn to the supply side and examine insurer
responses to this behavior. We show that high premiums are consistent with insurers profiting
from consumer inertia. We use the demand model and a model of firm pricing to calculate how
much lower Part D program costs would be if consumer inattention were removed and plans
re-priced in response. Our estimates indicate that consumers would save $601 each over three
years when firms’ choice of markup is taken into account. Cost growth would also fall: by the
last year of our sample government savings would amount to $224 million per year or 4.1% of
the cost of subsidizing the relevant enrollees.
Healthcare: The IT Productivity Paradox with a 25-Year Lag
Fiona M. Scott Morton
(Yale University)
[View Abstract]
25 years ago, the field of Economics included an active research agenda attempting to determine the productivity impact of information technology. The paradox, often attributed to Bob Solow, was that businesses were investing heavily in IT and yet economists could not find measurable productivity improvements from those investments. The same phenomenon is occurring in the United States today with healthcare IT spending. The paper traces the parallels between the two cases with available data. Research shows that the effect of IT on output is impacted by the organizational characteristics of the investing firm. The paper argues that this mechanism will be important for healthcare IT investments as well.
Discussants:
Raffaella Sadun
(Harvard University)
Jeff Clemens
(University of California-San Diego)
Aviv Nevo
(Northwestern University)
Martin Gaynor
(Carnegie Mellon University)
Jan 05, 2016 10:15 am, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Micro and Macro Perspectives on Families and Development
(O1)
Presiding:
Michele Tertilt
(University of Mannheim)
Families, Farms, and Financial Frictions
Dean Karlan
(Yale University)
Christopher Udry
(Yale University)
Lori Beaman
(Northwestern University)
[View Abstract]
Families in rural Mali operate multiple enterprises (usually farms), managed by different individuals. We randomly varied the availability of loans (for women) and cash grants (for women or men). Households considered as a unit are credit-constrained, as shown by a strong response of farm inputs and profits to access to either loans or grants. However, we show that there are frictions within households: the receipt of a grant by one individual in the household has no affect on input use in enterprises operated by non-recipient individuals. Finally, we show that there are frictions even across activities of an individual: in-kind grants are not fungible.
Bargaining over Babies: Theory, Evidence, and Policy Implications
Matthias Doepke
(Northwestern University)
Fabian Kindermann
(University of Bonn)
[View Abstract]
[Download Preview] It takes a woman and a man to make a baby. This fact suggests that for a birth to take place, the parents should first agree on wanting a child. Using newly available data on fertility preferences and outcomes, we show that, indeed, babies are likely to arrive only if both parents desire one, and there are many couples who disagree on having babies. We then build a bargaining model of fertility choice and match the model to data from a set of European countries with very low fertility rates. The distribution of the burden of child care between mothers and fathers turns out to be a key determinant of fertility. A policy that specifically lowers the child care burden on mothers is more than twice as effective at increasing the fertility rate compared to a general child subsidy.
Asymmetric Information in Couples
Matthias Doepke
(Northwestern University)
Michele Tertilt
(University of Mannheim)
[View Abstract]
There exists ample evidence for limited risk-sharing between spouses. Previous theoretical work has mostly focused on limited commitment as the friction causing the lack of insurance. Recent evidence from field experiments with married couples in developing countries points to the importance of asymmetric information. In this paper we introduce private information in models of household decision-making and explore its implications for risk-sharing. Different from standard private information models aimed to study social insurance, our household model includes three distinct features: (i) Individual income shocks imply (household) aggregate shocks, (ii) the presence of household public goods, (iii) altruism.
Bride Price and the Returns to Education for Women
Nava Ashraf
(Harvard University)
Natalie Bau
(Harvard University)
Nathan Nunn
(Harvard University)
Alessandra Voena
(University of Chicago)
[View Abstract]
[Download Preview] Traditional cultural practices can play an important role in development, but can also inspire condemnation. The custom of bride price, prevalent throughout sub-Saharan Africa and in parts of Asia as a payment of the groom to the family of the bride, is one example. In this paper, we show a surprising economic consequence of this practice. We revisit one of the best-studied historical development projects, the INPRES school construction program in Indonesia, and show that previously found small effects on female enrollment mask heterogeneity by bride price tradition. Ethnic groups that traditionally engage in bride price payments at marriage increased female enrollment in response to the program. Within these ethnic groups, higher female education at marriage is associated with a higher bride price payment received, providing a greater incentive for parents to invest in girls' education and take advantage of the increased supply of schools. For those girls belonging to ethnic groups that do not practice bride price, we see no increase in education following school construction. We replicate these same findings in Zambia, where we exploit a similar school expansion program that took place in the early 2000s. While there may be significant downsides to a bride price tradition, our results suggest that any change to this cultural custom should likely be considered alongside additional policies to promote female education.
Discussants:
Erica Field
(Duke University)
Alice Schoonbroodt
(University of Iowa)
Nava Ashraf
(Harvard University)
Marianne Bertrand
(University of Chicago)
Jan 05, 2016 10:15 am, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
New Developments in Firm Dynamics in Understanding Business Dynamism
(J2, E3)
Presiding:
Fatih Karahan
(Federal Reserve Bank of New York)
Changing Business Dynamism: Volatility of or Responsiveness to Shocks?
Ryan Decker
(University of Maryland)
John Haltiwanger
(University of Maryland)
Ron Jarmin
(U.S. Census Bureau )
Javier Miranda
(U.S. Census Bureau)
[View Abstract]
The pace of business dynamism as measured by indicators such as job reallocation has declined in the U.S. in recent decades, but this decline has not been monotonic for all sectors. For the High Tech sector, business dynamism as measured by the pace of job reallocation rose through the 1990s but then declined sharply in the post-2000 period. This is in contrast with the Retail Trade sector, which exhibited a sharp decline in dynamism in the 1990s. In this paper we ask whether the observed patterns in the High Tech sector respond to changes in the volatility of idiosyncratic TFP shocks or rather the response of businesses to those shocks. We focus on the High Tech sector since it is an important sector for innovation and productivity growth. Using plant-level data from the High Tech U.S. manufacturing sector, we document rising dispersion in idiosyncratic TFP shocks across plants and little change in the persistence of such shocks. This suggests the patterns of rising and then declining reallocation are not being driven by changes in the volatility of shocks. Instead, we find changes in the marginal effects of idiosyncratic plant-level productivity shocks on growth and survival that mimic the patterns of reallocation in the High Tech sector. During the 1990s, the responsiveness of growth and survival increased in the High Tech sector for young businesses. In contrast, during the 2000s responsiveness declined because of accelerating decline in the responsiveness of both young and mature businesses. These changes in the responsiveness yield substantial changes in the contribution of reallocation to aggregate (industry-level) productivity growth. During the 1990s, the increased responsiveness yields an increase in the contribution of reallocation to productivity growth of as much as half a log point per year. During the post-2000 period, responsiveness declines in an accelerated fashion implying as much as a two log point per year reduction in the contribution of reallocation to industry-level productivity growth.
Wage Posting and Business Cycles: a Quantitative Exploration
Giuseppe Moscarini
(Yale University)
Fabien Postel-Vinay
(University College London)
[View Abstract]
[Download Preview] We provide a quantitative exploration of business cycles in a frictional labor market under contract-posting. The steady-state random search and wage-posting of Burdett and Mortensen (1998) has become the canonical structural framework for empirical analysis of worker turnover and equilibrium wage dispersion. In this paper, we provide an efficient algorithm to simulate a dynamic stochastic equilibrium version of this model, the Stochastic Burdett-Mortensen (SBM) model, and evaluate its performance against empirical evidence on fluctuations in unemployment, vacancies and wages.
A Missing Generation of Firms? Aggregate Effects of the Decline in New Business Formation
Francois Gourio
(Federal Reserve Bank of Chicago)
Todd Messer
(Federal Reserve Bank of Chicago)
Michael Siemer
(Federal Reserve Board)
[View Abstract]
Unlike most previous recessions, the 2007-2009 contraction was associated with a very large and persistent decline in new business formation. We study the aggregate implications of this phenomenon. While reduced entry rate plays only a minor role in accounting for the initial contraction, the effects are very persistent under plausible models of firm dynamics. This suggests that lower entry may account for part of the slow U.S. recovery. We start with a simple calculation that illustrates that lower entry since 2006 “accounts” for a significant reduction of employment. We next present state-level and MSA-level evidence within the U.S. in order to evaluate this hypothesis. We consider several alternative factors that may affect the speed of the recovery such as the debt to GDP ratio, the decline in house prices, or the decline in small business lending. Among the considered hypothesis the decline in entry stands out as the dominant factor in predicting the speed of the recovery.
Understanding the 30 year Decline in Business Dynamism: a General Equilibrium Approach
Fatih Karahan
(Federal Reserve Bank of New York)
Benjamin W. Pugsley
(Federal Reserve Bank of New York)
Aysegul Sahin
(Federal Reserve Bank of New York)
[View Abstract]
Recent empirical work has shown that new business formation has declined substantially over the past three decades, while firm growth and survival rates conditional on firm age have remained relatively stable. This paper studies the causes of declining firm entry. First, by exploiting cross-state variation in OLS and IV settings, we establish that declines in the growth rate of the working age population over this period can explain more than half of the decline. We then study a simple model of firm dynamics and show that it can generate a similar response of firm entry to labor supply shifts. When calibrated to the 1980s, the model can explain most of the decline in firm entry, while being consistent with the stability of survival and growth rates over time. Our findings suggest that the decline in the growth rate of the working age population and its general equilibrium effect on labor demand drives the bulk of the decline in firm entry.
Discussants:
Ruediger Bachmann
(University of Notre Dame)
Ryan Michaels
(Federal Reserve Bank of Philadelphia)
Manuel Adelino
(Duke University)
Mu-Jeung Yang
(University of Washington-Seattle)
Jan 05, 2016 10:15 am, Hilton Union Square, Golden Gate 1 & 2
American Economic Association
New Models and Evidence on Bubbles
(G1, E1)
Presiding:
Andrei Shleifer
(Harvard University)
Extrapolation and Bubbles
Nicholas C. Barberis
(Yale University)
Robin Greenwood
(Harvard University)
Lawrence Jin
(California Institute of Technology)
Andrei Shleifer
(Harvard University)
[View Abstract]
We present an extrapolative model of bubbles. In the model, many investors form their demand for a risky asset by weighing two signals---an average of the asset's past price changes and the asset's degree of overvaluation. The two signals are in conflict, and investors “waver” over time in the relative weight they put on them. The model predicts that good news about fundamentals can trigger large price bubbles. We analyze the patterns of cash-flow news that generate the largest bubbles, the reasons why bubbles collapse, and the frequency with which they occur. The model also predicts that bubbles will be accompanied by high trading volume, and that volume increases with past asset returns. We present empirical evidence that bears on some of the model's distinctive predictions.
No-Bubble Condition: Model-Free Tests in Housing Markets
Stefano Giglio
(University of Chicago)
Matteo Maggiori
(Harvard University)
Johannes Stroebel
(New York University)
[View Abstract]
We test for the existence of classic rational bubbles in housing markets by directly measuring failures of the transversality condition that requires the present value of payments occurring infinitely far in the future to be zero. We study housing markets in the U.K. and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. Leaseholds are finite maturity, pre-paid, and tradable ownership contracts with maturities often exceeding 700 years. Freeholds are infinite maturity ownership contracts. The price difference between leaseholds with extremely long maturities and freeholds reflects the present value of a claim to the freehold after leasehold expiry, and is thus a direct empirical measure of the transversality condition. We estimate this price difference, and find no evidence for classic rational bubbles in housing markets in the U.K. and Singapore, even during periods when a sizeable bubble was regularly thought to be present.
Hoard Behavior During Commodity Bubbles
Harrison Hong
(Princeton University)
Aureo de Paula
(University College London)
Vishal Singh
(New York University)
[View Abstract]
[Download Preview] Hoarding by households is often blamed for causing commodity market panics and bubbles. Using US supermarket scanner data on household purchases during the 2008 Rice Bubble, we provide an estimate of household hoarding when export bans led to a spike in prices worldwide in the first half of 2008. We distinguish hoarding from rational precautionary demand by comparing the timing of purchases with the expectations implied from futures markets for US rice. Even as futures traders expected in early May little risk of shortages, households nearly doubled their purchases from April to June. Much of this increase came from households with no previous purchases or taste for rice. We then estimate the effect of hoarding on prices by comparing mean reversion in prices in counties with different amounts of hoarding.
Credit Expansions and Neglected Crash Risk
Wei Xiong
(Princeton University)
Matthew Baron
(Cornell 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.
Discussants:
Alp Simsek
(Massachusetts Institute of Technology)
Markus K. Brunnermeier
(Princeton University)
Robin Greenwood
(Harvard University)
David Laibson
(Harvard University)
Jan 05, 2016 10:15 am, Hilton Union Square, Continental – Parlor 1
American Economic Association
Perspectives on Unconventional Monetary Policy and Expectations in Financial Markets
(E4, D8)
Presiding:
Martin Schneider
(Stanford University)
Monetary Policy Expectations at the Zero Lower Bound
Michael Bauer
(Federal Reserve Bank of San Francisco)
Glenn Rudebusch
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] We show that conventional dynamic term structure models (DTSMs) estimated on recent U.S.~data severely violate the zero lower bound (ZLB) on nominal interest rates and deliver poor forecasts of future short rates. In contrast, shadow-rate DTSMs account for the ZLB by construction, capture the resulting distributional asymmetry of future short rates, and achieve good forecast performance. These models provide more accurate estimates of the most likely path for future monetary policy---including the timing of policy liftoff from the ZLB and the pace of subsequent policy tightening. We also demonstrate the benefits of including macroeconomic factors in a shadow-rate DTSM when yields are constrained near the ZLB.
Does Quantitative Easing Affect Market Liquidity?
Jens Christensen
(Federal Reserve Bank of San Francisco)
James M. Gillian
(University of California-Berkeley)
[View Abstract]
[Download Preview] We argue that central bank large-scale asset purchases - commonly known as quantitative easing (QE) - can reduce priced frictions to trading through a liquidity channel that operates by changing the shape of the price distribution of the targeted securities. For evidence we analyze how the Federal Reserve's second QE program that included purchases of Treasury inflation-protected securities (TIPS) affected a measure of liquidity premiums in TIPS yields and inflation swap rates. We find that, for the duration of the program, the liquidity premium measure averaged 12 to 14 basis points lower than expected. This suggests that QE can improve market liquidity.
What does the Yield Curve Imply about Investor Expectations?
Arunima Sinha
(Fordham University)
Eric Gaus
(Ursinus College)
[View Abstract]
We find that investors’ expectations of U.S. nominal yields, at different maturities and forecast horizons, exhibit significant time-variation during the Great Moderation. Nominal zero-coupon bond yields for the U.S. are used to fit the yield curve using a latent factor model. In the benchmark model, the VAR process used to characterize the conditional forecasts of yields has constant coefficients. The alternative class of models assume that investors use adaptive learning, in the form of a constant gain algorithm and an endogenous gain algorithm, which we propose here. Our results indicate that incorporating time-varying coefficients in the conditional forecasts of yields lead to large improvements in forecasting performance, at different maturities and horizons. These improvements are even more substantial during the Great Recession. We conclude that our results provide strong empirical motivation to use the class of adaptive learning models considered here, for modeling potential investor expectation formation in periods of low and high volatility, and the endogenous learning model leads to significant improvements over the benchmark in periods of high volatility. A policy experiment, which simulates a surprise shock to the level of the yield curve, illustrates that the conditional forecasts of yields implied by the learning models do significantly better at capturing the response observed in the realized yield curve, relative to the constant-coefficients model. Furthermore, the endogenous learning algorithm does well at matching the time-series patterns observed in expected excess returns implied by the Survey of Professional Forecasters.
Fundamental Disagreement
Philippe Andrade
(Banque de France)
Richard K. Crump
(Federal Reserve Bank of New York)
Stefano Eusepi
(Federal Reserve Bank of New York)
Emanuel Moench
(Deutsche Bundesbank)
[View Abstract]
[Download Preview] We use the term structure of disagreement of professional forecasters to document a novel set of facts: (1) forecasters disagree at all horizons, including the long run; (2) the term structure of disagreement differs markedly across variables: it is downward sloping for real output growth, relatively flat for inflation, and upward sloping for the federal funds rate; (3) disagreement is time-varying at all horizons, including the long run. These new facts present a challenge to benchmark models of expectation formation based on informational frictions. We show that these models require two additional ingredients to match the entire term structure of disagreement: First, agents must disentangle low-frequency shifts in the fundamentals of the economy from short-term fluctuations. Second, agents must take into account the dynamic interactions between variables when forming forecasts. While models enriched with these features capture the observed term structure of disagreement irrespective of the source of the informational friction, they fall short at explaining the time variance of disagreement at medium-and long-term horizons. We also use the term structure of disagreement to analyze the monetary policy rule perceived by professional forecasters and show that it features a high degree of interest-rate smoothing and time variation in the intercept.
Discussants:
Min Wei
(Federal Reserve Board of Governors)
Yuriy Kitsul
(Federal Reserve Board of Governors)
Sergio Santoro
(Bank of Italy)
Allan Timmermann
(University of California-San Diego)
Jan 05, 2016 10:15 am, Hilton Union Square, Yosemite B
American Economic Association
Real Exchange Rates in the Long Run: Revisiting the Penn Effect and the Balassa-Samuelson Hypothesis
(F4, F3)
Presiding:
Fadi Hassan
(Trinity College Dublin)
The Price of Development: The Penn-Balassa-Samuelson-Effect Revisited
Fadi Hassan
(Trinity College Dublin)
[View Abstract]
[Download Preview] The Penn-Balassa-Samuelson effect is the stylized fact about the positive correlation between cross-country price level and per-capita income. This paper provides evidence that the price-income relation is actually non-linear and turns negative in low income countries. The result is robust along both cross-section and panel dimensions. Additional robustness checks show that biases in PPP estimation and measurement error in low-income countries do not drive the result. The different stage of development between countries can explain this new finding. The paper shows that a model linking the price level to the process of structural transformation captures the non-monotonic pattern of the data.
The Real Exchange Rate in the Long Run: Balassa-Samuelson Effects Reconsidered
Michael D. Bordo
(Rutgers University)
Ehsan U. Choudhri
(Carleton University)
Giorgio Fazio
(Newcastel University)
Ronald MacDonald
(University of Glasgow)
[View Abstract]
[Download Preview] Historical data for over hundred years and 14 countries is used to estimate the long-run effect of productivity on the real exchange rate. We find large variations in the productivity effect across four distinct monetary regimes in the sample period. Although the traditional Balassa-Samuelson model is not consistent with these results, we suggest an explanation of the results in terms of contemporary variants of the model that incorporate the terms of trade mechanism. Specifically we argue that changes in trade costs over time may affect the impact of productivity on the real exchange rate over time. We undertake simulations of the modern versions of the Balassa-Samuelson model to show that plausible parameter shifts consistent with the behavior of trade costs can explain the cross-regime variation of the productivity effect.
Real Exchange Rates and Sectoral Productivity in the Eurozone
Michael B. Devereux
(University of British Columbia)
Charles Engel
(University of Wisconsin)
Martin Berka
(Victoria University of Wellington)
[View Abstract]
[Download Preview] We investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the Eurozone. Real exchange rate patterns quite closely accord with an amended Balassa-Samuelson interpretation both in the cross-section and time series. We use a sticky price dynamic general equilibrium model to generate a cross-section and time series of real exchange rates that can be compared to the data. Under the assumption of a common currency, the model simulations closely accord with the empirical estimates for the Eurozone. Our findings contrast with previous studies that have found little relationship between productivity levels and the real exchange rate among high-income countries, but those studies have included country pairs which have a floating nominal exchange rate.
Structural Change and the Dynamics of China-US Real Exchange Rate
Xiaodong Zhu
(University of Toronto)
Yong Wang
(Hong Kong University of Science and Technology)
Jenny Xu
(Hong Kong University of Science and Technology)
[View Abstract]
[Download Preview] Abstract We study the dynamics of the real exchange rate between China and the US since 1990. We first show that a standard Balassa-Samuelson model without structural change cannot account for the observed real exchange rate behaviour. We then extend the Balassa-Samuelson framework to a three-sector model with structural change and show that the model can quantitatively account for both the structural changes in the two countries and the behaviour of the real exchange rate. A key element of the model is frictions to labour reallocation across sectors. Between 2000 and 2010, the manufacturing sector's share of employment in China increased from 25 percent to 34 percent. We argue that this is mainly driven by a decline in the frictions to labour reallocation from agriculture to manufacturing. Without the decline in labour frictions, the manufacturing sector's share of employment in China would have declined during this period and the real value of Renminbi would have appreciated more than what is observed in the data during the same period. Our results highlights the important roles of labour market conditions and structural change in determining the dynamics of real exchange rate.
Discussants:
Robert C. Feenstra
(University of California-Davis)
Andrew K Rose
(Berkeley University)
Paul R. Bergin
(University of California-Davis)
Giancarlo Corsetti
(University of Cambridge)
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 21
American Economic Association
Regulation and Implementation of Tax Systems
(H2)
Presiding:
Jon M. Bakija
(Williams College )
Has Regulation of Charitable Foundations Thrown the Baby Out With the Bath Water?
Benjamin M. Marx
(University of Illinois-Urbana-Champaign)
[View Abstract]
[Download Preview] [Download PowerPoint] Regulations to curb tax avoidance and evasion through charitable foundations have been in place since the Tax Reform Act of 1969. Newly-compiled longitudinal data makes it possible to estimate the effects of these regulations by comparing affected and unaffected foundations before and after the reform. Donations and entry dropped precipitously. Proxy variables indicate significant deterrence of abuses, but two thirds of the decline in donations can be explained by the increased cost of running a foundation. The results highlight the potential of regulatory compliance cost to produce large deadweight losses through effects on externality-producing actions such as charitable giving.
Once Bitten, Twice Shy? The Lasting Impact of IRS Audits on Individual Tax Reporting
Jason DeBacker
(Middle Tennessee State University)
Bradley Heim
(Indiana University)
Anh Tran
(Indiana University)
Alexander Yuskavage
(U.S. Department of the Treasury)
[View Abstract]
[Download Preview] This paper studies the impact of tax enforcement activity on subsequent individual taxpaying behavior. We exploit four waves of randomized Internal Revenue Service (IRS) audits of individual income tax filers during the 2006-2009 period to study both the short and long run effects of audits on taxpaying behavior. Rich and confidential IRS data allow us to show the differential impact of audits across sources of income and deductions. The results highlight how the effects of audits on subsequent compliance behavior are impacted by other aspects of tax policy. The results also show how the lasting impact of audits results in a long-run revenue gain that is about two times as large at the static gain in revenue from an audit.
A Loan by Any Other Name: How State Policies Changed Advanced Tax Refund Payments
Maggie R. Jones
(U.S. Census Bureau)
[View Abstract]
In this work, I examine the impact of state-level policies on the demise of Refund Anticipation Loans (RALs) and the subsequent increase in the use of Refund Anticipation Checks (RACs). Both are products offered by tax-preparers that provide taxpayers with an earlier refund (in the case of a RAL) or a temporary bank account from which tax preparation fees can be deducted (in the case of a RAC). Each product is costly compared with the value of the refund, and they are often marketed to low-income taxpayers who may be liquidity constrained or unbanked. States have responded to the predatory nature of RALs through regulation, leading to a switch to RACs. Using zip-code-level tax data, I examine the effects of various state-level policies on RAL activity and the transition of tax-preparers to RACs. I then examine the effect this transition had on taxpayer outcomes, measured at the county level using Current Population Survey data. I find that state regulation regarding disclosure led to a swifter withdrawal of tax preparers from RAL provision, but the decline in provision was largest for the few states with interest-rate caps. While the drop in RAL provision led to a decrease in the number of taxpayers receiving an EITC in the zip code, the average size of the credit was unaffected. I discuss the implications of the findings on the necessity of states to adapt as new lending strategies emerge.
Going Legal? Risks of Detection and Self-Reported International Tax Fraud
Dirk Bethmann
(Korea University)
Michael Kvasnicka
(Otto von Guericke University-Magdeburg)
[View Abstract]
[Download Preview] International tax fraud has become a major source of discontent for fiscal authorities worldwide. Legal provisions for voluntary disclosures that lead to tax amenity constitute one tool to combat such fraud. In Germany, voluntary disclosures have risen significantly over the last few years, as state tax authorities, in particular from North Rhine-Westphalia, have repeatedly bought data CDs with names of potential tax evaders and their foreign accounts. Purchases of such data CDs by tax authorities increase the risk of detection for tax evaders and may spur timely voluntary disclosures of tax evaders for fear of facing criminal charges. This paper presents first evidence on the effect that data purchases have on voluntary disclosures. In our analysis, we use a self-compiled data set that comprises monthly self-declared tax frauds by citizens in North Rhine-Westphalia that are related to Swiss Banks as well as information on the timing and content of several data CD purchases from 2010 to early 2015. Our results show that these exogenous shocks to the probability of detection had a positive and sizeable effect on the evolution of voluntary disclosures. Various robustness checks corroborate this conclusion.
VAT Rates and Tax Evasion: Evidence from the Restaurant Industry in Greece
Nikolaos Artavanis
(University of Massachusetts-Amherst)
[View Abstract]
[Download Preview] This paper examines the effect of Value-Added Tax (VAT) rate changes on tax evasion in an environment of limited tax-shifting opportunities. I focus on the recent VAT rate reduction in the Greek restaurant industry (August 2013) and implement a difference-in-difference methodology using large fast-food restaurants as the control sample, due to the fact that they exhibit high constraints on underreporting. I find that the reduction of the VAT rate for non-alcoholic sales from 23% to 13% increases the reported sales to inputs ratio, which is used as a measure of disclosure of hidden sales, by 11.8% on average. The effect is more pronounced in small firms and firms with less alcoholic sales. This result is consistent with VAT ratio targeting, the partial adjustment of VAT revenues to the lower tax rate, in order to maintain a reasonable VAT ratio (revenues to credits) and to avoid signaling evading behavior to tax authorities. I also document the reverse effect for the VAT rate increase in September 2011. Finally, I show that, accounting for the partial downward adjustment of VAT revenues and the higher direct taxes from the increase in reported sales, the overall fiscal cost from the rate reduction becomes minimal.
Jan 05, 2016 10:15 am, Hilton Union Square, Franciscan C
American Economic Association
Replication in Economics
(B4, C1)
Presiding:
Christian Zimmermann
(Federal Reserve Bank of St. Louis)
New Methods for Macroeconomic Model Comparison and Policy Analysis
Volker Wieland
(University of Frankfurt)
Elena Afanasyeva
(University of Frankfurt)
Meguy Kuete
(University of Frankfurt)
Jinhyuk Yoo
(University of Frankfurt)
[View Abstract]
[Download Preview] The global financial crisis and the ensuing criticism of macroeconomics have inspired researchers to explore new modeling approaches. There are many new models that aim to better integrate the financial sector in business cycle analysis and deliver improved estimates of the transmission of monetary policy. In order to design effective policies policy making institutions need to compare available models of policy transmission and evaluate the impact and interaction of policy instruments. This paper proposes a framework for comparative analysis of macro-financial models and presents new tools and applications. It builds on and extends recent work on model comparison in the area of monetary and fiscal policy. The computational implementation enables individual researchers to conduct systematic model comparisons and policy evaluations easily and at low cost. It also contributes to improving reproducibility of computational research in macroeconomic modeling. An application presents comparative results concerning the dynamics and policy implications of different macro-financial models. These models account for financial accelerator effects in investment financing, credit and house price booms and a role for bank capital. Monetary policy rules are found to have an important influence on the comparisons. Finally, an example concerning the impact of leaning against credit growth in monetary policy is discussed.
Data Policies and Data Archives as Prerequisites of Reproducible Economic Research
Gert G. Wagner
(German Institute for Economic Research)
Sven Vlaeminck
(German National Library of Economics)
[View Abstract]
[Download Preview] [Download PowerPoint] In economics - as in many other branches of the social sciences - collaboratively working on data and sharing data is not very common, yet. This is also reflected in the professions’ journals, where policies on data management and data sharing currently exist for a small minority of journals only.
Our talk gives an overview on data policies of journals in economics and business studies. In the course suggests guidelines for data policies aiming to foster replication of published research and presents some characteristics of journals equipped with such data policies. Also the status quo in disseminating underlying research data of empirically based articles will be presented.
Against this analytical background the talk identifies some challenges associated with the current e-infrastructure for providing publication-related research data by journals. The presentation also of the EDaWaX project, a project funded by the German Research Foundation (DFG), the data policies in a sample of 346 journals have been analyzed. The talk analyses how these policies are structured and what requirements authors have to fulfill to satisfy the policies’ requests. Besides, the presentations suggests software components to solve some of these challenges.
More information on the project is available on www.edawax.de
“Beyond the PDF” in Empirical Economic Research
Richard Ball
(Haverford College)
[View Abstract]
Although much work remains to be done, the last decade or so has witnessed substantial improvements in the standards for documenting empirical research achieved by the economics profession. Much of this progress can be attributed to the many initiatives that have been undertaken for the purpose of enhancing replicability. In this paper, we argue that, thanks to these improvements, the printed (or pdf) article is becoming obsolete as the primary medium for communicating empirical research, and should be replaced by the “research compendium,” which includes the article in its traditional form, but also includes documentation containing all the information necessary to replicate the results reported in the article. The two components of the research compendium—the article and the documentation—should be of equal status: authors should take as much care in preparing transparent and persuasive documentation as they do composing the article; and for someone interested in learning about the research, opening up the documentation and running the code should be considered just as essential as reading the paper itself. The idea that research compendia, containing the research article as well as complete replication documentation, should replace the article by itself as the medium for communicating research has been proposed in the computational and experimental natural sciences; we argue that the idea is equally applicable for empirical social science research.
ReplicationWiki - Improving Transparency in Economic Research
Jan H. Höffler
(University of Göttingen)
[View Abstract]
[Download Preview] [Download PowerPoint] In empirical economics, a twofold lack of incentives leads to chronic problems with replicability: For authors of empirical studies providing replicable material is not awarded in the same way as publishing new irreplicable studies is. Neither is authoring replication studies.
We set incentives for replicability and replication.
First, we gave replication seminars at several faculties internationally. Integrating replication in the education of young scholars raises the awareness for the importance of replicability among the next generation of researchers and ensures that a big number of scientists get incentives to write replication studies: credit points and the prospect of publications at least of working papers already during their time as students.
Second, our wiki (http://replication.uni-goettingen.de) documents the results of published replications. It includes a database of more than 2000 studies. A substantial expansion to include all studies in journals with replication archives is in progress. For each study we provide information about the availability of material for replication. This helps to identify practical examples for courses focusing on empirical methods or on particular topics. We provide an overview of journals and their policies regarding data availability and publication of replications.
Everyone can participate; even undergraduates can make their contribution: Everyone can find errors in Excel files, and everyone can confirm that some research is documented so well that one can follow each step and with one click reproduce all quantitative results. We have identified two frequent problems: Usually not all published results can be obtained from the replication material provided. Information about how the used data were obtained from the raw data is rarely sufficient.
We provide information about existing projects that facilitate the sharing of material for empirical econometric research and we invite for discussion to develop standards for how to make research replicable and how to write replication studies.
On the Need for a Replication Journal
Christian Zimmermann
(Federal Reserve Bank of St. Louis)
[View Abstract]
[Download Preview] There is very little replication of research in economics, particularly compared with other sciences. This paper argues that there is a dire need for studies that replicate research, that their scarcity is due to poor or negative rewards for replicators, and that this could be improved with a journal that exclusively publishes replication studies. I then discuss how such a journal could be organized, in particular in the face of some negative rewards some replication studies may elicit.
Discussants:
Jesse Rothstein
(University of California-Berkeley)
Michael Ash
(University of Massachusetts Amherst)
Johannes Pfeifer
(University of Mannheim)
Christian Zimmermann
(Federal Reserve Bank of St. Louis)
Graham A. Davis
(Colorado School of Mines)
Jan 05, 2016 10:15 am, Hilton Union Square, Franciscan D
American Economic Association
The Demand For and Effects of College Quality
(I2, J2)
Presiding:
Lesley Turner
(University of Maryland)
College Quality and the Market for Higher Education
Justine Hastings
(Brown University)
Christopher A. Neilson
(Princeton University)
Seth Zimmerman
(University of Chicago)
[View Abstract]
We use detailed data on student higher education choices, student loans, college matriculation and graduation as well as data on higher education admissions decisions and tuition to examine the impact of student loan programs the market for higher education in Chile. We show that institutions respond to increased demand from students from lower-income backgrounds very differently. Consistent with models of competition between prestige goods and a competitive fringe, selective institutions choose to increase price and increase selectivity, while less selective institutions hold price constant and expand enrollment substantially. We link these supply-side responses to estimated earnings returns by higher education degree, and discuss the implications for policies aimed at increasing equality of higher education outcomes through expanding student loan subsidies.
Should Community College be Free? Supply and Demand in the Market for U.S. Higher Education
David Deming
(Harvard University)
Christopher Walters
(University of California-Berkeley)
[View Abstract]
The rising price of college is seen as a major barrier to building the stock of college-educated labor. While most Federal and state policy efforts focus on reducing college costs, declining state funding of public institutions has also led to sharp cuts in per-student spending. When resources are scarce, how should public colleges balance tuition increases with spending cuts? In this paper, we study changes in price and spending in U.S. higher education markets from 1990 to the present using data from the Integrated Postsecondary Education Data System (IPEDS). Our empirical strategy exploits local variation in state budget shocks combined with state-level legislative tuition caps to jointly estimate the impact of changes in price and spending on student enrollment and degree completion. We find that enrollment and completion in nonselective public institutions is much more responsive to increases in spending than to revenue-neutral reductions in price. Applying our parameter estimates to a structural model of college choice, we estimate that a 100 percent reduction in the price of community college yields an enrollment gain that could be obtained at about 25 percent of the total cost of “free” college, if the funds were used instead to increase spending.
The Big Sort: College Reputation and Labor Market Outcomes
Bentley MacLeod
(Columbia University)
Evan Riehl
(Columbia University)
Miguel Urquiola
(Columbia University)
Juan Saavedra
(University of Southern California)
[View Abstract]
[Download Preview] Spence (1973) noted that individuals' choice of educational quantity—measured by years of schooling—may stem partially from a desire to signal their ability to the labor market. This paper asks if individuals' choice of educational quality—measured by school reputation—may likewise signal their ability. We analyze the college market in the country of Colombia, and define a measure of college reputation that gives clear predictions under the benchmark signaling model for years of schooling. We find that college reputation is correlated not just with graduates' initial earnings but also with their earnings growth. We also show that Colombia's staggered rollout of a new signal of skill—a college exit exam—lowered the earnings return to reputation. These results suggest that the sorting that takes place by educational quality differs from that which happens by quantity, but that college reputation does partially perform a signaling function.
College Access, Initial College Choice and Degree Completion
Joshua Goodman
(Harvard University)
Michael Hurwitz
(College Board)
Jonathan Smith
(College Board)
[View Abstract]
[Download Preview] We explore whether initial college choice affects low-skilled students’ degree completion rates. Admission to Georgia’s public universities requires minimum SAT scores. Regression discontinuity estimates show that access to such universities increases four-year college enrollment and the quality of college chosen. Most importantly, access to public universities substantially increases bachelor’s degree completion rates. SAT retaking behavior suggests students value access to this sector. Our degree completion results may partly explain the labor market return to college quality. Proposals to make community college free could lower degree completion rates if quality reforms do not accompany price reforms.
Discussants:
Seth Zimmerman
(University of Chicago)
Kevin Stange
(University of Michigan)
Jan 05, 2016 10:15 am, Hilton Union Square, Plaza A
American Economic Association
The Intergovernmental Panel on Climate Change (IPCC) at a Crossroads: Options for Reform
(Q5, Q4) (Panel Discussion)
Panel Moderator:
Robert Stavins
(Harvard University)
Carlo Carraro
(University of Venice)
Roundtable Panelist 1
Ottmar Edenhofer
(Technical University of Berlin)
Roundtable Panelist 2
Geoffrey Heal
(Columbia University)
Roundtable Panelist 3
Charles Kolstad
(Stanford University)
Roundtable Panelist 4
David Victor
(University of California-San Diego)
Roundtable Panelist 5
Jan 05, 2016 10:15 am, Hilton Union Square, Yosemite A
American Economic Association
Wage Rigidity
(J3, E2)
Presiding:
Mark Schweitzer
(Federal Reserve Bank of Cleveland)
Downward Nominal Wage Rigidity in the United States During the Great Recession
Bruce Fallick
(Federal Reserve Bank of Cleveland)
Michael Lettau
(U.S. Bureau of Labor Statistics)
William Wascher
(Federal Reserve Board )
[View Abstract]
[Download Preview] Rigidity in wages has long been thought to impede the functioning of labor markets. One recent strand of the research on wage flexibility in the United States and elsewhere has focused on the possibility of downward nominal wage rigidity and what implications such rigidity might have for the macroeconomy at low levels of inflation. The Great Recession of 2008-09, during which the unemployment rate topped 10 percent and price deflation was at times seen as a distinct possibility, along with the subsequent slow recovery and persistently low inflation, has added to the relevance of this line of inquiry. In this paper, we use establishment-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics to investigate the extent to which downward nominal wage rigidity is present in
U.S. labor markets. We use several distinct methods proposed in the literature to test for downward nominal wage rigidity, and to assess whether such rigidity is more severe at low rates of inflation and in the presence of negative economic shocks than in more normal economic times. Like earlier studies, we find evidence of a significant amount of downward nominal wage rigidity in the United States. We find no evidence that the high degree of labor market distress during the Great Recession reduced the amount of downward nominal wage rigidity and some evidence that operative rigidity may have increased during that period.
Nominal Wage Rigidities and the Phillips Curve
Mary Daly
(Federal Reserve Bank of San Francisco)
Bart Hobijn
(Federal Reserve Bank of San Francisco)
[View Abstract]
[Download Preview] We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long-run and the short-run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.
Downward Wage Rigidity in the U.S.: New Evidence from Worker‐Firm Linked Data
Andre Kurmann
(Drexel University)
Erika McEntarfer
(U.S. Census Bureau)
James Spletzer
(U.S.Census Bureau)
[View Abstract]
[Download Preview] Using administrative worker-firm linked data for the United States, we examine the incidence of nominal wage and earnings rigidities for U.S. firms. We find less evidence of downward wage rigidity in the administrative data than has been documented in previous studies using self-reported earnings from surveys. In our data, only 13 percent of workers who remain with the same firm (job stayers) experience zero change in their nominal hourly wage within a year, and over 20 percent of job stayers experience a reduction in their nominal hourly wage. The lower incidence of wage stickiness in the administrative data is likely partly a function of our earnings concept, which includes all monetary compensation paid to the worker (e.g. overtime pay, bonuses), whereas the previous literature has almost exclusively focused on the base rate of pay. When we examine firm labor cost adjustments on both the hours and wage margins, we find firms have substantially more flexibility in adjusting hours downward than wages. As a result, the distribution of changes in nominal earnings is less asymmetric than the wage change distribution, with only about 6 percent of job stayers experiencing no change in nominal annual earnings, and over 25 percent of workers experiencing a reduction in nominal annual earnings. During the recent Great Recession, this earnings change distribution became almost completely symmetric and the proportion of job stayers experiencing a decline in annual earnings rose markedly to about 40 percent.
Nominal Wage Rigidity in Village Labor Markets
Supreet Kaur
(Columbia University)
[View Abstract]
[Download Preview] This paper tests for downward nominal wage rigidity by examining transitory shifts in labor demand, generated by rainfall shocks, in 600 Indian districts from 1956-2009. Three facts are consistent with nominally rigid wages. First, there is asymmetric adjustment: nominal wages rise in response to positive shocks but do not fall during droughts. Second, after transitory positive shocks have dissipated, nominal wages do not adjust back down, generating ratcheting. Third, inflation moderates these effects, enabling downward real wage adjustments both during droughts and after positive shocks. Rigid wages generate employment distortions, creating boom and bust cycles: employment is 9% lower in the year after a transitory positive shock than if the positive shock had not occurred. These results are not consistent with other transmission mechanisms, such as migration or capital accumulation. These findings indicate the presence of rigidities in markets for casual daily agricultural labor―a setting with few institutional constraints. Survey evidence suggests that workers and employers believe that nominal wage cuts are unfair and lead to effort reductions.
Discussants:
William Dickens
(Northeastern University)
Gary Solon
(University of Arizona)
Joseph Altonji
(Yale University)
Gabriel Ehrlich
(University of Michigan)
Jan 05, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Capital Structure and Cash Holdings
(G1)
Presiding:
Konstantin Milbradt
(Northwestern University)
Liquidity, Innovation, and Endogenous Growth
Semyon Malamud
(Ecole Polytechnique Federale de Lausanne)
Francesca Zucchi
(Federal Reserve Board)
[View Abstract]
[Download Preview] We study optimal liquidity management, innovation, and production decisions for a continuum of firms facing financing frictions and the threat of creative destruction. We show that while financing frictions prompt firms to decrease production, they may also spur investment in innovation. We examine which types of firms substitute production for innovation in response to negative operating shocks that decrease cash availability. We embed our firm dynamics into a model of endogenous growth and show that financing frictions have contrasting effects on economic growth.
A Dynamic Model of Optimal Creditor Dispersion
Hongda Zhong
(London School of Economics)
[View Abstract]
[Download Preview] Borrowing from multiple creditors exposes firms to liquidation risks due to coordination problems among creditors, but it also improves the firms' repayment incentives, thereby increasing pledgeability. Based on this trade-off, I develop a dynamic debt rollover model to analyze the evolution of creditor dispersion. Consistent with empirical findings, firms optimally increase the number of creditors when they perform badly, while in the cross-section, high growth firms can support more dispersed debt. Policies that promote ex-post efficient coordination lower firms' ex-ante pledgeability and therefore exacerbate rollover risk. Finally, frequent debt rollover diminishes the additional pledgeability from having multiple creditors.
Non-Precautionary Cash Hoarding and Investment in Growth Firms
Arnoud Boot
(University of Amsterdam)
Vladimir Vladimirov
(University of Amsterdam)
[View Abstract]
[Download Preview] This paper analyzes a growth firm's trade-off between hoarding cash to reduce dilution associated with external financing and delaying investment. This hoarding motive features a self-reinforcing effect: firms with better investment opportunities hoard less and use more external financing, leading them to quicker success and to potentially becoming cash-rich as they mature. Several novel insights emerge in such a setting: Taking into account self-selection, firms that stay private hoard and delay investment less than when they go public. Furthermore, contrary to common beliefs, competition can cause longer delays and more hoarding, while asymmetric information leads growth firms to reduce hoarding.
Discussants:
Haoxiang Zhu
(Massachusetts Institute of Technology)
Zhiguo He
(University of Chicago)
Boris Nikolov
(University of ausanne and Swiss Finance Institute)
Jan 05, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Credit Risk
(G1)
Presiding:
Hui Chen
(Massachusetts Institute of Technology)
Counterparty Risk and Counterparty Choice in the Credit Default Swap Market
Wenxin Du
(Federal Reserve Board)
Salil Gadgil
(Federal Reserve Board )
Michael Gordy
(Federal Reserve Board)
Clara Vega
(Federal Reserve Board)
[View Abstract]
[Download Preview] We investigate how market participants price and manage counterparty risk in the post-crisis period using confidential trade repository data on credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but strong evidence that counterparty risk is managed via the choice of counterparties. We show that market participants are significantly less likely to trade with counterparties whose credit risk is highly correlated with the credit risk of the reference entities and with counterparties whose credit quality is relatively low. Furthermore, we examine the impact of mandated central clearing on CDS pricing. In contrast to the previous literature, we find that transaction spreads on centrally cleared trades are significantly lower relative to spreads on contemporaneous uncleared transactions.
Safe-Haven CDS Premia
Sven Klingler
(Copenhagen Business School)
David Lando
(Copenhagen Business School)
[View Abstract]
[Download Preview] We argue that Credit Default Swap (CDS) premia for safe-haven sovereigns, like Germany and the United States, are driven to a large extent by regulatory requirements under which derivatives dealing banks have an incentive to buy CDS to hedge counterparty credit risk of their counterparties. We explain the mechanics of the regulatory requirements and develop a model in which derivatives dealers, who have a derivatives exposure with sovereigns, need CDS for capital relief. End users without exposure to the
sovereigns sell the CDS and require a positive premium to compensate for the use of margin capital. The model's predictions are confirmed using data on several sovereigns.
Do Dollar-Denominated Emerging Market Corporate Bonds Insure Foreign Exchange Risk?
Stefanos Delikouras
(University of Miami)
Robert Dittmar
(University of Michigan)
Haitao Li
(Cheung Kong Graduate School of Business)
[View Abstract]
[Download Preview] Dollar-denominated emerging market bonds are marketed to investors as a vehicle for gaining exposure to emerging fixed income markets while avoiding exposure to currency risk. However, the development literature suggests that dollarization of debt leads to increased probability of financial distress, which would indirectly expose these securities to exchange rate risk. We empirically examine the exposure of dollar-denominated corporate bonds to exchange rate risk in 14 emerging markets. We find that nearly three-fourths of bonds have yield spreads with statistically significant exposure to innovations in exchange rates, exchange rate volatility, or both. In a reduced-form bond pricing model with default risk, we find economically significant exposures of credit spreads to exchange rates and exchange rate volatility.
Bank Risk Dynamics and Distance to Default
Stefan Nagel
(University of Michigan)
Amiyatosh Purnanandam
(University of Michigan)
[View Abstract]
We adapt structural models of default risk to take into account the special nature of bank assets. The usual assumption of log-normally distributed asset values is not appropriate for banks. Bank assets are risky debt claims, which implies that they embed a short put option on the borrowers' assets, leading to a concave payoff. This has important consequences for banks' risk dynamics and distance to default estimation. Due to the payoff non-linearity, bank asset volatility rises following negative shocks to asset values. As a result, standard structural models in which the asset volatility is assumed to be constant can severely understate banks' default risk in good times when asset values are high. Bank equity payoffs resemble a mezzanine claim rather than a call option. Bank equity return volatility is therefore much more sensitive to negative shocks to asset values than in standard structural models.
Discussants:
Francis Longstaff
(University of California-Los Angeles)
Nicolae Garleanu
(University of California-Berkeley )
Antje Berndt
(North Carolina State University)
George Pennacchi
(University of Illinois)
Jan 05, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
Dynamic Corporate Finance
(G3)
Presiding:
Lucian Taylor
(University of Pennsylvania)
Natural Experiment Policy Evaluation: A Critique
Christopher Hennessy
(London Business School)
Ilya Strebulaev
(Stanford Business School)
[View Abstract]
[Download Preview] We argue exogenous random treatment is insufficient for valid inference regarding the sign and magnitude of causal effects in dynamic environments. In such settings, treatment responses must be understood as contingent upon the typically unmodeled policy generating process. With binary assignment, this results in quantitatively significant attenuation bias. With more than two policy states, treatment responses can be biased downward, upward, or have the wrong sign. Further, it is not only generally invalid to extrapolate elasticities across policy processes, as argued by Lucas (1976), but also to extrapolate within the same policy process. We derive auxiliary assumptions beyond exogeneity for valid inference in dynamic settings. If all possible policy transitions are rare events, treatment responses approximate causal effects. However, reliance on rare events is overly-restrictive as the necessary and sufficient conditions for equality of treatment responses and causal effects is that policy variable changes have mean zero. If these conditions are not met, we show how treatment responses can nevertheless be corrected and mapped back to causal effects or extrapolated to forecast responses to future policy changes.
The Real Effects of Credit Default Swaps
Andras Danis
(Georgia Institute of Technology)
Andrea Gamba
(University of Warwick)
[View Abstract]
[Download Preview] We examine the effect of introducing credit default swaps (CDSs) on firms'
investment and financing policies. Our model allows for dynamic investment
and dynamic financing using equity and debt, and debt holders can trade in
the CDS market. After calibrating the model, we compare an economy with a
CDS market to an economy without one. The model contains both positive and
negative effects of CDS contracts. While they reduce the risk of strategic default,
they also increase the probability of bankruptcy. The first effect dominates, which
leads to higher leverage, investment, and firm value. The effect on firm value is
strongest for small and high growth firms.
Firm Financing over the Business Cycle
Juliane Begenau
(Harvard Business School)
Juliana Salomao
(University of Minnesota)
[View Abstract]
[Download Preview] In the data, large public firms substitute between debt- and equity financing over
the business cycle whereas small firms' financing policy is pro-cyclical for debt and
equity. This paper proposes a mechanism that explains these cyclical patterns. Small
firms grow faster and need therefore more funds compared to large rms. During times
with high aggregate productivity, they quickly exhaust their endogenous debt limit and
must turn to equity financing. In contrast, large firms are close to their efficient scale
and want to payout to shareholders. Good times lower the probability of default, de-
creasing the costs of debt financing for large firms so that debt is used to payout to
shareholders. We embed this mechanism in a quantitative firm industry model with
endogeneous firm dynamics and explore how macroeconomic shocks get amplified.
Career Concerns and Corporate Finance
Patrick Bolton
(Columbia University)
Neng Wang
(Columbia University)
Jinqiang Yang
(Shanghai University of Finance and Economics)
[View Abstract]
We incorporate managerial career concerns as in Holmstrom (1999) into a dynamic corporate finance framework with financial constraints. Career concerns induce the manager to exert time-varying stochastic effort as she attempts to influence the market's belief of her talent. However, in equilibrium, career concerns cause the self-interested manager to work hard especially when she is more productive creating substantial value for shareholders even beyond the first-best MM benchmark value (for a firm that is wholly owned by a risk-neutral manager without career concerns.) Additionally, financial constraints and managerial career concerns jointly have important conceptual and quantitative effects on corporate investment, financing, and valuation.
Discussants:
Antoinette Schoar
(Massachusetts Institute of Technology)
Gregor Matvos
(University of Chicago )
Lukas Schmid
(Duke University)
Bengt Holmstrom
(Massachusetts Institute of Technology)
Jan 05, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Entrepreneurial Finance and Crowdfunding
(G2)
Presiding:
Yael Hochberg
(Massachusetts Institute of Technology)
Inside Rounds and Venture Capital Returns
Michael Ewens
(California Institute of Technology)
Matthew Rhodes-Kropf
(Harvard University)
Ilya Strebulaev
(Stanford University)
[View Abstract]
[Download Preview] We study sequential investment decisions in the venture capital (VC) industry. VC-backed companies typically need to raise several rounds of funding from VC funds. The decision whether to provide further funding to the company and the terms of the new funding determine VC fund returns. We show that investment outcomes in the VC industry can be predicted by whether a round of funding is provided by only VCs who previously invested in the firm, or new VCs join the syndicate of investors. With asymmetric information, financial intermediaries are often thought to “hold up” firms and earn rents on their inside knowledge. However, we show that inside rounds, in which only existing investors participate, lead to a higher likelihood of failure, lower probability of IPOs, and lower cash on cash multiples than rounds with new investors. Inside rounds also appear to be negative NPV, suggesting that investors make inefficient continuation decisions. The findings are both consistent with the phenomenon called escalation of commitment and a manifestation of a novel agency problem driven by changing opportunity costs in the VC fund life-cycle.
The Informational Role of Crowdfunding
Ting Xu
(University of British Columbia)
[View Abstract]
[Download Preview] The recent rise of crowdfunding begs the question of what unique value the crowd brings to entrepreneurs compared with sophisticated intermediaries. This paper proposes an answer to this question by focusing on the informational role of crowdfunding. I argue that a distinct role of crowdfunding is the provision of early feedback to entrepreneurs that facilitates their learning. Using a large dataset from Kickstarter, I first document that entrepreneurs adjust their expectations about their projects based on feedback from the crowd, and that such adjustments are stronger when entrepreneurs face higher uncertainty or when the crowd is more experienced. The crowd’s feedback affects entrepreneurs’ subsequent continuation decisions and project choices, and influences the aggregate entry pattern of future entrepreneurs on the platform. I then establish the learning advantage of crowdfunding leveraging the entry decisions of heterogeneous entrepreneurs. I show that, when crowdfunding becomes more costly relative to alternative financing (bank borrowing), entrepreneurs choosing crowdfunding shift to those that benefit particularly from early feedback, i.e., those facing high uncertainty or high fixed costs. These results suggest that crowdfunding is not merely a financing tool, but also a learning device that improves the information environment faced by entrepreneurs.
Gender Dynamics in Crowdfunding (Kickstarter): Evidence on Entrepreneurs, Investors, Deals and Taste Based Discrimination
Dan Marom
(Hebrew University)
Alicia Robb
(Kauffman Foundation and University of California-Berkeley)
Orly Sade
(Hebrew University)
[View Abstract]
[Download Preview] [Download PowerPoint] In this paper we investigate whether a new form of market for early stage venture financing – crowdfunding – reduces the barriers of female entrepreneurs to raise pre-seed capital. Specifically, we investigate gender dynamics and biases in the process of raising funding to new projects via the leading crowdfunding platform - Kickstarter. We find women made up about 35% of the project leaders and 44% of the investors on the platform. On average, men seek significantly higher levels of capital than women for their projects, and also raise more funds than women. However, women enjoy higher rates of success in funding their projects, even after controlling for category and goal amount. Only about 23% of projects that men invested in had female project leads. Conversely, more than 40% of projects that women invested in had female project leads. Multivariate analysis indicated significant positive correlation between the gender of the project leader and the percentage of the same gender investors. Questions arise around what factors explain the fact that female-led projects are predominantly financed by women. In an attempt to disentangle taste-based discrimination from statistical discrimination we conducted a survey of investors from the Kickstarter platform and find evidence that some of lower investment in female-led projects by men can be attributed to taste-based discrimination.
Discussants:
David Robinson
(Duke University)
Shai Bernstein
(Stanford University)
Ramana Nanda
(Harvard University)
Jan 05, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Financial Advisors and Financial Advice
(G0)
Presiding:
John Beshears
(Harvard University)
Is Fraud Contagious? Career Networks and Fraud by Financial Advisors
Stephen Dimmock
(Nanyang Technological University)
William Gerken
(University of Kentucky)
Nathaniel Graham
(University of Kentucky)
[View Abstract]
[Download Preview] We show that the propensity to commit fraud is transmitted through career networks. We use a novel dataset of U.S. financial advisors, which includes their employment histories and records of fraudulent behavior. We identify the effect of career networks on fraud using changes in these networks caused by mergers of financial advisory firms; the tests include merger fixed effects to exploit the variation in changes to career networks across different branches of the same firm. We show that interacting with co-workers who have a history of fraud increases the propensity to commit fraud. Further, this effect is stronger for less experienced employees, when co-workers are demographically similar, or when a fraudulent co-worker is a supervisor.
Information Architecture and Intertemporal Choice: A Randomized Field Experiment in the United States
Yaron Levi
(University of California-Los Angeles)
[View Abstract]
In a randomized field experiment, I show that information architecture significantly affects individuals' spending and savings behavior. I present users of a large online account aggregation provider with a personalized financial index. This index represents the inflation-protected, lifetime monthly cash flow that they can obtain, given their personal financial and demographic information and current market prices. Users receiving this information tool reduce their spending by 10.7% relative to a control group. This effect is sensitive to the description of the index using a consumption frame rather than an investment frame and to the presentation of an explicit comparison between the index and historical spending levels. Further, spending reductions are primarily in large, infrequent transactions. This experiment is the first to directly affect overall spending behavior and to demonstrate the importance of information architecture in that context. It demonstrates the potential of low cost digital information tools to impact financial behavior on a large scale.
Financial Advice and Bank Profits
Daniel Hoechle
(Zurich University of Applied Sciences)
Stefan Ruenzi
(University of Mannheim)
Nic Schaub
(University of St. Gallen)
Markus Schmid
(University of St. Gallen)
[View Abstract]
[Download Preview] We use a unique dataset from a large retail bank containing internal managerial accounting data on revenues and costs per client to analyze how banks and their financial advisors generate profits with customers. We find that advised transactions are associated with higher bank profits than independently executed trades of the same client. Structured products and bank-own mutual funds are most profitable for the bank and profits increase with trade size. Consistently, we show that advisors recommend exactly those transactions. We find no evidence that recommended transactions are particularly beneficial for clients, suggesting that advisors put their own interests first.
Discussants:
Benjamin Keys
(University of Chicago)
Tracy Yue Wang
(University of Minnesota)
John Chalmers
(University of Oregon)
Gopi Shah Goda
(Stanford University)
Jan 05, 2016 10:15 am, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
Governments and Stock Prices
(G1)
Presiding:
Jules van Binsbergen
(University of Pennsylvania)
Stock Returns over the FOMC Cycle
Anna Cieslak
(Duke University )
Adair Morse
(University of California-Berkeley)
Annette Vissing-Jorgensen
(University of California-Berkeley)
[View Abstract]
[Download Preview] We document that since 1994 the US equity premium follows an alternating weekly pattern measured in FOMC cycle time, i.e. in time since the last Federal Open Market Committee meeting. The equity premium is earned entirely in weeks 0, 2, 4 and 6 in FOMC cycle time (with week 0 starting the day before a scheduled FOMC announcement day). We show that this pattern is likely to reflect a risk premium for news (about monetary policy or the macro economy) coming from the Federal Reserve: (1) The FOMC calendar is quite irregular and changes across sub-periods over which our finding is robust. (2) Even weeks in FOMC cycle time do not line up with other macro releases. (3) Volatility in the fed funds futures market and the federal funds market (but not to the same extent in other markets) peaks during even weeks in FOMC cycle time. (4) Information processing/decision making within the Fed tends to happen bi-weekly in FOMC cycle time: Before 1994, when changes to the Fed funds target in between meetings were common, they disproportionately took place during even weeks in FOMC cycle time. In addition, after 2001 Board of Governors discount rate meetings (at which the board aggregates policy requests from regional federal reserve banks and receives staff briefings) tend to take place bi-weekly in FOMC cycle time. As for how the information gets from the Federal Reserve to the market, we rule out the Federal Reserve signaling policy via open market operations post-1994. Furthermore, the high return weeks do not systematically line up with official information releases from the Federal Reserve or with the frequency of speeches by Fed officials. We end with a discussion of quiet policy communications and unintended information flows.
Stock Picking Skills of SEC Employees
Shivaram Rajgopal
(Emory University)
Roger White
(Emory University)
[View Abstract]
We use a new data set obtained via a Freedom of Information Act request to investigate the
trading strategies of the employees of the Securities and Exchange Commission (SEC). We find
that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’
sells, covering 7,197 trades, over the years 2009-2011, earns positive and economically
significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about
8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but
from the sale of stock ahead of a decline in stock prices.
There are three potential explanations for these returns: (i) luck; (ii) skill of the traders; and (iii)
access to non-public information. We cannot rule out the role of luck given the limited time
period studied but if skills explained these results, we would expect to observe abnormal returns
on both buys and sells. We find a few trades where employees divest (i) in the run-up to six SEC
enforcement actions; and (ii) after whistle blowing tips alleging financial misconduct are filed by
employees with OSHA against their employers. The SEC has responded that each of these
trades was approved and that staff assigned to an inquiry is asked to sell its holdings in the
targeted firm as a matter of policy. Because such inquiries are (i) not publicly announced in a
timely manner; and (ii) can cause stock prices to fall when known to the market, we are not sure
whether this policy is reasonable. We also wonder why the SEC’s employees are even allowed
to hold individual stocks.
Heterogeneous Taxes and Limited Risk Sharing: Evidence from Municipal Bonds
Tania Babina
(University of North Carolina)
Pab Jotikasthira
(University of North Carolina )
Christian Lundblad
(University of North Carolina)
Tarun Ramadorai
(University of Oxford)
[View Abstract]
[Download Preview] Heterogeneity in the taxation of asset returns can create ownership clienteles. Using a simple model, we demonstrate that an important consequence of tax-policy-induced ownership segmentation is to limit risk-sharing, creating regions of the aggregate demand curve for the asset that are "downward-sloping." As a result, the constraints of the ownership clientele impact the asset price response to variations in asset supply and demand, and make the asset's price more sensitive to movements in idiosyncratic risk. We test these predictions on U.S. municipal bonds, where cross-state variation in state tax privilege policies results in different levels of home-state-biased ownership of local municipal bonds. In states with high tax-induced ownership segmentation, we find greater susceptibility of municipal bond yields to demand and supply variation, heightened sensitivity of muni yields to local political uncertainty, and greater difficulties in raising capital for public projects.
Discussants:
David Lucca
(Federal Reserve Bank of New York)
Chester Spatt
(Carnegie Mellon University)
Lorenz Kueng
(Northwestern University)
Jan 05, 2016 10:15 am, Marriott Marquis, Nob Hill A & B
American Finance Association
Information and Noise
(G1)
Presiding:
Snehal Banerjee
(University of California-San Diego)
Learning in Crowded Markets
Peter Kondor
(London School of Economics)
Adam Zawadowski
(Boston University)
[View Abstract]
[Download Preview] We develop a model of capital reallocation to analyze whether the presence of more arbitrageurs improves capital allocation and welfare. While trades can become crowded due to imperfect information and externalities, arbitrageurs can devote resources to flexibly learn about the number of earlier entrants. Above a threshold, increasing the number of arbitrageurs does not affect capital allocation: whether there is eventually too little or too much capital allocated to the trade is solely determined by the parameters of the market. The flexibility in the learning technology is key to this insight. However, the presence of more arbitrageurs decreases welfare, as they use more aggregate resources to learn about each others' position. When both sophisticated and unsophisticated arbitrageurs are present, increasing the share of sophisticated arbitrageurs might be welfare reducing.
Noise Traders Incarnate: Describing a Realistic Noise Trading Process
Joel Peress
(INSEAD)
Daniel Schmidt
(HEC Paris)
[View Abstract]
[Download Preview] We estimate a realistic process for noise trading to help theorists calibrate their models. For this purpose we characterize the trades executed by individual investors, who are natural candidates for the role of noise traders because their trades are (on average) cross-correlated, loss making, and weakly correlated with stocks’ future fundamentals. We use transactions data from a retail brokerage house and small TAQ trades, obtaining consistent results. We find that noise trading can be treated as i.i.d. normal at the monthly frequency, which conforms with theorists’ assumptions. Weekly trades follow (as widely assumed) an AR(1) process, but their residuals are not normal. Daily trades require multiple lags and have nonnormal residuals. We provide a complete description of these processes, including estimates of their standard deviation (a.k.a. noise trader risk). In line with theory, our estimates of noise trader risk are higher for stocks that are more liquid and more volatile.
What Does the PIN Model Identify as Private Information?
Jefferson Duarte
(Rice University)
Edwin Hu
(Rice University)
Lance Young
(University of Washington)
[View Abstract]
[Download Preview] Some recent papers suggest that the Easley and O’Hara (1987) probability of informed trade (PIN) model fails to capture private information. We investigate this issue by comparing the PIN model with the Duarte and Young (2009) (DY) and Odders-White and Ready (2008) (OWR) models of private information arrival. We find that the PIN and DY models fail to capture private information because they mistakenly associate variations in turnover with the arrival of private information. On the other hand, the OWR model, which uses returns along with order flow imbalance to identify informed trade, seems to produce patterns that are consistent with the arrival of private information.
Risk and Return in Segmented Markets with Expertise
Andrea Eisfeldt
(University of California-Los Angeles)
[View Abstract]
[Download Preview] This paper studies the equilibrium pricing of complex securities in segmented markets by risk-averse expert investors who are subject to asset-specific risk. In our model, the investment technology of investors with more expertise is subject to less asset-specific risk. Expert demand lowers equilibrium required returns, reduces participation, and leads to endogenously segmented markets. Amongst participants, portfolio decisions and realized returns determine the joint distribution of financial expertise and financial wealth. This distribution, along with participation, then determine market-level risk bearing capacity. We show that more complex assets deliver higher equilibrium returns to expert participants. We characterize the stationary distribution as a function of the parameters that describe the complexity of the asset class in a dynamic model of industry equilibrium. We show that the stationary wealth distribution displays fatter tails in markets in which complex assets display a steeper asset-specific risk vs. expertise relation.
Discussants:
Ming Yang
(Duke University)
Timothy Johnson
(University of Illinois-Urbana-Champaign)
Terrence Hendershott
(University of California-Berkeley)
Vincent Glode
(University of Pennsylvania)
Jan 05, 2016 10:15 am, Marriott Marquis, Nob Hill C & D
American Finance Association
Mutual Funds and Delegated Management
(G1)
Presiding:
Juhani Linnainmaa
(University of Chicago )
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]
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 substantial extra flows as well, especially in smaller complexes. We show mutual
fund managers react to the incentive created by the media effect in a strategic way
predicted by theory, and present evidence for the existence of propagation mechanisms
including increased fund complex advertising subsequent to having a Category King
and increased efficacy of subsequent fund media mentions.
Playing Favorites: Conflicts of Interest in Mutual Fund Management
Diane Del Guercio
(University of Oregon)
Egemen Genc
(Erasmus University-Rotterdam)
Hai Tran
(Loyola Marymount University)
[View Abstract]
[Download Preview] It is common for mutual fund managers to concurrently manage assets on behalf of clients outside the mutual fund industry. If these other accounts are more lucrative in terms of current or potential manager compensation, this provides an incentive for managers to favor these other accounts at the expense of mutual fund investors. Using a new dataset hand collected from mandatory SEC filings and therefore free of selection bias, we examine the performance of funds with managers who receive performance-based incentive fees in three different types of accounts: registered investment companies, pooled investment vehicles, and separately managed accounts. We find that only funds with managers who receive incentive fees in pooled investment vehicles (e.g., hedge funds) underperform other peer funds by an economically and statistically significant 9.6 bps per month in Carhart alpha, or 1.15% per year. Further tests using a sample of mutual fund managers who begin to manage a hedge fund during the sample period confirm our prior finding of the negative impact on mutual fund performance. Our evidence provides support for the conflicts of interest hypothesis in the debate on “side-by-side management” of mutual funds and hedge funds.
Double Adjusted Mutual Fund Performance
Jeffrey Busse
(Emory University)
Lei Jiang
(Tsinghua University)
Yuehua Tang
(Singapore Management University)
[View Abstract]
[Download Preview] We develop a new approach for estimating mutual fund performance that controls for both factor model betas and stock characteristics in one measure. Our double adjustment procedure shows that fund returns are significantly related to stock characteristics in the cross section after controlling for risk via factor models. Compared to standard mutual fund performance estimates, the new measure substantially affects performance rankings, with a quarter of funds experiencing a change in percentile ranking greater than ten. Double-adjusted fund performance significantly predicts four-factor alpha as far as nine years after the initial ranking period, whereas the performance attributable to characteristics shows little correspondence to future performance. Moreover, inference based on the new measure often differs, sometimes dramatically, from that based on traditional performance estimates.
Is it Who You Know or What You Know? Evidence from IPO Allocations and Mutual Fund Performance
Chuan Yang Hwang
(Nanyang Technological University)
Sheridan Titman
(University of Texas-Austin)
Yuxi Wang
(Nanyang Technological University)
[View Abstract]
Consistent with Chevalier and Ellison (1999), we find that mutual fund managers with degrees from elite university tend to outperform their less elite counterparts. Our evidence indicates that the superior performance of elite graduates can be characterized as “fast performance,” the stock’s they select realize excess returns only in the quarter the stock is purchased, and that this fast performance is largely due to the elite graduates having better access to IPO underwriters. Indeed, mutual funds managed by elite graduates realize superior performance only in months in which they have connections with underwriters issuing IPOs. We further show that retail investors can generate excess returns with a strategy of buying mutual funds in months when they are connected to underwriters scheduled to issue IPOs.
Discussants:
Clemens Sialm
(University of Texas-Austin and NBER)
Lu Zheng
(University of California-Irvine)
Kent Daniel
(Columbia University)
Lauren Cohen
(Harvard Business School)
Jan 05, 2016 10:15 am, Parc 55, Powell II
American Real Estate & Urban Economic Association/American Economic Association
Agency and Brokerage
(R3, J4)
Presiding:
Edward Coulson
(University of Nevada-Las Vegas)
Employment Networks in the Professions
Lu Han
(University of Toronto)
Robert Miller
(Carnegie-Mellon University)
[View Abstract]
This paper develops an empirical model of dynamic interactions within an employment network, and applies it to the real estate market in a large North American metropolitan area. Networking naturally arises in our framework because agents must team together in order to produce. Repeated interactions increase human capital by facilitating future production. Entry by agents into the network, their turnover within it, along with their quitting from the network, endogenously determines the creation, growth, decline and disappearance of the establishments that employ them. We analyze an employment network with two sectors, a loosely organized nonprofit sector, and a for-profit one. Our empirical analysis estimates the importance of networking in the real estate industry, and evaluates how efficiently the network functions.
Conflicts of Interest and the Real Estate Commission Puzzle
Panle Jia Barwick
(Cornell University)
Parag A. Pathak
(Massachusetts Institute of Technology)
Maisy Wong
(University of Pennsylvania)
[View Abstract]
[Download Preview] This paper documents uniformity in real estate commission rates across markets and time using a dataset on realtor commissions for 653,475 residential listings in eastern Massachusetts from 1998-2011. Newly established real estate brokerage offices charging low commissions grow more slowly than comparable entrants with higher commissions. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all brokerage agencies prefer properties with high commissions, offices with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns that steering reinforces the uniformity of commissions.
Endogenous Sources of Volatility in Housing Markets: The Joint Buyer-Seller Problem
Elliot Anenberg
(Federal Reserve Board )
Patrick Bayer
(Duke University)
[View Abstract]
[Download Preview] This paper presents new empirical evidence that internal movement - selling one home and buying another - by existing homeowners within a metropolitan housing market is especially volatile and the main driver of fluctuations in transaction volume over the housing market cycle. We develop a dynamic search equilibrium model that shows that the strong pro-cyclicality of internal movement is driven by the cost of simultaneously holding two homes, which varies endogenously over the cycle. We estimate the model using data on prices, volume, time-on-market, and internal moves drawn from Los Angeles from 1988-2008 and use the fitted model to show that frictions related to the joint buyer-seller problem: (i) substantially amplify booms and busts in the housing market, (ii) create countercyclical build-ups of mismatch of existing owners with their homes, and (iii) generate externalities that induce significant welfare loss and excess price volatility.
Empirical Evidence that Real Estate Agents Price their Informational Monopoly
Abdullah Yavas
(University of Wisconsin-Madison)
Jessica Rutherford
(University of South Florida)
Ronald Rutherford
(University of South Florida)
[View Abstract]
[Download Preview] Rutherford and Yavas (2005) and Levitt and Syverson (2008) document premiums of approximately 3.5% for real estate agents that sell their own houses. The general argument is that agents exploit their information advantage when selling their properties. We examine the other side of the transaction comparing the price paid by real estate agents buying houses to purchases by individuals and other buyers that are classified as investors. We find that in the Miami-Dade County MLS market real estate agents purchase houses at prices approximately 4.4% below the prices paid by individuals, but pay higher prices than investors. In addition, consistent with prior literature, we find that owner agents sell houses they own at higher prices.
Discussants:
Matthew O. Jackson
(Stanford University)
Chad Syverson
(University of Chicago)
James Albrecht
(Georgetown University)
Sebastien Gay
(University of Chicago)
Jan 05, 2016 10:15 am, Parc 55, Powell I
American Real Estate & Urban Economic Association
Commercial Real Estate
(G1, R3)
Presiding:
Sergey Tsyplakov
(University of South Carolina)
One size does not fit all: REIT capital structure and firm value
Eva Steiner
(University of Cambridge)
Timothy Riddiough
(University of Wisconsin-Madison)
[View Abstract]
[Download Preview] We analyse the equity Real Estate Investment Trust (REIT) sector, whose structural idiosyncrasies exemplify shortcomings of received theory to comprehensively explain capital structure outcomes at the industry level. A customised theory of REIT capital structure is outlined that highlights liquidity management in total leverage and secured v. unsecured debt choices. Empirical testing shows that firm value is highly sensitive to capital structuring decisions. Starting from a high base level of leverage, a statistically robust and economically significant negative relationship between leverage and firm value is documented. We also find that the use of unsecured debt, which commits management to the preservation of debt capacity, generally has a positive effect on firm value. Our work further highlights the effects of taxes at the individual level, a muted pecking order, and an inverted free cash flow effect.
Delinquencies, Default, and Borrowers' Strategic Behavior Toward the Modification of Commercial Mortgages
James Kau
(University of Georgia)
Stephen Buschbom
(University of Georgia)
Donald Keenan
(University of Georgia)
Konstantine Lyubimov
(Fannie Mae)
[View Abstract]
This paper constructs a model of mortgage delinquency which tests the extent to which commercial mortgage borrowers anticipate a loan modification resulting from such a delinquency. Using a sample of modified loans from commercial mortgage-backed securities (CMBS) issued between January 2000 and January 2014, we estimate the present value of modified cash flows. In order to project these benefits at any possible time of modification for a delinquent loan, we take the difference between the present value of modified cash flows and the face value of debt as a measure of the net benefit as well as simultaneously estimate property values to control for the borrower's current equity position. The resulting net benefits are then weighted by each loan's estimated survival probability up to the time of modification under consideration, so that the resulting discounted sum covering the potential time in delinquency serves as a proxy for a borrower's anticipation of the benefits of such a modification, assessed at any possible time of delinquency. Our results show that a borrower's anticipation of a modification event increases the delinquency hazard, and are supportive of the notion that borrower delinquency is strategically endogenous.
Double Round Auctions
Crocker Liu
(Cornell University)
Jarl Kallberg
(Washington State University)
Adam Nowak
(West Virginia University)
[View Abstract]
[Download Preview] This article analyzes auctions that can feature two bidding rounds for the sale of a single good. In the first round the seller, after analyzing the received bids, may elect to have k bidders rebid. The highest bidder in the second round receives the asset at the highest bid price. We use a sample of 67 properties that sold through this auction process. The 40 hotels in this sample are matched to a control group of 165 hotel properties that were sold in the conventional manner in order to develop a hedonic model for sale prices. From this model, we find that the double round auction mechanism increases the seller’s revenue significantly: specifically, we estimate that the expected value of a double round auction sale (in either round) is 15:4% larger than if the property were sold using traditional methods. We further find (controlling for property characteristics) that the average bid increases by 3:7% from the first to the second round and that the expected value of a second round bid is 8:5% larger than the expected value of a first round bid.
Cross-Sectional Dynamics of REIT Market Efficiency
Robert Connolly
(University of North Carolina)
Michael Aguilar
(University of North Carolina)
Walter Boudry
(Cornell University)
[View Abstract]
[Download Preview] The efficiency of price discovery in the REIT market is an issue of enduring interest. Unfortunately, existing studies focus on REIT index data, and the general equity efficiency literature that uses individual assets typically excludes this sector. Our first contribution is a comprehensive assessment of the pricing efficiency of the U.S. REIT market that uses every listed REIT trading over the 1993-2011 period. Our variance ratio analysis finds that the typical REIT is efficient throughout our sample period. We show that the distribution of REIT-level variance ratios exhibits excess kurtosis, implying a non-trivial mass of inefficiently-priced REITs. Our second contribution is to document that the relatively inefficiently-priced REITs tend to become relatively more efficient over time, consistent with the actions of arbitrageurs. We explore the importance of informed trading, cash flow variability, and market frictions measures in explaining the cross-sectional dynamics of informational efficiency. Our third contribution is methodological: we show that quantile regression methods help to isolate the impact of arbitrageurs since they are more likely to affect the pricing efficiency of REITs in the extreme quantiles of the efficiency distribution.
Discussants:
Tobias Muhlhofer
(University of Miami)
Yongqiang Chu
(University of South Carolina)
Svetlana Pevnitskaya
(Florida State University)
Libo Sun
(California State Polytechnic University-Pomona)
Jan 05, 2016 10:15 am, Parc 55, Divisadero
Association for Comparative Economic Studies
Political Institutions and Their Consequences
(H1, P5)
Presiding:
Pauline Grosjean
(University of New South Wales)
A Time to Throw Stones, a Time to Reap: How Long Does it Take for Democratic Reforms to Improve Institutional Outcomes?
Pierre-Guillaume Méon
(Université libre de Bruxelles and Centre Emile Bernheim)
Khalid Sekkat
(Université libre de Bruxelles, ERF and Centre Emile Bernheim)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper studies the impact of democratic transitions on institutional outcomes in a panel of 135 countries over the period 1984-2012, using an event study method. Our estimates suggest that the bulk of the improvement occurs during the three years following the transition. We can find no anticipation effect in average institutional outcomes. The result is robust to using alternative definition of transitions, alternative codings of pre- and post-transition years, to changing the set of control variables, to excluding former socialist countries from the sample, and to dealing with endogeneity with IV regressions.
When distinguishing full and partial democratic transitions, find that both improve institutional outcomes. However, the former have an effect that is both longer-lasting and eventually larger than the latter. We find that the effect of democratic transitions is conditional on GDP per capita, education, and the regularity of the transition.
When looking at specific components of institutional quality, we find that Bureaucratic quality, Government stability, and Investment profile are insensitive to democratic transitions. Corruption, Law and order, Internal conflict, and Military in politics mimic the behavior of the overall ICRG index. The External conflict sub-index starts improving before transitions, and keeps improving thereafter, while the Ethnic tension Religious tension, and Socioeconomic conditions sub-indices deteriorate.
Democracy Versus Dictatorship? The Political Determinants of Growth Episodes
Kunal Sen
(IDPM University of Manchester)
Sabyasachi Kar
(Institute of Economic Growth)
Lant Pritchett
(Harvard University)
Selim Raihan
(University of Dhaka)
[View Abstract]
[Download Preview] Whether democracy causes economic growth has been a matter of theoretical and empirical debate. Recent studies show that democracy has a positive effect on growth. We argue that looking at the average effect of democracy on long run growth ignores the heterogeneity of growth experiences among authoritarian regimes relative to democratic regimes. Also, the emphasis on long-run growth contradicts the stylized facts of economic growth in developing countries characterized by frequent shifts in growth regimes from stagnant or declining growth to accelerations in growth and back again. We examine the political determinants of the magnitude of growth in acceleration and deceleration episodes. We first obtain 322 growth episodes for 125 countries from 1950 to 2010 combining statistical and filter based approaches to identifying growth breaks. We then propose a method to calculate the magnitude of growth in such episodes. Next, we show that authoritarian regimes have different features of growth episodes as compared to democracies, with both strongly positive and strongly negative growth episodes. We then disaggregate authoritarian regimes by type of regime and show that single party-based authoritarian regimes outperform democracies in growth accelerations, but that there is no difference between democracies and personalist, military based and monarchic authoritarian regimes in their effects on growth. On the other hand, non party based autocracies are likely to have larger growth decelerations than democracies and party based autocracies. These results suggest that in a growth episode framework, the effect of the political regime on growth is asymmetric across accelerations and decelerations and that democracies do not necessarily outperform autocracies in a growth acceleration episode, though they are likely to prevent large growth collapses. We also highlight the importance of the type of autocracy in understanding the effects of regime type on growth.
Party Institutionalization in Autocracies: Theory and Evidence
Anne Meng
(University of California-Berkeley)
[View Abstract]
Why do some dictators institutionalize their ruling parties after coming into power, whereas others do not? Ruling parties in autocracies are an important channel through which dictators can solve a multitude of governance problems, such as resolving distributional conflicts or co-optation of elites. However, autocratic parties vary a great deal in their levels of institutionalization, defined as the extent to which party organizations operate independent of particular leaders. I argue that dictators institutionalize their ruling parties by taking actions that limit personal authority, such as setting term limits or creating procedures for party officials to move up the hierarchy. However, party institutionalization involves tradeoffs: although it deters other party elites from staging coups against the regime, it also shifts power away from the dictator. I formalize these tradeoffs in a game theoretic model in which party institutionalization is a mechanism by which the dictator voluntarily binds his hands. In particular, the dictator can choose whether to offer patronage or permanent giveaways to a group of party elites. In the model, patronage is a temporary offer that can fluctuate over time, depending on the distribution of power between the dictator and party elites. Permanent giveaways, by contrast, represent party institutionalization and constitute a guaranteed division of benefits that cannot be undone. I find that dictators who are either very weak or very strong at the start of the regime will be the least likely to institutionalize. I corroborate these theoretical arguments with original data on portfolio allocations and constitutional term limits in African one-party regimes from 1960-2005 and find that patterns of patronage and permanent giveaways closely follow the predictions of the model.
Do Quality Institutions Lead to Quality of Life? The Drivers of Environmental and Public Health Outcomes
Christopher A. Hartwell
(Kozminski University and CASE)
Don L. Coursey
(University of Chicago)
[View Abstract]
[Download Preview] [Download PowerPoint] What factors determine the environmental and quality of life conditions that exist in different regions of the world? What factors can explain how these conditions evolve through time? This paper empirically examines the answers to these questions, focusing on the link between economic freedom, its impact on institutional formation, and environmental quality. Compiling a new panel data set that encompasses 60 years of environmental and public health outcomes for 130 countries, we utilize fixed-effects and GMM methods to understand the channels in which economic freedom can lead to a cleaner and healthier environment. Our results show that economic freedom manifests itself in better contracting institutions, which then correlate with positive health and environmental outcomes. We also find that lack of economic freedom correlates with poorer political institutions in general, leading to worse environmental and public health outcomes. These results are robust to different control sets and all econometric specifications.
Discussants:
Christopher A. Hartwell
(Kozminski University and CASE)
Pauline Grosjean
(University of New South Wales)
Pierre-Guillaume Méon
(Université libre de Bruxelles Centre Emile Bernheim)
Kunal Sen
(IDPM University of Manchester)
Jan 05, 2016 10:15 am, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Institutional Change
(B5, Z1)
Presiding:
Valerie Kepner
(Kings College)
Public Policy Adrift: Veblen’s Blind Drift and Neoliberalism
William Waller
(Hobart and William Smith Colleges)
[View Abstract]
Thorstein Veblen argued that the likely course of human activity and thus policy was one of blind drift. This paper will explore that perspective on public policy formation in the contemporary period. It will do this in the context of recent work by Philip Mirowski and James K. Galbraith.
Neoliberalism, Polanyi’s Protective Response, and Veblenian Waste
Mary V. Wrenn
(University of Cambridge)
[View Abstract]
The social dislocation generated by market intensification prompts Polanyi’s protective response, while evidence of the economic surplus is found in the lobby industry and campaign contributions, both of which give capital political influence. This research seeks to connect Polanyi’s protective response with Veblenian waste and the economic surplus.
Thinking Like a Trader: The Impact of Neoliberal Doctrine on Habits of Thought
Quentin Duroy
(Denison University)
[View Abstract]
By priming individuals to ‘think like traders’ neoliberal doctrine may generate habits of thought which legitimize the transformation of a market economy into a market society. The resulting decreased influence of pro-social behavior on the process of institutional change may undermine the prospect of a global-justice approach to economic development.
Is Brazil’s II National Plan of Development a Concrete Example of Veblen’s Theory of Institutional Change?
Ricardo Emmel Böck
(Federal University of Paraná-Brazil)
[View Abstract]
The main goal is to evaluate whether or not Brazil's II National Plan of Development, implemented in the mid-1970s, can be interpreted as a case of institutional change as theorized by Veblen. The study involves texts and empirical data of the period and also discusses Veblen’s theoretical approach.
Contested Continuity: Competing Explanations of the Evolution of the Corporate Form
Ann E. Davis
(Marist College)
[View Abstract]
[Download Preview] [Download PowerPoint] The history of the electric utility industry provides the occasion for testing competing explanations of the emergence and persistence of the corporate form. This industry, characterized by capital intensity, intense competition, and attractive investment opportunities, along with rapid technological change and legal and regulatory changes, provides lessons for newer industries with network externalities.
Jan 05, 2016 10:15 am, Marriott Marquis, Pacific B
Association for Social Economics/International Association for Feminist Economics
Financialisation and Gender
(J1, G1)
Presiding:
Alicia Giron
(National Autonomous University of Mexico)
Seven Ways to Knit Your Portfolio: Is Investor Communication Neutral?
Henriëtte Prast
(Tilburg University)
[View Abstract]
[Download Preview] The effect of familiarity has been used to explain why individuals prefer to invest in stocks that are geographically close. This has to do with feelings of belonging, not with an information. Familiarity creates positive affect, which in its turn leads to lower estimated risk and higher expected return. Against this background and combining behavioral economics with cognitive linguistics we study whether the language used in investor communication may create feelings of familiarity or distance depending on whether the receiver is a man or a woman. If so, this might contribute to explaing the gender gap in stock market participation. Studying Dutch, English and Italian websites addressing potential retail investors, we find that the metaphors used come from identical domains, and our further analysis reveals that these domains refer to worlds that are stereotypically masculine including war, heavy physical activity and competitive play. We argue that this may result in feelings of belonging (in the metaphorical sense) among men, not women. If this would affect attitudes and risk estimates, it would bias men toward risk taking, and women toward avoiding risky assets. This would contribute to explaining the gender gap in stock market participation and financial risk taking.
Child Marriage as a Financial and Economic Transaction
Quentin Wodon
(World Bank)
[View Abstract]
Child marriage remains highly prevalent in many countries, especially for girls. The practice is driven in part by cultural traditions, but it is also often a financial and economic transaction conducted by the parents of the girl who marries early. While the practice may have in some cases short term benefits for households (and possibly even in extreme cases for the girls marrying early), it has a range of large long-term negative impacts for the girls, their children, and their communities. This paper provides a synthesis of the results obtained in the first phase of a three-year research project on the economic impact of child marriage. Overall estimates of the cost of the practice globally are provided on the basis of an assessment of the impact of the practice in the areas of education, labor force participation, empowerment, health, and violence. The analysis is based on results obtained from a wide range of household surveys ! in Africa, South Asia, and Latin America. The results suggest that the eradication of the practice should be a development priority.
Family Labor Supply and the Timing of Cash Transfers: Evidence from the Earned Income Tax Credit
Tzu-Ting Yang
(University of British Columbia and Academia Sinica)
[View Abstract]
[Download Preview] This paper provides new evidence on how families adjust their labor supply in response to the receipt of an anticipated cash transfer. In particular, I exploit the unique disbursement timing and benefit rules of the Earned Income Tax Credit (EITC) to assess the effect of the receipt of a cash transfer on the timing of family labor supply. My results show that income seasonality caused by EITC receipt leads to changes in the intra-year labor supply patterns of married women. On average, receiving a $1,000 EITC payment significantly reduces the proportion of married women who work, by 1.6 percentage points, in the month in which the EITC is received. The income elasticity of labor supply for married women based on this estimate is around -0.06. In contrast, the receipt of the EITC does not affect the timing of the labor supply of married men and single women. The subgroup analysis suggests families might reduce the labor supply of secondary earners in response to receiving an anticipated EITC payment. In addition, My results suggest that the presence of liquidity constraints and myopia could be important reasons for my findings.
Economics of the Unschooled Child Worker: Parental Motivation and Human Development Consequences for the Girl Child
Sanjukta Chaudhuri
(University of Wisconsin-Eau Claire)
[View Abstract]
Education is an indicator of development but education also enables development. Women’s education in particular has substantial market and non-market returns, contributing positively to women, their families, communities, and nations. <br />
<br />
The Constitution of India (1951) guarantees universal education for all children under the age of fourteen years. The 86th Amendment to the Indian constitution (2002) made education for ages 6-14 years free, compulsory, and a fundamental right. Yet universal education still eludes India. A particularly troubling aspect of the problem is a strong socio-cultural bias exists against girls’ education. According to National Family Health Survey of India (NFHS- 2005-2006), in 2005, only 76% of girls ages 6-14 years were attending school, an unacceptably low observed percentage compared to the planned 100% universal schooling. <br />
<br />
An important problem also is that schooling deprivation and child work are often simultaneously occurring economic phenomena. The girl child in particular is vulnerable to economic exploitation. According to the NFHS, in 2005, 11% of girls ages 12-14 did more than 28 hours of household chores per week, compared to 3.5% of boys.<br />
<br />
In this backdrop, the overarching objective of this paper is to draw upon economic theory and the empirical datasets to explore causes and consequences of the unschooled girl child worker in India. Drawing upon economic theories of intra-household resource allocation, investment in human capital, capabilities theory, and the Mincer function together with arguments on deep-seated cultural prejudice against girls’ education in India, this paper will present the economic, financial with cultural issues driving millions of unschooled girl child workers. It will then discuss micro and macro level consequences of depriving the girl child of her human right to education and freedom from economic exploitation.
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 5 & 6
Association of Environmental & Resource Economists
Drought, Heat, and Economic Activity
(Q5)
Presiding:
Nicholas J. Sanders
(Cornell University)
Drought, Dams, and Economic Activity
Sheila Olmstead
(University of Texas-Austin)
Hilary Sigman
(Rutgers University)
[View Abstract]
[Download Preview] Dams are an important part of climate change adaptation plans in many countries; global reservoir capacity will increase between 2010 and 2050 by 2800-‐3000 km3, at an annual average net cost of about $12 billion (Ward et al., 2010). The economics literature offers little evidence of dams’ impact on drought vulnerability, however, and no description of the full spatial distribution of these impacts globally. Without this information, it is difficult to say whether these investments will result in net economic benefits. By smoothing the variability of water supply, dams may help countries adapt to changes in the frequency and severity of droughts and floods. But dams may also increase vulnerability to drought; for example, irrigators may respond to dams by planting more water-‐intensive crops (similar to the effect demonstrated for groundwater access by Hornbeck and Keskin (2014)), and industry and households may install more water-‐intensive technologies. Alternatively, the net effect on drought vulnerability may be positive in a dam’s command area, but negative further downstream, if upstream dams reduce river flows.
This paper econometrically estimates the impacts of drought on economic activity – measured using the nighttime lights index (Chen and Nordhaus, 2011; Henderson et al., 2012) – and the mediating influence of dams, which may either mitigate or exacerbate drought impacts, depending on location and behavioral responses. Previous studies have examined these questions focusing on agricultural impacts in a region of the United States (Hansen et al., 2011), but our work examines a wider range of economic activity and countries, and separates effects near the dam from those in downstream areas. To address concerns about endogeneity in dam location, we plan to use an instrumental variable approach (Duflo and Pande 2007). Preliminary results, without addressing potential endogeneity, suggest that dams may exacerbate the harms from both drought and very wet years.
The Effect of Water Supply Shocks on the Electricity Generation Mix: Implications for Climate Change
Jonathan Eyer
(University of Southern California)
Casey Wichman
(Resources for the Future)
[View Abstract]
Economists are increasingly interested in the effect of climate change (See, for example, Deschenes<br />
and Greenstone, 2011 and Aroonruengsawat and Auffhammer, 2011). This literature, however, has <br />
focused almost exclusively on the extent to which changes in temperature will influence electricity <br />
demand. Climate change will not just affect temperature, but will result in more frequent and more <br />
severe droughts (See Dai, 2011). Because water consumption varies between power plants, increased <br />
drought will lead to substitution from high-water-intensity sources of electricity generation to <br />
low- water-intensity options. If water-intensive, carbon-clean sources are displaced by <br />
less-water-intensive, but more carbon-intensive generation sources, greenhouse gas emissions will <br />
rise as a result of increased water scarcity. This can be viewed as the supply-side corollary to the temperature-induced,demand-side effect of climate change on energy systems.<br />
<br />
This paper uses a fixed-effect panel data model of electricity generation at the plant-level, and<br />
explicitly accounts for the spatial correlation in generation decisions. We find that hydroelectric <br />
generation decreases substantially in response to drought, though this baseline generation is <br />
offset by coal, natural gas, and other renewables depending on the geographic region. Results <br />
broadly suggest that increases in water scarcity between 2001 and 2012 shifted the generation <br />
portfolio towards fossil fuels in many energy markets and we provide empirical evidence that <br />
droughts increased emissions of carbon as well as local pollutants. We estimate the social costs of <br />
water scarcity to be $10 million per month for a drought-ridden state attributable to carbon <br />
emissions alone. Finally, we find that water scarcity results in increased generation from plants <br />
that rely on municipal water sources, indicating that in times of water scarcity, the electricity <br />
sector will compound pressure on government water supplies.
The Long-Term Economic Effect of High Temperatures: Evidence from Earnings Data in Ecuador
Paul Carrillo
(George Washington University)
Ram Fishman
(George Washington University)
Jason Russ
(George Washington University)
[View Abstract]
[Download Preview] There is now a substantial body of evidence that high temperature shocks lead to reduced
economic productivity (both agricultural and non-agricultural), conflict, and mortality in
developing countries. A separate strand of literature has shown that adverse circumstances around
the time of birth (including drought and environmental disaster) have significant consequences for
welfare later in life. Taken together, these two findings suggest that higher temperatures at the
time of birth may have long-term productivity consequences. However, despite the obvious importance
to climate change impacts, we are not aware of studies that have investigated this link.
In this paper, we investigate the effect of temperature shocks around the time of birth on formal
earnings as an adult. To do so, we match and regress the 2010 earnings of all formal sector workers
in Ecuador (over 1.5 million individuals born between 1945 and 1989) on temperature and rainfall
shocks in and around the year of each individual’s birth, at the location of birth. To the best of
our knowledge, our analysis is the first to relate administrative income data to year of birth
circumstances. We find that higher temperatures while an individual is in-utero lead to
significantly lower earnings, especially for women, for whom a 1°C increase in temperature leads to
a 1.1%-1.7% decrease in earnings. In contrast, temperature in the first 9 months after birth has no
effect on future earnings. Our results are robust to the inclusion of localized annual cycles and
time trends, and to falsification tests that randomly shuffle weather realizations
between years and locations.
How do heat waves, cold waves, droughts, hail and tornadoes affect US agriculture?
Emanuele Massetti
(Georgia Institute of Technology)
Robert Mendelsohn
(Yale University)
[View Abstract]
[Download Preview] We estimate the impact of extreme events on corn and soybeans yields, and on agricultural land values in the Eastern United States. We find the most harmful event is a severe drought but that cold waves, heat waves, and storms all reduce both corn and soybean yields. Over 80% of the damage from extreme events is caused by droughts and cold waves with heat waves causing only 6% of the damage. Including extreme events in a panel model of weather alters how temperature affects yields, making cold temperature more harmful and hot temperatures less harmful. Extreme events have no effect on farmland values probably because American farmers are buffered from extreme events by subsidized public crop insurance.
Discussants:
Ahmed Mushfiq Mobarak
(Yale University)
Edson Severnini
(Carnegie Mellon University)
Nicholas J. Sanders
(Cornell University)
Jan 05, 2016 10:15 am, Marriott Marquis, Pacific A
Association of Financial Economists/American Finance Association
Dividends, Repurchases and Payout Policy
(G3, G3)
Presiding:
Kose John
(New York University and Temple University)
Labor Unions and Payout Policy: A Regression Discontinuity Analysis
Jie He
(University of Georgia)
Xuan Tian
(Indiana University)
Huan Yang
(University of Georgia)
[View Abstract]
[Download Preview] We study the causal effect of labor unions on corporate payout policy by using a regression discontinuity (RD) design. Passing a union election leads to an 8.7% lower dividend ratio and a 17.9% lower total payout ratio (including both dividends and share repurchases) than failing an election in the following year. The negative effect of unions on payout is absent in firms located in states with right-to-work laws but without work stoppage provisions. Operating flexibility appears to be a plausible underlying mechanism through which union power influences corporate payout, and firms use the saved earnings from reductions in payout to invest in net working capital rather than paying off debt or increasing cash holdings. Our paper sheds new light on the determinants of firm payout policy and the role of labor unions in corporate finance decisions.
Bank Payout Policy, Performance, and Insider Trading in the Financial Crisis of 2007-2009
Peter Cziraki
(University of Toronto)
Christian Laux
(Vienna University of Economics and Business)
Gyongyi Loranth
(University of Vienna)
[View Abstract]
[Download Preview] We provide an extensive analysis of the payout policy of U.S. banks around the financial crisis. We find no evidence that banks systematically used their payout policy to transfer wealth to shareholders in anticipation of future problems. Banks hardly reduced dividends until 2009, but significantly reduced share repurchases in 2008. Using established models that relate dividends to fundamentals, dividends in 2008 do not appear excessive. Banks that reduce dividends in 2008 do worse in 2009 than other banks. Insiders of banks that do not reduce dividends in 2008 do not sell more shares than before the crisis.
Share Pledges and Margin Call Pressure
Konan Chan
(National Chengchi University)
Hung-Kun Chen
(Tamkang University)
Shing-yang Hu
(National Taiwan University)
Yu-jane Liu
(Peking University)
[View Abstract]
[Download Preview] Our paper documents that companies may use corporate resources as attempts to protect personal incentives of insiders. When insiders pledge their shareholdings as collateral for a personal loan, they are subject to margin calls as the stock prices may fall below the desired level. We argue that insiders may tend to protect their pledged shares to maintain their control right. Among plausible ways to support price, repurchases seem to be more effective to relieve the potential threat of margin calls on their share pledge. Our results also show that investors will perceive insiders’ incentive and hence discount the potential benefits of repurchase programs.
Commitment and Financial Flexibility in Payout Decisions: Evidence from Rule 10b5-1 Preset Repurchase Plans
Alice Bonaime
(University of Kentucky)
Jarrad Harford
(University of Washington)
David Moore
(University of Kentucky)
[View Abstract]
[Download Preview] This paper provides unique evidence on the tradeoff between signaling commitment and maintaining timing and abandonment options in payout decisions. We study a new and growing form of payout: SEC Rule 10b5-1 repurchase plans, which require firms to pre-commit. Relative to open market repurchases, these preset plans provide an expanded available repurchase window and increase legal cover, albeit at the cost of forfeiting repurchase flexibility and the option to time repurchases. Firms with greater internal capital reserves or easier access to external capital are more likely to pre-commit to a repurchase plan, as are firms with a history of poor repurchase timing and firms constrained by blackout windows. Using the 2008-2009 financial crisis as a positive exogenous shock to the marginal benefit of financial flexibility, we further find that the growth in preset repurchase programs significantly stagnated during the crisis. Consistent with preset plans sending a signal of commitment, market reactions to repurchase announcements increase in the implied preset portion of the plan.
Discussants:
Philipp Schnabl
(New York University)
Jason Wei
(AIG)
Lalitha Naveen
(Temple University)
Dalida Kadyrzhanova
(Georgia State University)
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 13
Econometric Society
Finance in Developing Economies
(A1)
Presiding:
Emily Breza
(Columbia University)
A Randomized Impact Evaluation of Mobile Money in Mozambique
Catia Batista
(Nova University of Lisbon, CREAM and IZA)
Pedro Vicente
(Nova University of Lisbon and BREAD)
[View Abstract]
This paper describes the results of a randomized control trial that introduced mobile money in rural areas of Mozambique for the first time. For this purpose we benefit from the fact that mobile money was only recently launched in the country, allowing for the construction of a pure control group. This paper reports on the results obtained over the two years after the randomized introduction of mobile money in 102 villages in the southern provinces of the country. Our analysis makes use of administrative data from the mobile money provider, as well as behavioral and survey data. We measure impact on take-up, savings and remittances, as well as individual and community level consumption and investment patterns. Initial take-up was sizeable, at 64% of treated individuals, and there were interesting dynamics of adoption over time. We observe a tendency for mobile money to substitute traditional alternatives for both savings and remittances, and evidence of an increase in the willingness to remit due to the availability of mobile money.
Hyperbolic Discounting and an Induced Informal Credit Institution by a New Technology: A Case of Debit Card Pawning in the Philippines
Nobuhiko Fuwa
(Waseda University)
Kei Kajisa
(Aoyama Gakuin Univ)
Eduardo Lucio
(University of Queensland)
Sharon Piza
(Independent)
Yasuyuki Sawada
(University of Tokyo)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper focuses on a recent example of institutional innovation in informal finance in the Philippines: the emerging credit arrangement called ‘ATM sangla (pawning).’ We report on the analysis of a small survey of 320 factory workers in an industrial estate near the Metro Manila area. ATM sangla is informal loan arrangement where the borrower’s ATM card is used as the collateral and where the lender uses the ATM card to withhold the repayment (principal and interest) from salary payment on every pay day until the entire amount is repaid. Slightly less than half of our respondents (42%) actually utilized ATM sangla at least once, and the average amount of the loan (principal) is 15,000 pesos, which correspond to 1.3 times the average monthly salary. We find that roughly one third of our respondents are hyperbolic discounters, who tend to hold higher loan balances with ATM sangla transactions than the time-consistent discounters. We find evidence that those hyperbolic discounters are naïve, rather than sophisticated, suggesting that the emergence of ATM sangla may have encouraged them to overborrow.
Private Equity in India: Efficiency vs. Expansion
Troy Smith
(Stanford University)
[View Abstract]
[Download Preview] While private equity (PE) is expanding rapidly in developing countries, there is little academic research on this subject. In this paper I exploit two new data sources and employ two distinct empirical strategies to identify the impact of PE on Indian firms. I compare the investments made by one of India's largest PE firms to the investments that just missed (deals that made it to the final round of internal consideration). I also combine four large PE databases with accounting data on 34,000 public and private firms and identify effects using differences in the timing of investments. I find three results consistently in both databases. First, larger, more successful firms are more likely to receive PE investment. Second, firms that receive investment are more likely to survive and also have greater increases in revenues, assets, employee compensation, and profits. Third, somewhat surprisingly, these firms' productivity and return on assets do not improve after investment. This is consistent with PE channeling funding to high productivity firms rather than turning around low productivity firms. PE, at least in India, appears to alleviate expansion constraints and improve aggregate productivity through reducing misallocation rather than by increasing within-firm TFP.
Bogus Joint Liability Groups in Microfinance - Theory and Evidence from China
Alexander Karaivanov
(Simon Fraser University)
Xiaochuan Xing
(Tsinghua University)
Yi Xue
(University of International Business and Economics)
[View Abstract]
[Download Preview] Survey data on clients of CFPAM, the leading microlender in China, indicate that nearly 70% of all surveyed joint-liability borrower groups are "bogus" -- that is, one person uses all loans given to group members in a single investment project while all other group members act as unproductive cosigners. This practice not only violates CFPAM rules but is also inconsistent with the majority of the theoretical literature on group lending, a basic tenet of which is that each borrower uses their own loan to implement their own investment project (what we call `standard group'). We therefore extend the classic model of group lending under joint liability by explicitly allowing for both standard and bogus groups in a setting with the possibility of strategic default due to limited enforcement. The optimal choice between standard and bogus groups is endogenous and depends on the borrowers' characteristics (project productivity and probability of success). We analyze the optimal group loan contract (or menu of contracts) and show that bogus groups optimally arise when either the productivity differential between the projects in a group is high (in heterogeneous groups), or when the absolute level of project productivity is high (in homogeneous groups). Explicitly allowing for the possibility of bogus group formation not only helps the lender avoid losses which may occur if bogus groups are ignored, but also enhances the productive efficiency and borrower welfare in the economy. We test the model predictions with data from rural China and evaluate the welfare gains from implementing the optimal contract (or menu) relative to the benchmarks of: (a) lenders operating unaware of bogus groups or (b) lenders using a contract with terms that endogenously rule out bogus group formation.
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 3 & 4
Econometric Society
Financial Regulation
(A1)
Presiding:
Amit Seru
(University of Chicago)
Federal Reserve Tools for Managing Rates and Reserves
David Skeie
(Texas A&M University)
Antoine Martin
(Federal Reserve Bank of New York)
Jamie McAndrews
(Federal Reserve Bank of New York)
Ali Palida
(MIT)
[View Abstract]
The Federal Reserve dramatically increased the level of outstanding bank reserves while conducting unconventional monetary policy in response to the 2007-09 financial crisis and subsequent weak economy. During these periods, the federal funds rate, and money market interest rates more broadly, have generally been lower than the interest on excess reserves (IOER) rate paid by the Federal Reserve. We build a model in which a range of money market rates are below IOER because of endogenous bank balance-sheet costs, and we study additional new tools available to the Federal Reserve to control market rates in conjunction with IOER: reverse repurchase agreements (RRPs) and the term deposit facility (TDF). Absent RRPs or the TDF, we show that money market rates are determined at a spread below IOER, and changes to IOER transmit one-for-one to such short-term rates. RRPs and the TDF increase the federal funds rate relative to IOER by reducing the supply of reserves and hence bank liquidity. RRPs additionally increase money market rates relative to IOER by reducing the size of banks. Fixed-rate overnight RRPs (FR ON RRPs), in particular, provide a floor on rates by absorbing daily liquidity shocks. From a normative perspective, we find that a moderately large Federal Reserve balance sheet and level of reserves is optimal to balance liquidity benefits and balance-sheet costs of reserves at the margin.
The system-wide effects of bank capital regulation on credit supply and risk-taking
Marcus Opp
(University of California-Berkeley)
Milton Harris
(Booth School of Business, University of Chicago)
Christian Opp
(University of Pennsylvania)
[View Abstract]
[Download Preview] We propose a tractable framework to examine the system-wide effects of bank capital requirements. In our model, banks can serve a socially beneficial role by financing firms that are credit rationed by public markets, but banks' access to deposit insurance (or implicit guarantees) creates socially undesirable risk-shifting incentives. We find that while banks are ex-ante identical, the banking sector is endogenously segmented according to the loan portfolio and leverage dimension, consistent with European banks' sovereign debt holdings. Equity ratio requirements reduce banks' risk-taking incentives, but may also constrain banks' balance sheets since issuance of new equity is costly. When existing bank capital is sufficiently high, increases in equity-ratio requirements unambiguously improve welfare and the stability of the banking system. However, when bank capital is scarce, increased equity-ratio requirements induce credit rationing of both bank-dependent firms with positive NPV projects and risky firms with negative NPV. In this case, the net effects on welfare and the risk-taking of banks are ambiguous, as they depend on which type of credit rationing dominates. Our model provides conceptual guidance on the cyclicality of optimum capital requirements as well as their dependence on the development of public markets and the cross-sectional distribution of firms.
Financial Regulation in a Quantitative Model of the Modern Banking System
Tim Landvoigt
(University of Texas-Austin)
Juliane Begenau
(Harvard Business School)
[View Abstract]
[Download Preview] This paper builds a general equilibrium model with commercial banks and shadow banks to study the unintended consequences of capital requirements. In particular, we investigate how the shadow banking system responds to commercial bank capital regulation changes. A key feature of our model are defaultable bank liabilities that provide liquidity services to households. While the debt of commercial banks is insured and therefore delivers the full value of liquidity services to households, shadow banks' debt is uninsured. Its value depends on the expected default rate of shadow banks. Commercial banks are subject to a capital requirement. Tightening the requirement from the status quo, leads households to substitute shadow bank liquidity for commercial bank liquidity and therefore to more shadow banking activity in the economy. But this relationship is non-monotonic due to an endogenous leverage constraint on shadow banks that limits their ability to deliver liquidity services. The basic trade-off of a higher requirement is between bank liquidity provision and stability. Calibrating the model to data from the Financial Accounts of the U.S. and commercial banks' regulatory fillings, the optimal capital requirement is around 20\%.
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 15
Econometric Society
Nonparametric Econometrics and Testing
(A1)
Presiding:
Timothy Armstrong
(Yale University)
Optimal Inference in a Class of Regression Models
Michal Kolesár
(Princeton University)
Timothy Armstrong
(Yale University)
[View Abstract]
[Download Preview] We consider the problem of constructing confidence intervals (CIs) for a linear functional of a regression function, such as its value at a point, the regression discontinuity parameter, or a regression coefficient in a linear or partly linear regression. Our main assumption is that the regression function is known to lie in a convex function class, which covers most smoothness and/or shape assumptions used in econometrics. We derive finite-sample optimal CIs and sharp efficiency bounds under normal errors with known variance. We show that these results translate to uniform (over the function class) asymptotic results when the error distribution is not known. When the function class is centrosymmetric, these efficiency bounds imply that minimax CIs are close to efficient at smooth regression functions. This implies, in particular, that it is impossible to form CIs that are tighter using data-dependent tuning parameters, and maintain coverage over the whole function class. We specialize our results to inference in a linear regression, and inference on the regression discontinuity parameter, and illustrate them in an empirical application.
Testing for Rank Invariance or Similarity in Program Evaluation
Yingying Dong
(University of California-Irvine)
Shu Shen
(University of California Davis)
[View Abstract]
[Download Preview] This paper discusses testable implications of rank invariance or rank similarity, assumptions that are common in program evaluation and quantile treatment effect (QTE) models. We nonparametrically identify and test the counterfactual distribution of individual potential ranks, or features of the distribution. The tests allow treatment to be endogenous, while essentially not requiring any additional assumptions other than those used to identify and estimate QTEs. We focus on testing ranks in the unconditional distribution of potential outcomes, and briefly discuss testing for invariance or similarity of conditional ranks. The proposed tests are applied to the JTPA training program and Project STAR. In the former application, we investigate whether job training causes individuals to systematically change their ranks in the earnings distribution. In the latter, we analyze the impacts of attending small classes and having teacher aides on the gender performance gap in early childhood education; also investigated is how these educational treatments interact with teacher experience in affecting students' relative performance.
Optimal Two-Sided Tests for Instrumental Variables Regression with Heteroskedastic and Autocorrelated Errors
Marcelo Moreira
(Getulio Vargas Foundation)
[View Abstract]
[Download Preview] This paper considers two-sided tests for the parameter of an endogenous variable in an instrumental variable (IV) model with heteroskedastic and autocorrelated errors. We develop the finite-sample theory of weighted-average power (WAP) tests with normal errors and a known long-run variance. We introduce two weights which are invariant to orthogonal transformations of the instruments; e.g., changing the order in which the instruments appear. While tests using the MM1 weight can be severely biased, optimal tests based on the MM2 weight are naturally two-sided when errors are homoskedastic. We propose two boundary conditions that yield two-sided tests whether errors are homoskedastic or not. The locally unbiased (LU) condition is related to the power around the null hypothesis and is a weaker requirement than unbiasedness. The strongly unbiased (SU) condition is more restrictive than LU, but the associated WAP tests are easier to implement. Several tests are SU in finite samples or asymptotically, including tests robust to weak IV (such as the Anderson-Rubin, score, conditional quasi-likelihood ratio, and I. Andrews' (2015) PI-CLC tests) and two-sided tests which are optimal when the sample size is large and instruments are strong. We refer to the WAP-SU tests based on our weights as MM1-SU and MM2-SU tests. Dropping the restrictive assumptions of normality and known variance, the theory is shown to remain valid at the cost of asymptotic approximations. The MM2-SU test is optimal under the strong IV asymptotics, and outperforms other existing tests under the weak IV asymptotics.
Partial Identification of State Dependence
Alexander Torgovitsky
(Northwestern University)
[View Abstract]
[Download Preview] This paper is about the empirical measurement of state dependence in dynamic binary outcomes. Most of the literature on this topic focuses on the estimation of parametric dynamic binary response (DBR) panel data models. Identification in these models requires extensive assumptions about functional form, heterogeneity and the exogeneity of covariates. In contrast, I focus on what can be learned from the data under easily interpretable nonparametric assumptions. To do this, I propose a dynamic potential outcomes (DPO) model and develop nonparametric counterparts of the parameters and assumptions considered in the traditional DBR literature. I show how to construct sharp identified sets in the DPO model using a flexible linear programming procedure that is valid for a large variety of parameters and auxiliary identifying assumptions. Confidence regions for these identified sets are obtained by applying recent results from the literature on inference in moment inequality models. The analysis is applied to study state dependence in the labor force participation of married women. Using conservative, nonparametric assumptions, it is possible to reject the hypothesis that there is no state dependence in the labor force participation outcomes of married women.
Nonparametric Identification and Estimation of Dynamic Causal Effects in Competing Risk Models
Tiemen Woutersen
(University of Arizona)
[View Abstract]
This paper presents an estimator for the competing risk model with time-varying regressors. We allow for nonparametric unobserved heterogeneity. We identify and estimate the effect of finishing one duration on the transition intensity of the other. In the application we estimate the time-varying treatment effect of a training program on the transition intensity towards employment. This dynamic causal effect is estimated at a rate slower than √N but the integral over time of the dynamic causal effect is estimated at the regular rate, √N, where N is the number of individuals. A competing risk model is a natural framework for time-varying regressors. In particular, if a flow or a transition probability depends on a regressor that changes with time, a competing risk model avoids the curse of dimensionality that would arise from interacting the regressors at each point in time with one another. This is the first paper to allow for time-varying regressors and nonparametric unobserved heterogeneity.
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 14
Econometric Society
Simulation Estimation
(A1)
Presiding:
Han Hong
(Stanford University)
On Selection of Statistics for Approximate Bayesian Computing
Dennis Kristensen
(University College London)
Michael Creel
(Universitat Autònoma de Barcelona)
[View Abstract]
[Download Preview] Across validation method for selection of statistics for Approximate Bayesian Computing, and for related estimation methods such as the Method of Simulated Moments, is presented. The method uses simulated annealing to minimize the cross validation criterion over a combinatorial search space that may contain an extremely large number of elements. A first simple example, for which optimal statistics are known from theory, shows that the method is able to select these optimal statistics out of a large set of candidate statistics. A second example of selection of statistics for a stochastic volatility model illustrates the method in a more complex case. Code to replicate the results, or to use the method for other applications, is provided.
A Computational Implementation of GMM
Han Hong
(Stanford University)
Jiti Gao
(Monash University)
[View Abstract]
In this paper we study a statistical method of implementing quasi-Bayes estimators for nonlinear and nonseparable GMM models, that is motivated by the ideas proposed in Chernozhukov and Hong (2003) and Creel and Kristensen (2011) and that combines simulation with nonparametric regression in the computation of GMM models. We provide formal conditions under which frequentist inference is asymptotically valid and demonstrate the validity of the use of posterior quantiles. We also show that in this setting, local linear kernel regression methods have theoretical advantages over local constant kernel methods that are also reflected in finite sample simulation results. Our results also apply to both exactly and over identified models. These estimators do not need to rely on numerical optimization or Markov Chain Monte Carlo simulations. They provide an effective complement to the classical M-estimators and to MCMC methods, and can be applied to both likelihood based models and method of moment based models.
Indirect Inference with Endogenously Missing Exogenous Variables
Eric Renault
(Brown University)
[View Abstract]
[Download Preview] We consider consistent estimation of parameters in a structural model by Indirect Inference (I-I) when the exogenous variables can be missing at random (MAR) endogenously. We demonstrate that existing implementations of I-I, which simply discard sample units with missing observations, may not work if the missing data mechanism is not properly reproduced by the simulations needed to identify the binding function. The celebrated bias correction property of I-I will not hold anymore if one just omits simulated observations in the same way they are missing in the observed sample. However, when remaining true to the common practice of not simulating the exogenous variables, the only way to get a proper selection mechanism in simulated samples is to cumulate two consecutive selection processes (one in observed sample, one in simulated sample) leading to a less informative new binding function. The main idea of this paper is to note that, by inverse probability weighting (IPW) the “complete case” observations, i.e., sample units with no missing variables for the observed and simulated samples, one is actually able to remain true to the initial binding function without creating selection bias in the simulated data or paying the efficiency price of implementing a missing data mechanism in the simulated samples. Hence, we propose a new IPW-based I-I that solves both problems and, subsequently, estimates the structural parameters accurately. Asymptotic properties of the new estimator are discussed. An illustration is provided based on a multinomial probit model.
The ABC of Simulation Estimation with Auxiliary Statistics
Serena Ng
(Columbia University)
Jean-Jacques Forneron
(Columbia University)
[View Abstract]
[Download Preview] The frequentist method of simulated minimum distance (SMD) is widely used
in economics to estimate complex models with an intractable likelihood.
In other disciplines, a Bayesian approach known as Approximate Bayesian Computation
(ABC) is far more popular. This paper connects these two seemingly related approaches
to likelihood-free estimation
by means of a Reverse Sampler that
uses both optimization and importance weighting to target the posterior distribution.
Its hybrid features enable
us to analyze an ABC estimate from the perspective of SMD. We show
that an ideal ABC estimate can be obtained as a weighted average of a sequence of
SMD modes, each being the minimizer of the deviations between the data and
the model. This contrasts with the SMD, which is the mode of the average deviations.
Using stochastic expansions, we provide a general characterization
of frequentist estimators and those based on
Bayesian computations including Laplace-type estimators. Their differences are illustrated using analytical examples
and a simulation study of the dynamic panel model.
Measuring Ambiguity Aversion
Mohammad R Jahan-Parvar
(Federal Reserve Board)
A Gallant
(The Pennsylvania State University)
Hening Liu
(University of Manchester)
[View Abstract]
[Download Preview] We confront the generalized dynamic intertemporal "smooth ambiguity aversion" preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) with data using Bayesian methods introduced by Gallant and McCulloch (2009) to close two existing gaps in the literature. First, we estimate the size of ambiguity aversion implied by financial data for the representative agent in a consumption-based equilibrium asset pricing model. Second, we investigate the contribution of ambiguity aversion in explaining variations in equity premium and consumption growth. Our estimates are comparable with those from existing empirical research and suggest ample scope for ambiguity aversion.
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 16
Econometric Society
Time Series Econometrics
(A1)
Presiding:
Rustam Ibragimov
(Imperial College London)
On the Power of Tests for Regime Switching
Douglas Steigerwald
(University of California-Santa Barbara)
[View Abstract]
[Download Preview] This paper is concerned with the power of tests for regime switching. Asymptotic results are currently available only for the null distribution, and this distribution is dependent on the underlying parameter space. This paper addresses the lack of asymptotic results. The asymptotic behavior of the test statistic is determined under a full range of drifting sequences of true distributions. The results are based on a construction of the test statistic in terms of Hermite polynomials. The number of terms in the polynomial construction depends on the size of the parameter space. Using this relation, a collection of power curves, indexed by the sample space, is obtained. The finite sample properties of the test statistic are analyzed via Monte Carlo simulation.
Likelihood Ratio Based Tests for Markov Regime Switching
Fan Zhuo
(Boston University)
Zhongjun Qu
(Boston University)
[View Abstract]
[Download Preview] Markov regime switching models are widely considered in economics and finance. Although there have been persistent interests (see e.g., Hansen, 1992, Garcia, 1998, and Cho and White, 2007), the asymptotic distributions of likelihood ratio based tests have remained unknown. This paper considers such tests and establishes their asymptotic distributions in the context of non-linear models allowing for multiple switching parameters. The analysis simultaneously addresses three difficulties: (i) some nuisance parameters are unidentified under the null hypothesis, (ii) the null hypothesis yields a local optimum, and (iii) conditional regime probabilities follow stochastic processes that can only be represented recursively. Addressing these issues permits substantial power gains in empirically relevant situations. Besides obtaining the tests’ asymptotic distributions, this paper also obtains four sets of results that can be of independent interest: (1) a characterization of conditional regime probabilities and their high order derivatives with respect to the model’s parameters, (2) a high order approximation to the log likelihood ratio permitting multiple switching parameters, (3) a refinement to the asymptotic distribution, and (4) a unified algorithm for simulating the critical values. For models that are linear under the null hypothesis, the elements needed for the algorithm can all be computed analytically. The above results also shed light on why some bootstrap procedures can be inconsistent and why standard information criteria, such as the Bayesian information criterion (BIC), can be sensitive to the hypothesis and the model’s structure. When applied to the US quarterly real GDP growth rates, the methods suggest fairly strong evidence favoring the regime switching specification, which holds consistently over a range of sample periods.
Regime Switching Model with Endogenous Autoregressive Latent Factor
Yoosoon Chang
(Indiana University)
Yongok Choi
(Korea Development Institute)
Joon Park
(Indiana University)
[View Abstract]
[Download Preview] This paper introduces a model with regime switching, which is driven by an autoregressive latent factor correlated with the innovation to the observed time series. In our model, the mean or volatility process is switched between two regimes, depending upon whether the underlying autoregressive latent factor takes values above or below some threshold level. If the latent factor becomes exogenous, our model reduces to the conventional markov switching model, and therefore, our model may be regarded as an extended markov switching model allowing for endogeneity in regime switching. Our model is estimated by the maximum likelihood method using a newly developed modified markov switching filter. For both mean and volatility models that are frequently analyzed in markov switching framework, we demonstrate that the presence of endogeneity in regime switching is indeed strong and ubiquitous.
Inference with Few Heterogenous Clusters
Rustam Ibragimov
(Imperial College London)
Ulrich Mueller
(Princeton University)
[View Abstract]
[Download Preview] Consider inference with a small number of potentially heterogeneous clusters or groups of observations in a financial or economic model that exhibits heterogeneity, heavy-tailedness and dependence of a largely unknown type. Suppose estimating the model on each cluster yields q asymptotically unbiased, independent Gaussian estimators with potentially heterogeneous variances. Following an earlier work by the authors, one can then conduct asymptotically valid inference with a standard t-test based on the q cluster estimators, since at conventional significance levels, the small sample t-test remains valid under variance heterogeneity. This paper makes two contributions. First, we establish a new corresponding small sample result for the two-sample t-test under variance heterogeneity. One can therefore apply the robust large sample t-statistic based inference also for comparisons of parameters between two populations, such as treatment and control groups o r pre- and post-structural break (e.g., pre-crisis and crisis period) data. Second, we develop a test for the appropriate level of clustering, with the null hypothesis that clustered standard errors from a fine partition are correct, against the alternative that only q clusters provide asymptotically independent information. Applications of the new robust large sample inference approaches include, among others, robust analysis of treatment effects, structural breaks and the effects of crises and heavy-tailedness on financial and economic markets, as well as the robust analysis of volatility and autocorrelation structure of financial and economic time series under heavy-tailedness and dependence.
Robust Inference in Structural VARs with Long-Run Restrictions
Sophocles Mavroeidis
(Oxford University)
Guillaume Chevillon
(ESSEC Business School)
Zhaoguo Zhan
(Tsinghua University)
[View Abstract]
[Download Preview] Long-run restrictions (Blanchard and Quah, 1989) are a very popular method for identifying structural vector autoregressions (SVARs). A prominent example is the debate on the effect of technology shocks on employment, which has been used to test real business cycle theory (Gali, 1999, Christiano Eichenbaum and Vigfusson, 2003). The long-run identifying restriction is that non-technology shocks have no permanent effect on productivity. This can be used to identify the technology shock and the impulse responses to it. It is well-known that long-run restrictions can be expressed as exclusion restrictions in the SVAR and that they may suffer from weak identification when the degree of persistence of the instruments is high (Pagan and Robertson, 1998). This introduces additional nuisance parameters and entails nonstandard distributions, so standard weak-instrument-robust methods of inference are inapplicable. We develop a method of inference that is robust to this problem. The method is based on a combination of the Anderson and Rubin (1949) test with instruments derived by filtering potentially non-stationary variable to make them near stationary (Magdalinos and Phillips, 2009, Phillips, 2014, Kostakis Magdalinos and Stamatogiannis, 2015). In the case of Blanchard and Quah (1989), we find that long-run restrictions yield very weak identification. On the hours debate, we find that the difference specification of Gali (1999) is very well identified, while the level specification of Christiano et. al. (2003) is weakly identified.
Jan 05, 2016 10:15 am, Marriott Marquis, Sierra J
International Banking, Economics and Finance Association
Measuring and Managing Financial Stability
(G2, E5)
Presiding:
John Krainer
(Federal Reserve Bank of San Francisco)
Surviving the Perfect Storm: The Role of the Lender of Last Resort
Carla Soares
(Bank of Portugal)
Diana Bonfim
(Bank of Portugal)
Nuno Alves
(Bank of Portugal)
[View Abstract]
[Download Preview] When banks are hit by a liquidity shock, central banks have a key role as lenders of
last resort. Despite the well-established importance of this mechanism, there is scarce
empirical evidence that allows to explore this key role of central banks. We are able
to explore a unique setting in which banks suddenly lose access to market funding due
to contagion fears, at the onset of the euro area sovereign debt crisis. Using monthly
data at the loan, bank and firm level, we are able to test the role of the central bank in
a scenario of imminent collapse. We find that the liquidity obtained from the central
bank played a critical role in avoiding the materialization of such a scenario.
Does Lack of Financial Stability Impair the Transmission of Monetary Policy?
Viral Acharya
(New York University)
Björn Imbierowicz
(Goethe University Frankfurt)
Sascha Steffen
(University of Mannheim and ZEW)
Daniel Teichmann
(Goethe University Frankfurt)
[View Abstract]
[Download Preview] We investigate the transmission of central bank liquidity to bank deposit and loan spreads of
European firms over the January 2006 to June 2010 period. When the European Central Bank
(ECB) allocated liquidity to banks in a competitive tender at the beginning of the crisis, higher
“aggregate” central bank liquidity (i.e. the total liquidity in the banking system that is held at the
ECB) reduces bank deposit rates of low risk banks but has no effect on deposit rates of high risk
banks or on corporate loan spreads of high or low risk banks. After the ECB started to fully allot
all liquidity requested by banks via its refinancing operations on October 8, 2008, an increase in
liquidity decreases deposit rates of both high and low risk banks. While loan spreads of low risk
banks decrease, those of high risk banks remain unchanged also under full allotment of liquidity.
We find that borrowers of high risk banks refinance term loans drawing down loan commitments.
They have lower payouts, lower capital expenditures and lower asset growth compared with
borrowers of low risk banks. Our results suggest a differential transmission of central bank
liquidity of low versus high risk banks, and an impaired transmission to corporate borrowers of
high risk banks.
Self-Fulfilling Runs: Evidence from the U.S. Life Insurance Industry
Nathan Foley-Fisher
(Federal Reserve Board)
Borghan Narajabad
(Federal Reserve Board)
Stéphane Verani
(Federal Reserve Board)
[View Abstract]
[Download Preview] Is liquidity creation in shadow banking vulnerable to self-fulfilling runs? Investors typically decide to withdraw simultaneously, making it challenging to identify self-fulfilling runs. In this paper, we exploit the contractual structure of funding agreement-backed securities offered by U.S. life insurers to institutional investors. The contracts allow us to obtain variation in investors’ expectations about other investors’ actions that is plausibly orthogonal to changes in fundamentals. We find that a run on U.S. life insurers during the summer of 2007 was partly due to self-fulfilling expectations. Our findings suggest that other contemporaneous runs in shadow banking by institutional investors may have had a self-fulfilling component.
Mapping Heat in the U.S. Financial System
Michael Palumbo
(Federal Reserve Board)
David Aikman
(Bank of England)
Michael Kiley
(Federal Reserve Board)
Seung Jung Lee
(Federal Reserve Board)
Missaka Warusawitharana
(Federal Reserve Board)
[Download Preview] N/A
Discussants:
Roland Meeks
(Bank of England)
Andreas Lehnert
(Federal Reserve Board)
Lawrence Schmidt
(University of Chicago)
Scott Brave
(Federal Reserve Bank of Chicago)
Jan 05, 2016 10:15 am, Marriott Marquis, Sierra I
Latin American and Caribbean Economic Association
Productive Development Policies in Latin America
(E6, O2) (Panel Discussion)
Panel Moderator:
Andres Rodriguez-Clare
(University of California-Berkeley)
Ernesto Hugo Stein
(Inter-American Development)
Andres Rodriguez-Clare
(University of California-Berkeley)
Eduardo Fernandez Arias
(Inter-American Development Bank)
David Donaldson
(Stanford University)
Matilde Bombardini
(University of British Columbia)
Matilde Bombardini
(University of British Columbia)
Eric Verhoogen
(Columbia University)
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 18
Middle East Economic Association
Natural Resources and Environmental Issues in MENA Countries
(Q2, Q5)
Presiding:
Rahel Schomaker
(Cologne Business School)
Financial Development and the Oil Curse: Evidence from Algeria
Farah Elias Elhannani
(Tlemcen University)
Abou Bakr Boussalem
(Tlemcen University)
Mohamed Benbouziane
(Tlemcen University)
[View Abstract]
Most of the empirical evidence has shown that the majority of oil dependent countries have the low level of financial development; thus, they are much more volatile and exposed to the oil chocks and the so named “oil curse”. This paper aims to investigate in the impact of the Algerian financial system, as one of major oil economies, on the economic growth and escaping the oil curse. Over the past two decades, Algeria has courageously attempted to modernize its financial system despite social strife and challenges posed by the large hydrocarbon sector and an inefficient public sector. In fact, various reforms have been undertaken since the early 1990s to the transition from planned to an open market economy.<br />
So, the first section provides the research background based on a theoretical model and a set of empirical studies about financial development and the oil curse. An analytical framework of the Algerian financial system evolution is provided in the second section, focusing on the two phases: 1990-1999 and 2000-2011. Finally, using an econometric growth regression model to test the impact of financial development in Algeria over the period 1990-2011, the preliminary results show that the financial development enhanced economic growth but it has not contributed in reducing the negative effect of oil rents.
The Impacts of Climate Change on Agricultural Trade in the MENA Region
Mahmut Tekce
(Marmara University)
Pinar Deniz
(Marmara University)
[View Abstract]
[Download Preview] Human-induced climate change has been one of the most widely discussed issues of scientific and political spheres in the recent decades, and it has been overwhelmingly agreed that climate change poses a very serious threat for the environment and the economy. It has been observed that increasing temperatures and extremities in weather patterns create a serious challenge for agriculture and food security especially in various disadvantaged regions. Even in the most optimistic scenarios, where global mean temperatures rise by around 2oC by 2100, serious negative effects are expected on agricultural production and crop yields over the next century.
The Middle East and North Africa (MENA) is one of the most vulnerable regions as one of the most food-import dependent region in the world. Water resources are scarce and irrigation is not sufficiently developed in the region, and climate change hurts the already vulnerable agricultural supply, where on the other hand increasing population continuously fosters the demand for agricultural products.
The aim of this paper is to examine the impacts of climate change on agricultural trade in the MENA region. The indicators for climate change includes variables such as precipitation patterns and temperatures, and the effect of the change in the climate change indicators on agricultural exports and imports will be analyzed through a panel data analysis, where the impacts of GDP, per-capita oil use and trade integration will also be added as variables.
Investigating Patterns of Carbon Convergence in an Uneven Economy: The Case of Turkey
Sevil Acar
(Kemerburgaz University)
A. Erinc Yeldan
(Ihsan Dogramaci Bilkent University)
[View Abstract]
[Download Preview] Turkey is known to suffer from severe volatility in its growth patterns, as well as from the uneven sectorial growth and employment. Volatile rates of emissions of gaseous pollutants across sectors are further manifestations of this uneven structure. The purpose of this study is two-fold: first, we check for dynamic patterns of convergence of carbon dioxide (CO2) emissions across sectors; and second, using evidence from panel data econometrics, we search for the determinants of these processes utilizing macroeconomic explanatory variables. We find that based on various alternate criteria, CO2 emissions and emission intensities measured as the share of CO2 emissions per unit of value added display conditional convergence mainly driven by the business cycle. Furthermore, across sectors, the high technology activities display convergence over time; and yet, the medium technology sectors constituting the bulk of the aggregate value added display either poorly convergent or divergent trends. These results reveal that much of the emissions convergence is driven by the business cycle rather than the workings of discretionary mitigation policy.
Risk Assessment of the Impacts of Climate Change on Tourism Activities in Some Mediterranean Countries: An Actuarial Risk Approach
Colton Burns
(Loyola University)
Mine Cinar
(Loyola University)
Nathalie Hilmi
(Center Scientifique-Monaco)
Alain Safa
(University of Nice-Antipolis)
[View Abstract]
The Inter-governmental Panel on Climate Change (IPCC) declared that ‘warming of the climate system is unequivocal’. Changes in temperatures and other climatic features will vary globally. The regions affected by these extreme events, including many major tourism destinations, will increase. Tourism is a leading sector in many of the Mediterranean countries, including some of the MENA. It has the potential to lift people out of poverty through the employment and entrepreneurial opportunities it provides, and the recognition of tourism’s role in poverty alleviation has made it a substantial component of the international development and trade agenda. The tourist industry is by its very nature fragile and susceptible to political, economic and social changes and the probability of climate change adds another element of uncertainty to planning future developments. In this paper, we examine the threats of climate change on tourism in MED and MENA using actuarial literature and tools to get another viewpoint on assessing and quantifying uncertain risks using different probability simulations.
Natural Resource Wealth and Public Social Spending: Evidence from the Middle East and North Africa
Lara Cockx
(University of Leuven)
Nathalie Francken
(University of Antwerp)
Mohamed Sami Ben Ali
(Qatar University)
[View Abstract]
This paper investigates the discrepancy between the vast natural resource wealth and the relatively low spending on human development in the Middle East and North Africa (MENA) region. While the experiences of MENA countries in fact served as an inspiration for the theory on “rentier states” that lies at the basis of much of the literature on the political economy of the resource curse, empirical evidence on the relationship between natural resources and economic and human development in this region is scarce. This paper is the first to empirically explore the nexus of natural resource wealth and public social spending in MENA countries. Using a panel dataset covering the period from 1995 to 2009, our results show a robust, significant inverse relationship between natural resource dependence and public health spending, and natural resource dependence and public education spending over time. The effect remains significant even after controlling for income, aid, the age structure of the population, and the quality of institutions. Moreover, we find a particularly strong resource curse effect of oil dependence on public social spending. Despite the mounting burden on MENA‘s economic development models due to significant population growth and the pressing need for diversification, countries have been unable or unwilling to convert natural resource wealth into increased social spending. Governments should be strongly encouraged to manage their natural wealth in an accountable and equitable manner that follows international best practice. Correct taxation of natural resource, and especially, oil wealth should provide the governments with adequate budgets to fund a desirable level of public health provision. Finally, the equity of distribution of education spending could be improved.
Discussants:
Jeffrey Nugent
(University of Southern California)
Durdane Sirin Saracoglu
(Middle East Technical University)
Mine Cinar
(Loyola University)
Emin Koksal
(Bahcesehir University)
A. Suut Dogruel
(Marmara University)
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 22
National Association of Economic Educators
Online versus Face to Face Teaching
(A2)
Presiding:
Helen H. Roberts
(University of Illinois-Chicago)
Comparing Student Performance in Blended and Traditional Courses: Does Prior Academic Achievement Matter?
Carlos J. Asarta
(University of Delaware)
James R. Schmidt
(University of Nebraska-Lincoln)
[View Abstract]
The performance of students in blended and traditional versions of an introductory statistics course is compared within the context of the students' prior academic achievement. The blended version of the course uses a combination of flipped and flexible instructional modes, where lectures are only available online, class periods are used for complimentary learning activities, and there is no punitive attendance policy. We find significant differences in student performance between the blended and traditional versions within two of three zones of grade point averages. Additionally, empirical models of student performance are prepared for the blended and traditional versions of the course. Partial effects from grade point average and other predictor variables upon student performance in the blended version are significantly different from the partial effects of those same variables upon student performance in the traditional version. In particular, grade point average and attendance have larger partial effects upon student performance in the blended version than in the traditional version.
Online vs. Face-to-Face: Pilot Study of a Comparison of Student Outcomes with Random Assignment
John R. Swinton
(Georgia College and State University)
[View Abstract]
[Download Preview] In a pilot study to demonstrate the feasibility of a larger scale experiment, we randomly assign the registrants for a Principles of Macroeconomics class into two alternative venues: an online environment and a traditional face-to-face environment. Both sections of the class were taught by the same professor with the same course objectives. We find that the students in the face-to-face environment perform better in terms of overall exam scores. A comparison of change in pre-test and embedded post-test scores on the TUCE, however, shows little difference in student performance between the two delivery modes. The results suggest that both course objectives and the mechanism used to assess the relative effectiveness of the two modes of education may play an important part in determining the relative effectiveness of alternative delivery approaches.
Visualizing Data in a Blended Learning Environment Using the Online FRED Database
Diego Mendez-Carbajo
(Illinois Wesleyan University)
[View Abstract]
[Download Preview] [Download PowerPoint] In this paper, I discuss a pedagogical strategy based on data visualization and analysis in the teaching of intermediate macroeconomics and financial economics within the context of a blended learning environment. I present three newly developed projects where students collect and manipulate economic data from the online Federal Reserve Economic Data (FRED) database in order to illustrate theoretical relationships discussed in class. All the data collection and manipulation tasks are conducted through the FRED website. This paper demonstrates how students can develop the connections between theories and the empirical evidence that underpin the discipline of economics by locating and effectively using quantitative information.
Putting Yourself in the Picture: Using Student-Generated Photos to Enhance Introductory Economics Courses
Abdullah Al-Bahrani
(Northern Kentucky University)
Kim Holder
(University of West Georgia)
Rebecca Moryl
(Emmanuel College)
Ryan Murphy
(Saint Leo University)
Darshak Patel
(University of Kentucky)
[View Abstract]
Students in economics classrooms are increasingly digital natives, raised in a culture of engagement, expression, and learning through online interactions using technological devices. We have turned the concept of a 'selfie' into an instructional tool for students to demonstrate their understanding of economic concepts, as well as to engage personally with those concepts. The creation of an 'Econselfie' leverages the power of visuals and narratives to help students link themselves with introductory economics material for improved learning outcomes.
Discussants:
John R. Swinton
(Georgia College and State University)
Carlos J. Asarta
(University of Delaware)
Kim Holder
(University of West Georgia)
Helen H. Roberts
(University of Illinois-Chicago)
Jan 05, 2016 10:15 am, Hilton Union Square, Union Square 19
National Economic Association
Domestic and International Topics in Governance and Human/Health Capital
(I2, I2)
Presiding:
Emily Blank
(Howard University)
A Different World: Analyzing the Gap in Endowments, Graduation Rates, and Cohort Default Rates at Georgia HBCUs and PWCUs
Kristen E. Broady
(Atlanta Metropolitan State College)
[View Abstract]
Since their inception nearly 180 years ago, Historically Black Colleges and Universities (HBCUs) have provided African American students with the best mechanism, and for some, the only opportunity to receive a collegiate education. Justifications for and against the continued need for and existence of HBCUs have been raised and argued since the Brown decision in 1954 and the passage of the Civil Rights Act of 1964. More than 50 years after these monumental decisions HBCUs remain relatively segregated, with lower endowments, budgets, graduation rates and higher cohort default rates than Predominantly White Colleges and Universities (PWCUs). Despite the confluence of lower average admission requirements, less funding for institutional scholarships, limited technological resources and smaller operating budgets than PWCU’s, HBCUs have persevered in providing higher educational opportunities not only for African Americans, but for students of all races. In Georgia, 7 institutions of higher education have the HBCU designation. This paper adds to the literature on the purpose and effectiveness of HBCUs in Georgia and uses a Chow test to provide an analysis of the structural differences in production functions between Georgia HBCUs and PWCUs. Further ordered logistic regression is employed to analyze the impact of financial variables on graduation rates and cohort default rates. Finally policy implications and recommendations are presented.
Do Postdoctoral Fellowships Increase the Likelihood of Tenure?
William A. Darity, Jr.
(Duke University)
Rhonda Vonshay Sharpe
(Bucknell University)
Omari H. Swinton
(Howard University)
[View Abstract]
Using the Survey of Earned Doctorates and Survey of Doctoral Recipients, we examine the effect of postdoctoral fellowships on the likelihood of tenure. Our results suggest that postdoctoral fellowships decrease the likelihood of tenure for overall, white females, Asians, and Blacks in the non-social sciences, and overall, white females, and Hispanics in the social sciences. On the other hand, we do not detect an inverse relationship between receipt of a postdoctoral fellowship and attainment of tenure for Asians and blacks in the social sciences, and Hispanics outside the non-social sciences. Blacks seem to obtain some benefits related to tenure after taking a postdoctoral fellowship in the social sciences. Those with postdoctoral fellowships publish more articles than those without postdoctoral fellowships.
Education, Occupations and Earnings in Durable Goods Manufacturing: 2009-2013.
Lisa Saunders
(University of Massachusetts-Amherst)
Jonathan Berke
(University of Washington)
[View Abstract]
This study uses Current Population Survey data, from 2000 to 2007-2013, to examine the wage premium in durable manufacturing jobs in the Detroit Metropolitan area. Preliminary decomposition results show the durables wage premium declined slightly, but remained significant in 2013. Over the period, the way that some factors influenced wages changed. Returns to education had been lower for workers in durables than in the other sectors in 2000. However, by 2007-13 education returns were higher for durables workers than for workers in other sectors. This is an important finding for two reasons: It suggests a redistribution of wages by education is occurring within the sector; and it duplicates a documented trend in the US and Europe of increasing returns to education. Past manufacturing employment paid higher wages to workers regardless of occupation. Preliminary results suggest this is not the case for durables workers in our sample. Professional and managerial occupations pay higher earnings in durables, but not operative, clerical and craftwork.
HIV-AIDS and Development: A Reappraisal of the Productivity and Factor Accumulation Effects
Theophile T. Azomahou
(United Nations University UNU-MERIT, Maastricht University, University of Auvergne and CERDI)
Raouf Boucekkine
(Aix-Marseille University and GREQAM)
Bity Diene
(University of Auvergne & CERDI)
[View Abstract]
[Download Preview] We build an economico-epidemiological Solow-Swan model. Mortality and morbidity effects on effective labor are taken into account. A Ben-Porath-like mechanism affects the dynamics of the saving rate and reduces labor productivity. Based on optimal projections of the demographic and economic South-African series on the period 2000-2050, we identify a delayed effect of HIV-AIDS on economic growth: the growth rate gap between the AIDS and no-AIDS scenarios is rather stable between 2010 and 2020, but then it gets sharply larger between 2020 and 2030, keeps increasing at a much lower pace between 2030 and 2040, and finally stabilizes after 2040. The fall in active population is the main factor behind AIDS impact on economic growth during the decade 2020-2030 while the Ben-Porath mechanism on labor productivity is more relevant in the posterior decade. Physical capital accumulation plays a minor role.
Corruption and Public Human Capital Investments in Developing Countries
Mercy Laita Palamuleni
(Gustavus Adolphus College)
[View Abstract]
Although the theoretical literature connects public spending to growth, individual empirical findings are conflicting. I propose that inefficiencies in public spending might explain these inconsistencies. I use a dataset from developing countries observed over the period of 1995 to 2010, and consider the endogeneity of public education spending and corruption. The GMM estimates demonstrate that the efficiency of public spending on growth depends on a country's level of corruption. These results suggest that mere increases in
spending are a poor substitute for institutional improvements and growth-enhancing public policy.
Discussants:
Pamela Queen
(Morgan State University)
Phanindra V. Wunnava
(Middlebury College and IZA)
Sharri Byron
(Drew University)
Guy Numa
(University of Massachusetts-Boston)
Jan 05, 2016 10:15 am, Marriott Marquis, Sierra K
Union for Radical Political Economics
Pluralism in Economic Pedagogy
(A2)
Presiding:
Ron Baiman
(Benedictine University)
The Supply Curve Generally Does Not Exist, So Why Does it Show Up in Virtually Every Introductory Mainstream and Heterodox Text Book?
Ron Baiman
(Benedictine University)
[View Abstract]
[Download Preview] I frequently start a class discussion of “Supply and Demand” with a simple question to anyone in the class. If you were a pizza producer, how many pizzas would you produce at a price of $15 a pie? Students give me a blank stare. I then elaborate. Consumers will have some idea of how many pizzas they will buy at any given price, assuming other “shift factors” like income, taste, and expectations do not markedly change, but producers can estimate how much they will produce at any given price only if they know something about demand conditions. Demand, however, is not a shift factor for the supply curve. Quite the contrary. The supply curve of introductory economics textbooks is supposed to be completely independent of demand. Demand is supposed to have no influence on the position or shape of the supply curve. Though this is well-known to economists, it is absent from introductory text D&S chapters. In this paper I will: a) describe a simple workable “demand and cost” (D&C) alternative to the S&D meme that serves to undermine the free-market ideology that underlies the S&D fable, and replace it with a solidly Keynesian and Polanyi – ish understanding of the role of social choice and social policy in creating markets. The paper will summarize parts of a book that I am working on: “The Morality of Radical Economics: Investigating the Value Neutral Aspect of Neoclassical Economics,” to be published (assuming I finish the manuscript) in 2016 by Palgrave Press.
What Should First Year Students of Economics and Political Economy be Taught?
Mehrene Larudee
(University of Massachusetts-Amherst)
[View Abstract]
Instructors have often sought to blend some combination of standard intro macro and political economy, or standard intro micro and political economy, sometimes using parts of two texts, an intro macro text and a political economy text such as Understanding Capitalism (Bowles, Edwards, Roosevelt). This paper argues that what is missing from such efforts is concepts and information usually seen as the province of sociology and political science: about power, and who are the elite (the wealthy and powerful) and how they interact with one another, as well as how wealth feeds into power and power into wealth. It argues further that studying key economic sectors such as production of military goods and services, or the oil or energy sector, or the heavy construction sector, would be a good way to naturally introduce these topics.
Critical Thinking and Pluralism: Reflections on My Pluralist Teaching
Ioana Negru
(SOAS-University of London )
[View Abstract]
Teaching economics differently is absolutely essential for producing responsible and ethical economists. Also# opening economists’ horizons might have enormous consequences on economics as a discipline. My presentation is concerned with the essential principles of a ‘good economics curriculum” and it draws on the relevant literature on pluralism in economics and also on my experience in: a) teaching a pluralist and heterodox course in economics for 4 years; and b) designing a pluralist BSc in economics# concluding with what have been the benefits of such courses for the economics undergraduate students.
What Concepts and Principles Should a Pluralist Principles of Economics Textbook Contain?
John Reardon
(Hamline University)
[View Abstract]
In reconceptualizing economics so it is once again useful in solving the world’s problems# it is important to ascertain obstacles in order to map an efficacious strategy. A formidable obstacle is the current mainstream textbooks which strive to proselytize an economic way of thinking (and only one way of thinking at that) rather than educating our students. This paper will discuss the principles that a pluralist principles of economics textbook should contain. Section one will briefly note current trends in pluralism; section two will survey the popular principles textbooks; section three will discuss the pluralist concepts and economic principles; and section four will offer concluding observations and recommendations.
Discussants:
Gary Mongiovi
(St. John's University)
Geoffrey Schneider
(Bucknell University)
Scott Weir
(Wake Technical Community College)
John Komlos
(University of Munich)
Jan 05, 2016 12:30 pm, Parc 55, Powell I
Transportation & Public Utilities Group
Topics in Transportation Economics
(L9)
Presiding:
Patrick McCarthy
(Georgia Institute of Technology)
Deregulation, Competition, and Consolidation: The Case of the German Interurban Bus Industry
Niklas S. Durr
(ZEW Centre For European Economic Research)
Sven Hein
(ZEW Centre For European Economic Research)
Kai Hueschelrath
(ZEW Centre For European Economic Research)
[View Abstract]
We provide an empirical assessment of the German interurban bus industry two years after its deregulation in January 2013. In addition to a general description of key developments of the industry, we use a unique route-level price data set to study both competitive interaction in general and the potential price effects of a recently announced merger of the two largest players in the market in particular. We find that route-level average prices, inter alia, do not only depend on the number of competitors but especially on the composition of firms operating on a particular route. Although our empirical results suggest short-term price increases on certain route types post-merger, it remains an open question whether the merger should be classified as anticompetitive.
Perhaps the Sky's the Limit: Airports and Employment in Local Economies
Marquise McGraw
(Middlebury College)
[View Abstract]
[Download Preview] This paper considers the effects of small and mid-size commercial airports on their local economies over the post World War II period, specifically 1950-2010. To estimate these effects, I use a detailed, novel dataset of Census Based Statistical Area (CBSA) level employment outcomes, geographic, transportation, and city characteristics, along with previously unexploited historical aviation data. Using an instrumental variables approach with three instruments – the locations of collection points on the Air Mail system of 1938, a network of Federally constructed emergency air fields in the early years of aviation, and a 1922 plan of airways for national defense – as well as two alternative estimators – one-to-one Mahalanobis distance matching with caliper and pooled synthetic controls – I show that airports have had substantial effects on CBSA population and employment over time. Specifically, I find that relative to non-airport cities, the presence of an airport in a CBSA has caused population growth ranging between 14.6 percent
and 29 percent, total employment growth of between 17.4 percent and 36.6 percent, tradable industry employment growth of between 26.6 percent and 42.6 percent, and non-tradable industry employment growth of between a non-statistically significant 2.7 percent and 16.1 percent. These effects vary by region, city size, and traffic levels. Most of these growth effects occurred over two periods: first, at the beginning of the post-war period, 1950-1960, and then, during the formative years of the jet age, 1970-1980, after which the effects of aviation remained constant. The larger effect on tradable industry employment implies that the overall employment and population effects may result from direct effects on tradable sector industry productivity, perhaps by facilitating information flows. Effects vary by initial city size and region, and are generally robust to the choice of instruments and/or estimator.
Impacts of Trade Facilitation on Modal Choice in International Trade
Misak Avetisyan
(Texas Tech University)
Thomas Hertel
(Purdue University)
[View Abstract]
[Download Preview] Over the last decade global trade carried via air transport has grown drastically, which is partially due to the increasing demand for ‘just in time’ delivery of intermediate goods as well as due to the growing importance of trade between more distant countries. In this paper we analyze the effect of trade facilitation or improved logistics on transport mode choice in international trade. For this purpose we develop a continuous modal choice model, which produces a composite transportation service using a mix of air-land or air-water transportation inputs. We then estimate the associated elasticities of substitution between transport modes. We find that modal substitution elasticities have a typical value of 0.9 to 2.8. The quality of logistics infrastructure is also estimated to alter modal choice in international trade. In order to draw out the implications of these empirical findings for global trade patterns, international transport use, and regional economic welfare, we then incorporate the modal choice model into the Global Trade Analysis Project (GTAP) model of global trade. Not surprisingly, we find that improvement in logistics reduces the overall cost of transport and amount of services required to transport a given product along a given route by a given mode. Also, the reduction in modal cost of transport results in modal substitution. We find that in some regions improvement in logistics increases the use of air transport, while in others it reduces the demand for both air and water transportation, having a larger negative effect on maritime transport and, thus, resulting in a relatively increased use of air transportation.
Substituting Bike Rides for Taxi Trips: Evidence from the Launch of the Citibike Program in New York City
Alejandro Molnar
(Vanderbilt University)
Francis Ratsimbazafy
(Vanderbilt University)
[View Abstract]
This paper evaluates the impact from the launch of New York City's Citibike program on the city's medallion taxi industry. We study over 800 million NYC taxi trip records for 2009 through 2014, matching origin and destination coordinates to a grid of 2,930 hexagonal cells covering New York's five boroughs. We treat each cell as a distinct origin or destination and measure changes to the flow of trips, and the search intensity of taxi drivers, following the launch of Citibike on May 27, 2013. A (preliminary) difference-in-difference result compares cell-pairs for which both cells in the pair contain a Citibike station (such that it would be possible to complete a trip on the pair with a Citibike ride and minimal walking) to all other cell-pairs in NYC, both before and after the introduction of Citibike in May 2013. We find an average reduction of 2.1 taxi-trips trips per day for treated relative to control cell-pairs following the introduction of Citibike. Since a total of 114 cells were treated with a Citibike station, this amounts to a total difference of 27,000 trips per day, which represents about 5.5% of daily taxi trips in NYC, or the level of transportation service provided by 740 taxis.
Discussants:
James Nolan
(University of Saskatchewan)
Jeffrey Cohen
(University of Connecticut)
Jenny Lin
(Oregon State University)
Matthew Holien
(San Jose State University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Imperial A
American Economic Association
Big Data: Challenges and Insights for Causal Inference
(C8, C1)
Presiding:
Denis Nekipelov
(University of Virginia)
Recursive Partitioning for Estimating Heterogeneous Causal Effects
Susan Athey
(Stanford University)
Guido Imbens
(Stanford University)
[View Abstract]
[Download Preview] In this paper we propose methods for estimating heterogeneity in causal effects in experimental and observational studies, and for conducting hypothesis tests about the magnitude of the differences in treatment effects across subsets of the population. We provide a data-driven approach to partition the data into subpopulations which differ in the magnitude of their treatment effects. The approach enables the construction of valid confidence intervals for treatment effects, even in samples with many covariates relative to the sample size, and without ``sparsity'' assumptions. To accomplish this, we propose an ``honest'' approach to estimation, whereby one sample is used to construct the partition and another to estimate treatment effects for each subpopulation. Our approach builds on regression tree methods, modified to optimize for goodness of fit in treatment effects and to account for honest estimation. Our model selection criteria focus on improving the prediction of treatment effects conditional on covariates, anticipating that bias will be eliminated by honest estimation, but also accounting for the change in the variance of treatment effect estimates within each subpopulation as a result of the split. We also address the challenge that the "ground truth" for a causal effect is not observed for any individual unit, so that standard approaches to cross-validation must be modified. Through a simulation study, we show that honest estimation can result in substantial improvements in coverage of confidence intervals, where our method attains nominal coverage rates, without much sacrifice in terms of fitting treatment effects.
People and Cookies: Imperfect Treatment Assignment in Online Experiments
Michael Bailey
(Facebook)
Dominic Coey
(Facebook)
[View Abstract]
[Download Preview] Identifying the same internet user across devices or over time is often infeasible. This presents a problem for online experiments, as it precludes person-level randomization. Randomization must instead be done using imperfect proxies for people, like cookies, email addresses, or device identifiers. Users may be partially treated and partially untreated as some of their cookies are assigned to the test group and some to the control group, complicating statistical inference. We show that the estimated treatment effect in a cookie-level experiment converges to a weighted average of the marginal effects of treating more of a user’s cookies. If the marginal effects of cookie treatment exposure are positive and constant, it underestimates the true person-level effect by a factor equal to the number of cookies per person. Using two separate datasets—cookie assignment data from Atlas and advertising exposure and purchase data from Facebook—we empirically quantify the differences between cookie and person- level advertising effectiveness experiments. The effects are substantial: cookie tests underestimate the true person-level effects by a factor of about three, and require two to three times the number of people to achieve the same power as a test with perfect treatment assignment.
Measuring Polarization in High-Dimensional Data: Method and Application to Congressional Speech
Matthew Gentzkow
(Stanford University)
Jesse Shapiro
(Brown University)
Matt Taddy
(University of Chicago)
[View Abstract]
[Download Preview] Standard measures of segregation or polarization are inappropriate for high-dimensional data such as Internet browsing histories, item-level purchase data, or text. We develop a model-based measure of polarization that can be applied to such data. We illustrate the measure with an application to the partisanship of speech in the US Congress from 1872 to the present. We find that speech has become more polarized across party lines over time, with a clear trend break around 1980.
Uniform Inference with Endogeneity and Big Data
Denis Nekipelov
(University of Virginia)
Shakeeb Khan
(Duke University)
Justin M. Rao
(Microsoft Research)
[View Abstract]
This paper explores the uniformity of inference for parameters of interest in nonlinear models with endogeneity. Due to potential endogeneity, the behavior of standard estimators of these parameters is shown to vary by where they lie in the parameter space. Consequently, inference becomes nonstandard in a fashion that is loosely analogous to the unit root and weak instruments literature. Our main illustrative example is the standard sample selection model, where the parameter is the intercept term. We show that with selection on unobservables, asymptotic theory for estimating this parameter is not standard, with nonparametric rates and non-Gaussian limiting distributions. In contrast if the selection is known to be on observables only, rates and asymptotic distribution can be standard, and consequently, there is a discontinuity in the limiting distribution theory for an estimator despite it being uniformly consistent. This discontinuity prevents standard inference procedures from being uniformly valid, and motivates the development of new methods, for which we establish asymptotic properties. These new methods require very large datasets and we demonstrate the approach using click logs from a major search engine. Here the goal is estimate the causal impact of the advertising link and the confound is the presence of the “organic” link on the page (“cannabilization”). We examine the properties of the estimator using “ground truth” from a fully randomized experiment on the search engine.
Discussants:
Randall Lewis
(Google, Inc.)
Hal Varian
(University of California-Berkeley)
Justin M. Rao
(Microsoft Research)
Mike Bailey
(Facebook)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 22
American Economic Association
Causes and Consequences of Women's Empowerment
(D1, I3)
Presiding:
Anja Tolonen
(University of Gothenburg)
Selling Daughters: Age of Marriage, Income Shocks and Bride Price Tradition
Alessandra Voena
(University of Chicago)
Lucia Corno
(Queen Mary University of London)
[View Abstract]
[Download Preview] When markets are incomplete, cultural norms may play a greater role in shaping economic behavior. In this paper, we explore whether the practice of bride price -- a transfer made by the groom to the bride's family at marriage -- increases the probability of child marriages. We develop a simple model in which households are exposed to income shocks and have no access to credit markets and show that parents have a higher probability of marrying their daughter early when hit by adverse income shocks. We test the prediction of the model by exploiting variation in rainfall shocks over a woman's life cycle. Using a 19-years panel dataset from Tanzania, we find that adverse shocks during teenage years increase the probability of early marriages, particularly in the sub-sample of respondents who report a bride price payment at marriage. Numerical simulations of our theoretical model show that improving access to credit markets could substantially delay the age of marriage.
Daughters Improve their Mothers’ Autonomy in South Asia
Rachel Heath
(University of Washington)
Xu Tan
(University of Washington)
[View Abstract]
[Download Preview] In South Asia, parents prize sons for both economic and cultural reasons, and having a son is often thought to improve his mother’s status within the household. However, using data from Bangladesh and India, we show that such high regard does not necessarily translate into improved autonomy. In fact, a daughter raises her mother’s participation in household decisions and her freedom of mobility relative to a son. A daughter also prompts her mother to work more but not necessarily to consume more. These effects are strongest among older girls. We argue that these results suggest a model in which mothers have greater relative preferences for spending on their daughters, and so seek more autonomy if they have daughters.
Local Industrial Shocks, Female Empowerment and Infant Health: Evidence from Africa’s Gold Mining Industry
Anja Tolonen
(University of Gothenburg)
[View Abstract]
Can industrial development empower women in developing countries? This is the first paper to explore the causal effects of a continent-wide exogenous expansion of industry on female empowerment and infant health. The paper uses the recent rapid increase in gold mining in Africa as a quasi-experiment. The identification strategy relies on temporal (before and after mine opening) and spatial (distance to mine) variation, as well as exogenous variation in the price of gold in a difference-in-difference analysis. Using a large sample of women and children living within 100km of a mine, the analysis shows that the establishment of a new mine increases income earning opportunities within the service sector by 41%, a woman is 23% less likely to state a barrier to healthcare access for herself, and the acceptance rate of domestic violence decreases by 24%. Despite risks of environmental pollution from gold mining, infant mortality more than halves with the mine opening. In particular, girl infants face better chances of survival. I exclude the possibility that effects are driven by increased schooling attainment made possible by investment in schooling infrastructure, or that service jobs are limited to prostitution. I cannot rule out that urbanization is part of the mechanism. The findings are robust to different assumptions about trends, distance, migration, and withstand a novel spatial randomization test. The results support the idea that entrenched norms regarding gender can change rapidly in the presence of economic development.
Weakness in Numbers? Female Wellbeing and the Scarcity of Women in the American West
Vellore Arthi
(University of Oxford)
Diana Greenwald
(University of Oxford)
[View Abstract]
[Download Preview] If the Northeast was the cradle of American feminism, home to activists like Elizabeth Cady Stanton and Susan B. Anthony, why was it less permissive on women’s rights than states west of the Mississippi–states that were, for example, the first to enfranchise women? The American frontier’s early progressive stance is especially striking considering its predominantly male population. What explains this apparent paradox? In this paper, we use several approaches to test the evolving relationship between the demand for female settlement and women’s wellbeing in the United States. We hypothesize that states where the sex ratio in the prime marriage-age population skewed strongly male—like the frontier states of the West–fostered an egalitarian environment to attract the female migrants necessary for long-term settlement and population growth.
To test the drivers and consequences of women’s empowerment, we leverage a new state-level panel dataset on American women’s economic, social, and legal standing over the years 1870-1970. Early results suggest that a female-friendly institutional climate at the state level, particularly in matters of suffrage and political representation, was indeed effective at drawing female settlement. However, we find limited evidence that a state’s sex ratio drove policy change, whether by itself or heterogeneously by degree of access to polity. Taking a more local approach, we use repeated votes on female suffrage over the period 1860-1920 to test whether U.S. congressmen from districts with more heavily male-skewed sex ratios were likelier to vote for female suffrage, particularly following exogenous shocks to the district’s gender composition. However, despite the qualitative data indicating that politicians were sensitive to the needs of local bachelors and viewed rights concessions as a possible means of incentivizing female settlement, we do not find that local marriage market conditions drove progress in women’s rights.
Discussants:
Marcella Alsan
(Stanford University)
Michèle Tertilt
(University of Mannheim)
Jesse Anttila-Hughes
(University of San Francisco)
Diana Greenwald
(University of Oxford)
Jan 05, 2016 1:00 pm, Hilton Union Square, Continental – Parlor 3
American Economic Association
Economic Liberalization and Intergenerational Mobility in China and India
(O1, J6)
Presiding:
Forhad Shilpi
(World Bank)
Trade Liberalization and Intergenerational Occupational Mobility in India
Reshad N. Ahsan
(University of Melbourne)
Arpita Chatterjee
(University of New South Wales)
[View Abstract]
[Download Preview] In this paper, we make two novel contributions to the literature on trade and inequality. First, we show that the same mechanism that causes greater cross-sectional inequality, higher relative demand for skill, also facilitates intergenerational occupational mobility. In particular, we develop a stylized model that shows that the innovation induced by international trade causes an increase in the employment share of high-skill occupations. In turn, this allows an increasing number of sons to enter better occupations than their father. We then exploit spatial variation in exposure to trade liberalization in urban India to test our model's prediction. Our empirical results confirm that sons that live in urban districts with a greater exposure to trade liberalization have a higher probability of being in a better occupation than their father. Further, as predicted by our model, we find that this positive impact of trade liberalization on intergenerational mobility is stronger in relatively technologically advanced districts. In a second contribution, we show that increased investment in education alone need not facilitate intergenerational occupational mobility. Instead, it only does so in urban districts where there has been a sufficient increase in the employment share of high-skill occupations.
Gender, Geography and Generations: Intergenerational Educational Mobility in Post-reform India
M. Shahe Emran
(Columbia University)
Forhad Shilpi
(World Bank)
[View Abstract]
[Download Preview] A number of recent studies report substantial and across-the-board improvements in educational mobility in post-reform India using intergenerational regression coefficient (IGRC) as the measure of immobility. However, the IGRC estimates are likely to be severely biased downward in commonly used data sets because of coresident sample selection. In contrast, sibling correlation (SC) and intergenerational correlation (IGC) suffer from very little bias because truncation due to coresidency restriction affects both the slope of an OLS regression and also the variance of the truncated variable. We present estimates of SC and IGC in schooling, and find evidence that contradicts the current consensus. The evidence indicates very low educational mobility in India, lower than in Latin America, which remained largely unchanged over a decade of economic liberalization from 1991/92 to 2006, especially for men. The estimates of sibling and intergenerational correlations among men do not show any improvements in urban areas over the reform period, and may have increased slightly in rural areas. Although the sibling and intergenerational correlations among women have declined irrespective of geographic location, only women in urban areas have experienced a measurable decline. Interestingly, among the urban women, there are significant caste differences: the lower caste women have experienced significantly better educational mobility compared to the upper caste women. We also find that neighborhood effect constitutes an important part of educational inequality as measured by sibling correlation, which is different from the available evidence on developed countries.
The Great Gatsby Curve in China: Cross-sectional Inequality and Intergenerational Mobility
Junsen Zhang
(Chinese University of Hongkong)
Yi Fan
(London School of Economics)
Junjian Yi
(National University of Singapore)
[View Abstract]
This study provides a first systematic analysis of the temporal patterns of cross-sectional inequality and intergenerational mobility amid China’s economic transition and growth. We estimate the patterns of intergenerational mobility in income and education with respect to cohort, gender, and region in China using micro data from the Chinese Household Income Projects in 1995 and 2002, and the 2010 Chinese Family Panel Studies. Our results show that intergenerational mobility in both income and education declines sharply along with the economic transition. In addition, we find that the decreasing trend is particularly significant for females and residents from economically disadvantaged regions, such as rural and western parts. We correlate intergenerational mobility with cross-sectional inequality, and find a Great Gatsby Curve with a negative slope in China. It indicates that the intergenerational mobility has declined with the increase in cross-sectional inequality since the economic reform. Children from poor families benefit less from the economic growth than rich families do. Given the decline in the intergenerational mobility, the cross-sectional inequality may increase in the future. To interpret these patterns, we then develop a conceptual framework from the human-capital perspective (Becker & Tomes, 1979, 1986; Solon, 2004; Corak, 2013). We explain the changes through five factors: household income, government policies on human-capital investment, return to human capital, cost of education, and income inequality. Our estimated decline in intergenerational mobility in the reform period implies that the effect of the latter three factors dominates that of the former two.
Are the Children of Uneducated Farmers Doubly Doomed? Farm, Non-farm and Intergenerational Educational Mobility in Rural China
M. Shahe Emran
(Columbia University)
Yan Sun
(World Bank)
[View Abstract]
[Download Preview] [Download PowerPoint] This paper relaxes the single factor model of intergenerational educational mobility and analyzes heterogeneous effects of family background on children's education in rural China, with a focus on the role of non-farm occupations over the reform period. We use data that cover three generations spanning pre and post reform periods, and are not subject to sample selection due to coresidency criterion used to define household membership in the surveys. The evidence shows that the mean effects of parents’ education miss substantial heterogeneity across farm-nonfarm occupations. Having nonfarm parents has positive effects, but there is clear gender and time difference: the effect is much stronger for boys during the reform era. Although the low educated non-farmer parents have 30 percent higher income, their children do not enjoy any advantages over the children of more educated farmer parents in both the pre- and post-reform generations. Estimates of cross-partial effects without imposing arbitrary functional form show little evidence of complementarity between parental education and non-farm occupation in producing children’s human capital, and this is true for both generations. This contradicts the notion that positive feedback between education and non-farm occupation may be important for the widening inequality in rural China following economic liberalization. The role of family background remains relatively stable across generations for girls, but for boys, family background has become more important after the market reform. We explore causality using three approaches: Rosenbaum sensitivity analysis, minimum biased IPW estimator and heteroskedasticity based identification. Our results suggest that the advantages of having more educated parents, especially with nonfarm occupations, are unlikely to be due solely to selection on genetic transmissions.
Discussants:
Bhashkar Mazumder
(Federal Reserve Bank of Chicago)
David Levine
(University of California-Berkeley)
Craig McIntosh
(University of California-San Diego)
Xiaobo Zhang
(Peking University and International Food Policy Research Institute)
Jan 05, 2016 1:00 pm, Hilton Union Square, Imperial B
American Economic Association
Economic Uncertainty and Finance
(E2, E3)
Presiding:
Nicholas Bloom
(Stanford University)
Firm Volatility in Granular Networks
Bryan Kelly
(University of Chicago)
Hanno Lustig
(Stanford University)
Stijn Van Nieuwerburgh
(New York University )
[View Abstract]
[Download Preview] We propose a model of firm volatility based on customer-supplier connectedness. We assume that customers' growth rate shocks influence the growth rates of their suppliers, larger suppliers have more customers, and the strength of a customer-supplier link depends on the size of the customer firm. When the size distribution becomes more dispersed, economic activity is concentrated among a smaller number of firms, the typical supplier becomes less diversified and its volatility increases. The model is consistent with a set of new stylized facts. At the macro level, the firm volatility distribution is driven by firm size dispersion; the latter explains common movements in firm-level total and residual volatility. At the micro level, we show that the concentration of customer networks is an important determinant of firm-level volatility.
The Impact of Uncertainty Shocks for Corporate Financing
Luis Iván Alfaro
(Ohio State University)
Nicholas Bloom
(Stanford University)
Xiaoji Lin
(Ohio State University)
[View Abstract]
We study the impact of labor market frictions on credit risk. Our central finding is that labor market variables are first-order in accounting for both aggregate and firm-level variations in credit risk and capital structure. Labor market variables (wage growth or labor share) forecast the aggregate credit spread as well as or better than alternative predictors. Furthermore, firm-level labor expense growth rates and labor share can predict Moody-KMV expected default frequency (EDF) in the cross-section across a wide range of countries. These variables also explain firm-level capital structure decisions. A model with wage rigidity and risky long-term debt can explain these links as well as produce large credit spreads despite realistically low default probabilities. This is because pre-committed payments to labor make other committed payments (such as debt) riskier; this effect is amplified when debt is long-term.
Financial Distress and Endogenous Uncertainty
Francois Gourio
(Federal Reserve Bank of Chicago)
[View Abstract]
What is the macroeconomic effect of having a substantial number of firms close to default? This paper studies the effects of financial distress in a model where customers, suppliers and workers suffer losses if their employer goes bankrupt. I show that this mechanism generates amplification of fundamental shocks by creating a cyclical TFP and labor macroeconomic wedges. Because the strength of this amplification depends on the share of firms that are in financial distress, it operates mostly in recessions, when equity values are low. This leads macroeconomic volatility to be endogenously countercyclical. Moreover, the cross-sectional dispersion of firms' outcomes is also endogenously countercyclical. Empirical evidence consistent with the model is provided.
Default Risk and Aggregate Fluctuations in an Economy with Production Heterogeneity
Aubhik Khan
(Ohio State University)
Tatsuro Senga
(Ohio State University)
Julia Thomas
(Ohio State University)
[View Abstract]
We study aggregate fluctuations in an economy where firms have persistent differences in total factor productivities, capital and debt or financial assets. Investment is funded by retained earnings and non-contingent debt. Firms may default upon loans, and this risk leads to a unit cost of borrowing that rises with the level of debt and falls with the value of collateral. On average, larger firms, those with more collateral, have higher levels of investment than smaller firms with less collateral. Since large and small firms draw from the same productivity distribution, this implies an insufficient allocation of capital in small firms and thus reduces aggregate total factor productivity, capital and GDP.
We consider business cycles driven by shocks to aggregate total factor productivity and by credit shocks. The latter are financial shocks that worsen firms’ cash on hand and reduce the fraction of collateral lenders can seize in the event of default. In equilibrium, our nonlinear loan rate schedules drive countercyclical default risk and exit, alongside procyclical entry. Because a negative productivity shock raises default probabilities, it leads to a modest reduction in the number of firms and a deterioration in the allocation of capital that amplifies the effect of the shock. The recession following a negative credit shock is qualitatively different from that following a productivity shock, and more closely resembles the 2007 U.S. recession in several respects. A rise in default and a substantial fall in entry yield a large decline in the number of firms. Measured TFP falls for several periods, as do employment, investment and GDP, and the ultimate declines in investment and employment are large relative to that in TFP. Moreover, the recovery following a credit shock is gradual given slow recoveries in TFP, aggregate capital, and the measure of firms.
Jan 05, 2016 1:00 pm, Hilton Union Square, Continental – Parlor 1
American Economic Association
Educational Innovations and Social Mobility
(I2, I3)
Presiding:
Marianne Page
(University of California-Davis)
Early Childhood Education by MOOC: Lessons from Sesame Street
Melissa S. Kearney
(University of Maryland)
Philip B. Levine
(Wellesley College)
[View Abstract]
[Download Preview] The widely viewed children’s television program Sesame Street was introduced in November 1969 as an educational, early childhood program with the explicit goal of preparing preschool age children for school entry and beyond. Early studies found sizable short-term effects on cognitive test scores that are comparable in magnitude to the documented effects of participation in other early childhood education programs. In this project, we provide additional evidence of the effects of early childhood exposure to Sesame Street programming on later outcomes. We exploit county-level variation in TV viewers' ability to watch the show when it was first introduced, primarily generated by limited reception for those living in areas where Sesame Street was broadcast over UHF channels. We use Census data to explore how this variation relates to outcomes including grade-for-age status in 1980, educational attainment in 1990, and labor market outcomes in 2000. Our empirical approach distinguishes individuals by birth cohort and geography to capture differences in potential exposure. The results of our analysis indicate that children with greater access to the programming content during their early childhood years experienced improvements in early educational outcomes; that data do not offer strong evidence of persistent relative increases in ultimate educational attainment or labor market outcomes.
The Effects of Pre-K Access and Quality on Social Mobility
Brad Hershbein
(Upjohn Institute)
Tim Bartik
(Upjohn Institute)
[View Abstract]
[Download Preview] Within the past decade, state-funded pre-Kindergarten has roughly doubled in its coverage of 4-year-olds,
and further large-scale expansion of pre-K programs, with state, local or federal funding, continues
to be debated. Although research has shown that pre-K can increase test scores and dramatically
improve life outcomes, at least for some programs at some places and times, existing studies have
generally focused on small or state-specific programs that may not sufficiently capture program
heterogeneity and thus may not generalize to other areas or programs. In this paper, we draw upon
multiple data sources to exploit variation in enrollment in public pre-Kindergarten programs across time
and place to examine the effect of these programs on standardized test scores and other academic
outcomes. Our data cover the last two decades, span nearly all states, and allow for intrastate variation
in pre-K. We investigate both program-level heterogeneity as well as heterogeneous impacts on
different types of students and schools. To our knowledge, this set of analyses is the first to provide
national-level estimates of effects of public pre-Kindergarten access on academic outcomes for different
types of students and schools.
Not Too Late: Improving Academic Outcomes for Disadvantaged Youth
Jonathan Guryan
(Northwestern University)
Jens Ludwig
(University of Chicago)
Roland Fryer
(Harvard University)
Philip J. Cook
(Duke University)
Kenneth Dodge
(Duke University)
[View Abstract]
[Download Preview] There is growing concern that improving the academic skills of children in poverty is too difficult and costly once they reach adolescence, and so policymakers should instead focus either on vocationally oriented instruction or else on early childhood education. Yet this conclusion might be premature given that so few previous interventions have targeted a key barrier to school success: “mismatch” between what schools deliver and the needs of youth, particularly those far behind grade level. The researchers report on a randomized controlled trial of a school-based intervention that provides disadvantaged youth with intensive individualized academic instruction. The study sample consists of 2,718 male ninth and tenth graders in 12 public high schools on the south and west sides of Chicago, of whom 95 percent are either black or Hispanic and more than 90 percent are free- or reduced-price lunch eligible. Participation increased math achievement test scores by 0.19 to 0.31 standard deviations (SD), depending on how the researchers standardize, increased math grades by 0.50 SD, and reduced course failures in math by one-half in addition to reducing failures in non-math courses. While some questions remain, these impacts on a per-dollar basis—with a cost per participant of around $3,800, or $2,500 if delivered at larger scale—are as large as those of almost any other evaluated educational intervention.
A Nudge for Mobility: Increasing Parental Investments in their Children
Susan Mayer
(University of Chicago)
Ariel Kalil
(University of Chicago)
Philip Oreopoulos
(University of Toronto)
Sebastian Gallegos
(University of Chicago)
[View Abstract]
[Download Preview] Research shows that cognitive development in early childhood is best promoted if parents create learning opportunities for their children in the home environment. Unfortunately low-income children in the U.S. are far less likely than their advantaged counterparts to enjoy a cognitively stimulating home environment. This paper reports results from the “Parents and Children Together Study,” a randomized-control experiment designed to increase the amount of time low-income parents spend reading with their children. A total 160 participating parents borrowed an electronic tablet that had a recordable storybook app with over 500 books in its digital library. The tablet collected objective data on the amount of parent-child reading time. The treatment group received a behaviorally-informed intervention that comprised a suite of behavioral “nudges,” including weekly goal setting, daily text-message reminders, visual feedback on weekly progress, and personal and peer recognition for meeting goals. Parents assigned to the control group receive the tablet with the storybook app and instructions for how to use it but none of the behavioral “nudges.” Results show that at the end of the 6-week intervention, parents in the experimental group spent on average more than twice as much time reading with their children from the storybook app compared to parents in the control condition. This represents a statistically significant and very large treatment impact, suggesting substantial promise for the application of behavioral tools to parenting interventions to promote children’s human capital.
Discussants:
Elizabeth Cascio
(Dartmouth College)
Diane W. Schanzenbach
(Northwestern University)
Marianne Page
(University of California-Davis)
Jan 05, 2016 1:00 pm, Hilton Union Square, Golden Gate 5
American Economic Association
Exchange Rates and Trade
(F3)
Presiding:
Robert A. Driskill
(Vanderbilt University )
Exchange Rate Pass-Through, Currency of Invoicing and Market Share
Wei Dong
(Bank of Canada)
Michael B. Devereux
(University of British Columbia)
Ben Tomlin
(Bank of Canada)
[View Abstract]
[Download Preview] We explore the role of product market structure on exchange rate pass-through and currency of invoicing in international trade, using very detailed transaction-level data on Canadian imports over a six-year period. A novel feature of the analysis is the importance of market share on both sides of the trading relationship--that of the exporting and importing firms. We find that both exchange rate pass-through and the currency of invoicing are dependent on the size (or market share) of both importers and exporters. Very small or very large exporters have higher rates of pass-through and tend to price in the exporters' currency; while it is the opposite for exporters in the middle range. By contrast, for larger importers, pass-through is lower and destination currency invoicing is more prevalent. These findings are consistent with a simple model of trade pricing under monopolistic competition with endogenous markups and heterogeneity in firm size (on both sides of the transaction).
Friends by Sanctions: International Relations, Trade, and Welfare
Yong suk Lee
(Stanford University)
[View Abstract]
This paper examines how economic sanctions impact the pattern of international trade and the welfare consequences. Sanctions have increasingly been used as a foreign policy tool since the end of the World Wars. The causes and actions of sanctions are often different rendering sanctions a useful intervention to empirically examine international trade: the primary causes of sanctions are political or military, e.g., conflict, human rights violation, proliferation, but sanctions are implemented primarily through economic means, i.e., restricting trade. Also the asymmetric nature sanctions - sanction targets are often low-income non-democratic countries whereas senders are richer democratic countries - could render significant welfare consequences.
Specifically, I examine the impact of economic sanctions on (1) bilateral trade, (2) trade divergence in countries that are sanctioned by third party countries (the common enemy effect), (3) and welfare. Using the universe of sanctions and bilateral trade data between 1950 and 2005, I find that sanctions reduce bilateral trade by 30%. This average impact almost exactly offsets the impact of RTAs or FTAs that the literature finds. However, for less democratic countries the impact of sanctions is larger at about 44%. Second, sanctions divert trade towards other sanctioned countries, i.e., trade between two countries increase when both are sanctioned by third party countries. This effect is especially large for non-democratic country pairs. In other words, sanctions cause countries to increase trade with other rogue regimes. Lastly, despite the diversion of trade, sanctions reduce real GDP per capita by about 3% to 5% in less democratic countries.
In sum, sanctions reshape the pattern of trade whereby less democratic regimes forge stronger trade relations with each other, and sanctions substantially reduce total welfare in target countries despite the fact that sanctions aim to punish and alter the actions of leaders.
Risk Sharing in a World with Uncertainty Shocks
Robert Kollmann
(European Center for Advanced Research in Economics and Statistics (ECARES), Université Libre de Bruxelles & CEPR)
[View Abstract]
[Download Preview] This paper analyzes the effects of output volatility shocks and of risk appetite shocks on the
dynamics of consumption, trade flows and the real exchange rate, in a two‐country world
with recursive preferences and complete financial markets. When the risk aversion coefficient
exceeds the inverse of the intertemporal substitution elasticity, then an exogenous rise in a
country’s output volatility triggers a wealth transfer to that country, in equilibrium; this raises its consumption, lowers its trade balance and appreciates its real exchange rate. The effects of risk appetite shocks resemble those of volatility shocks. In a recursive preferences-complete markets framework, volatility and risk appetite shocks account for a noticeable
share of the fluctuations of net exports, net foreign assets and the real exchange rate. These
shocks help to explain the high empirical volatility of the real exchange rate and the
disconnect between relative consumption growth and the real exchange rate.
FX Interventions in Brazil: A Synthetic Cohort Approach
Marcos Chamon
(International Monetary Fund)
Marcio Garcia
(Pontifical Catholic University of Rio de Janeiro)
Laura de Souza Pitta
(Pontifical Catholic University of Rio de Janeiro)
[View Abstract]
[Download Preview] The taper tantrum of May 2013 generated sharp fall in risky assets prices, including the depreciation of several emerging market currencies. To fight excess volatility and exchange rate overshooting, the Central Bank of Brazil announced a major program of interventions in foreign exchange markets. We use a synthetic control approach to determine whether or not the intervention program was successful. Our results suggest that the first FX intervention program mitigated the depreciation of the real against the dollar. A second announcement made later in the year that the program was going to continue on a smaller basis had a smaller effect, which was not signicant. This result is corroborated by a standard event study methodology. We also document that both program did not have an impact on the volatility of the exchange rate.
Jan 05, 2016 1:00 pm, Hilton Union Square, Continental – Parlor 2
American Economic Association
Globalization, Organization, and Management: Empirical Evidence from Micro Level Data
(F2, F6)
Presiding:
Laura Alfaro
(Harvard Business School)
The Global Production Line Position of Chinese Firms
Davin Chor
(National University 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 firm-level customs data, matched manufacturing census data, and Input-Output tables from China, to better understand where and how Chinese firms operate along the global value chain. We characterize each firm's global production line position by computing the upstreamness of each firm's export and import mix, using a measure of upstreamness that reflects the number of production stages between the product mix in question and final uses. We document the evolution of Chinese firms' global production line position over the 1992-2011 period. We also show how it correlates with firm performance (total exports, sales) and with various underlying firm characteristics (ownership, productivity, capital and skill intensity).
Exporting and Firm Performance: Evidence from a Randomized Trial
David Atkin
(Massachusetts Institute of Technology)
Amit Khandelwal
(Columbia University)
Adam Osman
(UIUC)
[View Abstract]
[Download Preview] We conduct a randomized control trial that generates exogenous variation in the access to foreign markets for rug producers in Egypt. Combined with detailed survey data, we causally identify the impact of exporting on profits and productivity. Treatment firms report 15-25 percent higher profits and exhibit large improvements in quality alongside reductions in output per hour relative to control firms. These findings do not simply reflect firms being offered higher margins to manufacture high-quality products that take longer to produce. Instead, we find evidence of learning-by-exporting whereby exporting improves technical efficiency. First, treatment firms have higher productivity and quality after controlling for rug specifications. Second, when asked to produce an identical domestic rug using the same inputs and same capital equipment, treatment firms produce higher quality rugs despite no difference in production time. Third, treatment firms exhibit learning curves over time. Finally, we document knowledge transfers with quality increasing most along the specific dimensions that the knowledge pertained to.
Internalizing Global Value Chains: A Firm-Level Analysis
Laura Alfaro
(Harvard Business School)
Pol Antras
(Harvard University)
Davin Chor
(National University of Singapore)
Paola Conconi
(ECARES)
[View Abstract]
[Download Preview] In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic
economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antras and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world.
Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data
Benjamin Faber
(University of California-Berkeley)
Thibault Fally
(University of California-Berkeley)
[View Abstract]
A growing literature has emphasized the role of Melitz-type firm heterogeneity within sectors in accounting for nominal income inequality. This paper explores the implications of firm heterogeneity for household price indices across the income distribution. Using detailed matched US home and store scanner microdata that allow us to trace the firm size distribution into the consumption baskets of individual households, we present evidence that richer US households source their consumption from on average significantly larger producers of brands within disaggregated product groups compared to poorer US households. We use the microdata to explore alternative explanations, write down a quantitative framework that rationalizes the observed moments, and estimate its parameters to quantify the underlying channels and explore model-based counterfactuals. Our central findings are that larger, more productive firms endogenously sort into catering to the taste of wealthier households, and that this gives rise to asymmetric effects on household price indices. We find that these price index effects significantly amplify observed nominal income inequalities in both the cross-section of households and for changes over time, and that they lead to a significantly more regressive distribution of the gains from international trade.
Discussants:
Raffaella Sadun
(Harvard Business School)
David Atkin
(Massachusetts Institute of Technology)
Claudia Steinwender
(Harvard Business School)
David Donaldson
(Stanford University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Golden Gate 6 & 7
American Economic Association
International Risks: Pass-Through in Currencies and Capital Flows
(F4, F3)
Presiding:
Christian Lundblad
(University of North Carolina)
The Volatility of International Capital Flows
Winston Dou
(Massachusetts Institute of Technology)
Adrien Verdelhan
(Massachusetts Institute of Technology)
[View Abstract]
This paper presents a two-good, two-country real model that replicates basic stylized facts on equity excess returns and real interest rates. In the model, markets are incomplete. Agents trade domestic and foreign stocks, as well as an international bond. Their asset positions are subject to a borrowing constraint, along with a short-selling constraint on equity. A time-varying probability of a global disaster implies time-varying risk premia in asset markets, and therefore large and time-varying valuation effects on international asset positions. The model highlights the role of international risk-sharing in accounting for the volatility of equity and debt international capital flows.
The Costs of Sovereign Default: Evidence from Argentina
Jesse Schreger
(Princeton University & Harvard Business School)
Benjamin Hebert
(Stanford University)
[View Abstract]
[Download Preview] We estimate the causal effect of sovereign default on the equity returns of Argentine firms. We identify this effect by exploiting changes in the probability of Argentine sovereign default induced by legal rulings in the case of Republic of Argentina v. NML Capital. We find that a 1% increase in the probability of default causes a 0.55% decline in the value of Argentine equities. We construct tracking portfolios for the present value of output growth and estimate that an entirely unexpected sovereign default would cause a decline in this measure of between 5.9% and 10.9%.
Volatility Risk Pass-Through
Riccardo Colacito
(University of North Carolina)
Mariano Croce
(University of North Carolina)
Yang Liu
(University of Pennsylvania)
Ivan Shaliastovich
(University of Pennsylvania)
[View Abstract]
[Download Preview] We produce novel empirical evidence on the relevance of output volatility (vol) shocks for both currency and international quantity dynamics. Focusing on G-17 countries, we document several facts: (1) consumption and output vols are imperfectly correlated within countries; (2) across countries, consumption vol is more correlated than output vol; (3) the pass-through of relative output vol shocks onto relative consumption vol is moderate, especially if the uncertainty shocks originate from small countries; and (4) consumption differentials vol and exchange rate vol are disconnected, in contrast to the perfect correlation implied by a model of perfect risk-sharing with time-additive preferences. We rationalize these findings in a frictionless model with multiple goods and recursive preferences featuring a novel-and-rich risk-sharing of vol shocks.
Currency Manipulation
Tarek Hassan
(University of Chicago )
Thomas Mertens
(Federal Reserve Bank of San Francisco)
Tony Zhang
(University of Chicago )
[View Abstract]
[Download Preview] We propose a novel, risk-based, transmission mechanism for the effects of currency manipulation: Policies that systematically induce a country's currency to appreciate in bad times lower its risk premium in international markets. As a result, these policies lower the country's risk-free interest rate and increase domestic capital accumulation and wages. Currency manipulations by large countries also have external effects on foreign interest rates and capital accumulation. Applying this logic to policies that lower the variance of the bilateral exchange rate relative to some target country ("currency pegs''), we find that a small economy pegging its currency to a large economy increases domestic capital accumulation and wages. The size of this effect increases with the size of the target country, offering a potential explanation why the vast majority of currency pegs in the data are to the US dollar, the currency of the largest economy in the world. A large economy (such as China) pegging to a larger economy (such as the US) diverts capital accumulation from the target country to itself, increasing domestic wages while decreasing wages in the target country.
Discussants:
Andreas Stathopoulos
(University of Washington)
Sylvain Leduc
(Federal Reserve Bank of San Francisco)
Andrea Vedolin
(London School of Economics)
Ivan Werning
(Massachusetts Institute of Technology)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 18
American Economic Association
Labor Productivity
(J3)
Presiding:
Jamin D. Speer
(University of Memphis)
Explaining the German Employment Miracle in the Great Recession – The Crucial Role of Temporary Working Time Reductions
Alexander Herzog-Stein
(Macroeconomic Policy Institute)
Fabian Lindner
(Macroeconomic Policy Institute)
Simon Sturn
(University of Massachusetts)
[View Abstract]
[Download Preview] In 2008 to 2009 Germany experienced the deepest recession in its post-war history. But unlike in previous recessions or other countries, this sharp decline in output triggered no significant job losses. In fact, employment was even higher in the trough of the recession than at the pre-recession peak, while unemployment was lower. We investigate the reasons for the robust performance of the German labor market in the Great Recession. We analyze to what extent cyclical reductions in productivity and working time cushioned employment losses in previous recessions, and investigate the importance of these mechanisms in the Great Recession by applying time-series techniques to estimate counterfactual developments. To quantify the extent to which the reactions in productivity and working time were novel, we estimate time-series models explaining these two variables from 1970 until 2005. These estimates are used to create forecasts until 2012. This allows us to compare the actual development of cyclical productivity per hour, as well as the cyclical working time, with its counterfactual based on historical data. Our findings suggest that both pro-cyclical variations in hourly productivity and working time strongly contributed to safeguarding jobs in the Great Recession. However, we find the influence of cyclical working time reductions to be extraordinarily pronounced, while that of reductions in productivity is in line with historical evidence. Cyclical working-time reductions prevented an additional 650.000 job losses, amounting to 1.6% of total employment. Using detailed information on instruments for the adjustment of working time, we uncover the institutional mechanisms behind this strong reduction. While short-time work played a significant role, equally important are working time accounts and discretionary variations in regular working time, two new instruments which have been established in the decade before the Great Recession.
Organizing Knowledge to Compete: Impacts of Capacity Building Programs on Firm Organization
Leonardo Iacovone
(World Bank)
Marcio Cruz
(World Bank)
Maurizio Bussolo
(World Bank)
[View Abstract]
The relationship between the organization of firms and their performance has been at the center of recent literature focusing on heterogeneous productivity, access to foreign markets and wage inequality. At the same time, there is now some empirical evidence on the effectiveness of training programs to promote best management practices. This paper analyzes the effects of a capacity-building program on firms' organization. The Peiex program focuses on enhancing Brazilian SMEs' competitiveness by providing coaching and consulting on best management and production practices for more than 5,000 firms. We use a unique firm-level dataset covering the full manufacturing sector in Brazil. In order to identify the effect of the program, we rely on an instrumental variable approach and exploit a quasi-experiment provided by a regional time variation for its implementation. We find a positive impact of the program on firms' production hierarchy based on knowledge. We use these results to discuss how changes on firms' organization may interact with firms' export performance.
Employment Protection and Labor Productivity
Carl Magnus Bjuggren
(Research Institute of Industrial Economics)
[View Abstract]
[Download Preview] Current theoretical predictions of how employment protection affects firm productivity are ambiguous. In this paper, I study the effect of employment protection rules on labor productivity using Swedish register data. A reform of employment protection rules in 2001 enabled small firms with fewer than eleven employees to exempt two workers from the seniority rules. I treat this reform as a natural experiment. My results indicate that increased labor market flexibility increases labor productivity. This increase is not explained by capital intensity or by the educational level of workers.
Learning by Driving: Evidence from taxi driver wages in Singapore
Sumit Agarwal
(National University of Singapore)
Shih-Fen Cheng
(Singapore Management University)
Jussi Keppo
(National University of Singapore)
Satyanarain Rengarajan
(National University of Singapore)
[View Abstract]
[Download Preview] The significance of “Learning by doing” (LBD) in the economy has been disputed by economists. We use a unique dataset from a Singaporean taxi fleet consisting of 3,250 drivers with over 520 million data points that track cabdrivers’ minute-by-minute work routines for two years to test if taxi drivers exhibit LBD. After controlling for individual-level differences, i.e. socio-economics, we find strong evidence of LBD. We document this mechanism and show taxi drivers learn through temporal (when) and locational (where) and technology (booking) optimization. The study has implications for the contribution of LBD behaviour to the economy and its direct impact on individual wages. We also discuss the implication of our findings for taxi markets experiencing a rise in use of technology (i.e. booking systems based on applications), which has recently drawn the interest of policymakers.
Productivity Growth in Construction
Leo Sveikauskas
(U.S. Bureau of Labor Statistics)
Samuel Rowe
(U.S. Bureau of Labor Statistics)
James Mildenberger
(U.S. Bureau of Labor Statistics)
Jennifer Price
(U.S. Bureau of Labor Statistics)
Arthur Young
(U.S. Bureau of Labor Statistics)
[View Abstract]
Productivity growth in construction is a classic problem. Output deflators are scarce, so estimates of productivity growth, in total construction or in individual industries, are highly uncertain. The NIPA accounts suggest that construction productivity has been declining for half a century, but many people find this hard to believe.
We prepare reliable measures of productivity growth in four industries in construction, using existing deflators or the new PPI deflators for construction industries. Our results show productivity growth is positive and substantial in all four industries, which provides some evidence against the idea that productivity growth is negative.
Shifts of labor across construction industries reduce long-term productivity growth by 0.4 percent a year. Increases in regulation have a statistically significant negative effect on productivity growth, but reduces productivity by only 0.1 percent a year. Similarly, increases in the employment of undocumented immigrants, who are more likely to work off the books, reduces observed productivity by 0.1 percent annually. All these influences together are not sufficient to explain why productivity growth is so much lower in construction than in the rest of the economy.
Finally, we review our plans to use more of the new PPIs to measure productivity growth in more construction industries. This will involve obtaining access to Census Bureau micro data, so that we can adjust the production data to conform to the industry boundaries at which the new PPIs are calculated.
Jan 05, 2016 1:00 pm, Hilton Union Square, Franciscan C
American Economic Association
Long Hours Jobs and Specialization in Marriage
(J2, D1)
Presiding:
Madeline Zavodny
(Agnes Scott College)
Overtime Premiums, Labor Supply, and the Social Value of Occupations
Dora Gicheva
(University of North Carolina at Greensboro)
[View Abstract]
[Download Preview] This paper aims to further our understanding of the labor supply choices of salaried employees by focusing on uncompensated overtime in jobs with pro-social characteristics. In the framework of this study, occupations differ in their social value, measured by the tendency of jobs to involve providing help or service to others. Examples of occupations that score high along this dimension include therapists, nurses and social workers. On the labor supply side, workers differ in the degree to which they value their job’s helping orientation. The theoretical model developed in the paper yields three testable predictions that are supported by the data. First, the average occupation overtime premium is decreasing in the occupation’s nonmonetary social value. Second, workers self-select into jobs based on the occupation’s pro-social characteristics and their individual valuation of such characteristics. Third, there exists an inverse relationship between job satisfaction and overtime premiums when the job’s nonpecuniary attributes are ignored. I explore the possibility that gender differences in attitudes toward pro-social behavior can explain some of the observed gender differences in overtime compensation and sorting into occupations. My results are consistent with the hypothesis that women place more weight on their occupation’s orientation toward providing help and service to others. Women tend to be better represented in occupations that score high on this social value measure, but at the same time, earn relatively lower overtime premiums compared to men in the same occupations. In other words, women are found to be more strongly drawn to “helping” occupations and willing to give up more in terms of overtime compensation without reducing their hours in exchange for higher occupational social value.
When Time Binds: Returns to Working Long Hours and the Gender Wage Gap among the Highly Skilled
Patricia Cortes
(Boston University)
Jessica Pan
(National University of Singapore)
[View Abstract]
[Download Preview] This paper explores the relationship between gender differences in hours worked, the returns to working long hours, and the gender pay gap among highly educated workers. Using a cross-section of occupations, Goldin (2014) documents that occupations characterized by high returns to overwork are also those with the largest gender gap in earnings. Using panel data on occupations across cities over time, we show that these associations continue to hold even after accounting for differences across occupations over time, differences across cities over time, and differences in characteristics of occupations that vary by city. To provide causal evidence on the demand for long hours and how it relates to gender wage gaps, we exploit exogenous cross-city variation in low-skilled immigrant flows to proxy for changes in the prices of outsourcing household production. We find that low-skilled immigration leads to a reduction in the gender gap in weekly hours worked, as well as the gender pay gap, particularly in occupations that disproportionately reward longer hours of work. These results highlight the causal role of the returns to overwork in explaining the gender pay gap and suggest that reductions in the cost of supplying longer hours of work may allow women to close the gap in hours of work and to benefit from higher wages.
Has the Increased Attachment of Women to the Labor Market Changed the Ability of Families to Smooth Shocks to Family Income?
Olga Gorbachev
(University of Delaware)
[View Abstract]
[Download Preview] The extent to which a married woman’s attachment to the labor market allowed her family to smooth unexpected income shocks has evolved. Between 1970 and 1990, the rise in female labor market attachment provided an important channel for smoothing spousal income shocks. In contrast, in the Great Recession, both spouses received negative income shocks, and access to transfer income became the main insurance mechanism. Volatility of consumption followed volatility of family income trends but at a lower magnitude. Families’ ability to weather income shocks was stable from 1970 to 2010, but the relative importance of female labor market supply decreased.
Selection and Specialization in the Evolution of Marriage Earnings Gaps
Chinhui Juhn
(University of Houston)
Kristin McCue
(U.S. Census Bureau)
[View Abstract]
[Download Preview] We examine changes in marriage and earnings patterns across four cohorts born between 1936 and 1975, using data from a series of Survey of Income and Program Participation panels linked to administrative data on earnings. We find that for both men and women, marriage has become increasingly positively associated with education and earnings potential. We compare ordinary least squares (OLS) and fixed effect (FE) estimates of the earnings differential associated with marriage. We find that the marriage earnings gap fell for women in fixed-effect estimates implying that the impact of specialization has diminished over time. We also find that increasingly positive selection into marriage means that OLS estimates overstate the reduction in the marriage earnings gap. While our findings imply that marriage is no longer associated with lower earnings among women without minor children in our most recent cohort, the motherhood gap remains large. Among men, we find that the marriage premium actually increases for more recent birth cohorts in fixed-effects regressions.
Discussants:
Ronald Oaxaca
(University of Arizona)
Ina Ganguli
(University of Massachusetts-Amherst)
Bradley Hardy
(American University)
Mary Ann Bronson
(Georgetown University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Yosemite A
American Economic Association
Macroprudential Policies for Low-Income and Developing Countries
(G1, O1)
Presiding:
Olivier Jeanne
(Johns Hopkins University)
Optimal Precautionary Savings Against Current Account Shocks
Olivier Jeanne
(Johns Hopkins University)
Damiano Sandri
(International Monetary Fund)
[View Abstract]
[Download Preview] The optimal level of international reserves is an old but still unresolved question. In this paper we study this question in the context of an intertemporal optimization model where reserves stabilize domestic expenditures and the real exchange rate of a small open economy against current account shocks. The model is calibrated to lowincome countries that are hit primarily by current (rather than financial) account shocks. Our results for optimal reserve management are compared to standard rules of thumbs such as holding three months of imports in reserves.
Credit Booms and Macro-Prudential Policies in Low Income Countries
Joseba Martinez
(New York University)
Pau Rabanal
(International Monetary Fund)
Filiz Derya Unsal
(International Monetary Fund)
[View Abstract]
[Download Preview] This project will aim at understanding the causes of credit booms in low income countries, and the associated macroprudential policy responses. In low income and developing economies, credit surges are typically triggered by an external shock such as capital account liberalization, foreign aid or commodity prices. Capacity constraints in the banking sector and in supervisory agencies can lead to significant lowering of credit standards during the credit boom, which can impose large losses to the banking sector if a subsequent bust occurs. These costs can be higher if other distortions, such as the expectation of a government bailout, are severe. The paper will analyze the macro-prudential policy tools that can be used in order to stabilize credit conditions.
Capital Control Measures: A New Dataset
Andres Fernandez
(Inter-American Development Bank)
Michael Michael Klein
(Tufts University)
Alessandro Rebucci
(Johns Hopkins University)
Martin Schindler
(International Monetary Fund)
Martin Uribe
(Columbia University)
[View Abstract]
[Download Preview] [Download PowerPoint] We present and describe a new dataset of capital control restrictions on both inflows and outflows of ten categories of assets for 100 countries over the period 1995 to 2013. Building on the data first presented in Martin Schindler (2009), and other datasets based on the analysis of the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions, this dataset includes additional asset categories, more countries, and a longer time period. We discuss the manner in which we translate the information in the AREAER into a usable data set. We also characterize the data with respect to the prevalence of controls across asset categories, the correlation of controls across asset categories and between controls on inflows and controls on outflows, the aggregation of the separate categories into broader indicators, and the comparison of our dataset with other indicators of capital controls.
Macroprudential Policies in Low-Income Countries
Jose Carrasco-gallego
(University of Portsmouth)
Margarita Rubio
(University of Nottigham)
Filiz Derya Unsal
(International Monetary Fund)
[View Abstract]
[Download Preview] In this paper, we develop a DSGE model to study the implementation of macroprudential policy in low-income countries (LICs). The model features an economy with two agents; households and entrepreneurs. Entrepreneurs are the borrowers in this economy and need capital as collateral to obtain loans. The macroprudential regulator uses the collateral requirement as the policy instrument. We compare two different ways of implementing the macroprudential policy: permanently increasing the collateral requirement (passive policy) versus an active time-varying rule responding to deviations of credit from its steady state. Results show that with perfect information, an active approach is more effective in increasing financial stability, without incurring in a long-run output cost. However, if the regulator is not able to observe the economic conditions perfectly, which is usually the case in LICs, a passive approach may be preferred.
Discussants:
Alessandro Rebucci
(Johns Hopkins University)
Sami Alpanda
(University of Central Florida)
Christopher Otrok
(University of Missouri)
Luca Guerrieri
(Federal Reserve Board)
Jan 05, 2016 1:00 pm, Hilton Union Square, Franciscan D
American Economic Association
Measuring Social Indicators with Mobile Phone Data
(C4, I3)
Presiding:
Jenny Aker
(Tufts University)
Predicting Poverty and Wealth from Mobile Phone Metadata
Joshua Evan Blumenstock
(University of Washington)
Gabriel Cadamuro
(University of Washington)
Robert On
(University of California-Berkeley)
[View Abstract]
[Download Preview] Accurate and timely estimates of population characteristics are a critical input to social and economic research and policy. In industrialized economies, novel sources of data are enabling new approaches to demographic profiling, but in developing countries, fewer sources of “big data” exist. We show that an individual’s past history of phone use can be used to infer his or her socioeconomic status, and that the predicted attributes of millions of individuals can in turn be used to accurately reconstruct the distribution of wealth of an entire nation, or to infer the asset distribution of micro-regions comprised of just a few households. In resource-constrained environments where censuses and household surveys are rare, this creates an option for gathering localized and timely information at a fraction of the cost of traditional methods.
Violence and Cell Phone Communication Patterns: Evidence from Cote d’Ivoire
Sera Linardi
(University of Pittsburgh)
Daniel Berger
(University of Essex)
Shankar Kalyanaraman
(Facebook)
[View Abstract]
[Download Preview] We investigate the relationship between low-level incidents of political violence and communication patterns seven months after the 2012 Ivorian Civil War using network traffic from all of Orange Telecom’s Cote d’Ivoire cell towers and 500,000 randomly sampled cell phone subscribers. We first show that in the days preceding small violent incidents, mobile phone call volumes increase by 10% and the number of cell phones that are active increases by 6%, while the length of average calls decreases by 4%. These unique communication patterns are distinct from that observed around soccer and festivals and attenuate as the distance from violence increase and strengthen when incidents with no fatalities are excluded. We then use machine learning techniques to explore whether these changes can predict the day and subprefecture of violent events. The addition of cell phone data to base models appear to improve our ability to predict violent events at very fine spatial and temporal resolution.
The Adoption of Network Goods: The Spread of Mobile Phones in Rwanda
Daniel Bjorkegren
(Brown University)
[View Abstract]
[Download Preview] This paper develops a method to estimate and simulate the adoption of a network
good. I estimate demand for mobile phones as a function of individuals’ social net- works, coverage, and prices, using transaction data from nearly the entire network of Rwandan mobile phone subscribers over 4.5 years. Because subscribers pay on the margin, the calls placed reveal the value of communicating with each contact. This feature allows me to overcome traditional difficulties in measuring network effects, by estimating the utility of adopting a phone based on its eventual usage. I use this structural model to simulate the effects of two governmental policies.
An adoption subsidy had a high social rate of return, and spillovers accounted for
a substantial fraction of its impact. A requirement to serve rural areas lowered the
operator’s profits but increased net social welfare.
Mobile Money in Tanzania
Przemyslaw Jeziorski
(University of California-Berkeley)
Nicholas Economides
(New York University)
[View Abstract]
[Download Preview] In developing countries, mobile telecom networks have emerged as major
providers of financial services, bypassing the sparse retail networks of
traditional banks. We analyze a large individual-level data set of mobile
money transactions in Tanzania. Transactions can be classified as (i) money
transfers to others; (ii) short distance money self-transportation; and (iii)
money storage for short to medium periods of time. We utilize a natural
experiment of an unanticipated increase in transaction fees. We find that the
demand for long-distance transfers is less elastic than for short-distance
transfers, which suggests that mobile networks actively compete with
antiquated cash transportation systems in addition to competing with each
other. Further, we find that the willingness to pay to avoid walking with cash
an extra kilometer and to avoid storing money at home for an extra day is 1.1%
and 1% of an average transaction, respectively, which demonstrates that m-
money ameliorates significant amounts of crime-related risk. We explore the
implications of these estimates for pricing and propose Pareto superior price
discrimination.
Discussants:
Daniel Berger
(University of Essex)
Jenny Aker
(Tufts University)
Ott-Siim Toomet
(Tartu University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Continental – Parlor 9
American Economic Association
New Thinking in Optimal Taxation and Redistribution
(H2, D6)
Presiding:
Florian Scheuer
(Stanford University)
The Openness-Equality Trade-Off in Global Redistribution
Eric Glen Weyl
(University of Chicago and Microsoft Research)
[View Abstract]
[Download Preview] Because most inequality is across rather than within states, the greatest potential welfare gains from social insurance are international. Few of these are realized at present through transfers, suggesting other methods of global redistribution are needed. A natural alternative is migration, which I estimate currently reduces global inequality by about a third as much as internal tax-and-transfer programs within Organization for Economic Cooperation and Development (OECD) countries do. Migration to some countries, particularly the Gulf Cooperation Council (GCC) monarchies, does massively more to reduce global inequality per person in those countries, and reasonable scenarios in which the OECD countries imitate GCC policies achieve much more than eliminating all internal inequality. Yet the GCC countries are stunningly unequal internally and massive abusers of human rights. Such examples suggest a philosophically disturbing trade-off between openness to global inequality-reducing migration and internal equality. For example, social prejudices based on national origin or authoritarian regimes that support a caste system could be Pareto-improving. More practically, regularizing past illegal migrants in exchange for sealing the border could be harmful.
Preferences for Taxing Income Versus Wealth
Raymond Fisman
(Boston University)
Ilyana Kuziemko
(Princeton University)
Suresh Naidu
(Columbia University)
[View Abstract]
Despite within-country inequalities in wealth that dwarf inequalities in income, taxation of wealth is extremely uncommon. Piketty’s (2014) call for a global wealth tax has given the topic renewed attention. We conduct online survey experiments to study individual preferences for taxing wealth versus income via Mechanical Turk. Regression results indicate that subjects’ desired wealth tax rates are between 1 and 2 percent, though non-parametric estimates indicate desired tax rates of near zero at low wealth levels. Our results indicate limited substitutability between wealth and income as tax bases, as desired income tax rates are around 15 percent, marginally lower than the average rate in the absence of wealth taxes. Preferred wealth tax rates are more than 50 percent higher when subjects are informed that the wealth was accumulated through inheritance. Our findings suggest that voter preferences are unlikely to be a barrier to wealth tax implementation.
The Taxation of Superstars
Florian Scheuer
(Stanford University)
Ivan Werning
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] How are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution? To answer this question, we extend the Mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects. Perhaps surprisingly, rather than providing a rationale for higher taxes, we show that superstar effects provide a force for lower marginal taxes, conditional on the observed distribution of earnings. Superstar effects make the earnings schedule convex, which increases the responsiveness of individual earnings to tax changes. We show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas. Finally, we study a comparative static that does not keep the observed earnings distribution fixed: when superstar technologies are introduced, inequality increases but we obtain a neutrality result, finding tax rates at the top unaltered.
Popular Acceptance of Morally Arbitrary Luck and Widespread Support for Classical Benefit-Based Taxation
Matthew Weinzierl
(Harvard University)
[View Abstract]
[Download Preview] Public moral reasoning is shown to differ in three specific ways from what is conventionally assumed in modern optimal tax theory. Large majorities of survey respondents resist costless redistribution of arbitrarily determined unequal outcomes and prefer justifying tax progressivity based on benefit received rather than on diminishing marginal social welfare of income. These attitudes are shown to be linked to widespread moral acceptance of unequal allocations due to luck. Together, these results raise the possibility that the American public views the allocations of taxes and pretax outcomes as morally relevant, a judgment that is inconsistent with conventional objectives depending solely on after-tax outcomes but consistent with alternative principles such as Classical Benefit-Based Taxation.
Discussants:
Suresh Naidu
(Columbia University)
Stefanie Stantcheva
(Harvard University)
Charlotte Cavaille
(Institute of Advanced Studies Toulouse)
Raymond Fisman
(Boston University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 3 & 4
American Economic Association
Persistence and Culture in Political Economy
(Z1, D7)
Presiding:
Filipe Campante
(Harvard University)
Scars of War: The Long-Term Effects of War Service on Political Preferences
Filipe Campante
(Harvard University)
David Yanagizawa-Drott
(Harvard University)
[View Abstract]
We look at the long-run effects of war service on political preferences and behavior at the level of US counties. To identify a causal effect, we use as a source of variation the demographic profile of counties: the share of individuals who happened to be at peak war age around 1917 predicts World War I service. We find that a large 1917 peak-age population predicts voting and campaign contribution patterns, as well as the behavior of elected representatives, in 21st-century elections. The results are consistent with a substantial degree of social spillovers from individual war service onto the communities where veterans chose to live, and indicate that individual experiences have long-term effects at the aggregate level.
Can Natural Disasters Have Long Lasting Political Consequences? Evidence from a Massive Earthquake in Early Modern History
Leonardo Baccini
(London School of Economics)
Paola Giuliano
(University of California-Los Angeles)
Shanker Satyanath
(New York University)
[View Abstract]
The political economy literature indicates that adverse natural shocks can have significant short or medium term effects on political variables. However, it is still unknown if the political effects of a natural shock can be long lasting, in the sense of persisting over centuries. In this paper we focus on one of the critical elements of democracy, political participation. We show that one of the best known natural disasters of the early modern period, the earthquake of 1693 in Sicily, had long lasting effects on political participation extending to current times. We show that towns that were affected by the earthquake experienced a significant expansion of participation in city councils. The same towns experienced significantly more effective electoral reforms a century and a half later, and significantly higher electoral turnout two centuries and a half later. Our findings thus indicate that the political effects of natural disasters can be extremely long lasting.
On the Joint Evolution of Culture and Institutions
Alberto Bisin
(New York University)
Thierry Verdier
(Paris School of Economics)
[View Abstract]
[Download Preview] What accounts for economic growth and prosperity? What stands at their origin? Recent literature typically searches for single univariate causal explanations. The result is a general disagreement between different camps each favoring a different explanation: institutions, culture, human capital, geography. In this paper we provide instead a first theoretical modeling of the interaction between different possible explanation for growth and prosperity. In particular, we study the joint evolution of culture and institutions and their effects on economic activity. We characterize how, depending on the economic environment and initial conditions,
culture and institutions might complement each other, giving rise to a multiplier effect, or on the contrary they can act as substitutes, contrasting each other and limiting their combined ability to spur economic activity.
Fertility and Modernity
Enrico Spolaore
(Tufts University)
Romain Wacziarg
(University of California-Los Angeles)
[View Abstract]
[Download Preview] We investigate the historical dynamics of the decline in fertility in Europe and its relation to measures of cultural and ancestral distance. We test the hypothesis that the decline of fertility was associated with the diffusion of social and behavioral changes from France, in contrast with the spread of the Industrial Revolution, where England played a leading role. We argue that the diffusion of the fertility decline and the spread of industrialization followed different patterns because societies at different relative distances from the respective innovators (the French and the English) faced different barriers to imitation and adoption, and such barriers were lower for societies that were historically and culturally closer to the innovators. We provide a model of fertility choices in which the transition from higher to lower levels of fertility is the outcome of a process of social innovation and social influence, whereby late adopters observe and learn about the novel behaviors, norms and practices introduced by early adopters at the frontier. In the empirical analysis we study the determinants of marital fertility in a sample of European populations and regions from 1830 to 1970, and successfully test our theoretical predictions using measures of genetic distance between European populations and a novel data set of ancestral linguistic distances between European regions.
Discussants:
Saumitra Jha
(Stanford University)
Noam Yuchtman
(University of California-Berkeley)
Jan 05, 2016 1:00 pm, Hilton Union Square, Golden Gate 8
American Economic Association
Productivity Density and Reallocation
(R3)
Presiding:
Yannis Ioannides
(Tufts University)
Urban Accounting for Geographic Concentration of Skill and Welfare Inequality
Yuming Fu
(National University of Singapore)
Yang Hao
(National University of Singapore)
[View Abstract]
We investigate the influence of geography on skill dispersion across cities, and consequently on wage and welfare inequalities between high-skill and low-skill workers, in a general equilibrium urban accounting framework. The urban accounting model of Desmet and Rossi-Hansberg (2013) is augmented to incorporate the generalized-division-of-labor production function of Jones (2014) to account for imperfect substitutability between the human capital services of high-skill and low-skill workers. The effects of imperfect substitution between human capital services, of local market thickness and education externalities on productivity and amenities, and of urban congestion make the location incentives of high-skill and low-skill workers depend on each other, hence making the geography influence on wage and welfare inequalities complex. Calibrating the model with U.S. metro area data in 1980 and 2010, we first show how dispersion in each of the location fundamentals, with respect to productivity, amenities, and excess urban friction, respectively, affects the dispersion of skill ratio across cities and the wage and welfare inequalities, with and without the endogenous local market thickness and education externality effects. We then evaluate the relative change in wage inequality and welfare inequality between 1980 and 2010, examining the contributions of different factors, including changes in the location fundamentals, in market thickness and education externality effects, and in aggregate human capital endowment.
Structural Change and the Aggregate Investment Rate
Junmin Liao
(Wuhan University )
[View Abstract]
[Download Preview] Abstract This paper explores the role of structural change model in accounting for the dynamic pattern of aggregate investment rate. A three-sector general equilibrium model with Stone-Geary preferences and uneven TFP growth is build to establish a link between structural change and investment decisions. The model rationalizes the relationship between rising investment rate and labor reallocation and shows that the increasing investment rate actually can be resulted from structural transformation. The paper mainly focuses on the case of China and conduct the quantitative analysis. The quantitative results show that the aggregate investment rate which is endogenously generated by the model can well replicate the increasing investment rate over time.
Productivity Density and Sorting
Oren Ziv
(Harvard University)
[View Abstract]
The strong, positive relationship between productivity and density has been used as evidence for the existence of agglomeration forces such as productivity spillovers. This paper presents an alternative hypothesis: In an economic geography model where firms choose locations to be close to their markets, sorting endogenously generates the density-productivity relationship in the absence of any pecuniary or non-pecuniary productivity spillovers. I introduce a new solution method for continuous space geography models that dramatically reduces the complexity of the equilibrium conditions and allows such model to generate more predictions than was previously possible in realistic geographies where firms and workers choose locations. Other cross-sectional relationships that have traditionally been used as evidence of agglomeration forces can also be derived in this environment where no such productivity spillovers exist. This geographic model of sorting breaks observational equivalence between firm sorting and agglomeration forces and allows for an indirect test of firm sorting. Under specific conditions, positive shocks to density can negatively affect average productivity through changes in the local composition of firms, inconsistent with models of agglomeration forces without sorting. Using restricted access establishment-level Census data, I document strong intra-city relationships between location and firm characteristics predicted by the model. I use the data to test for evidence of composition effects, instrumenting for the supply of new non-residential real estate construction using the geographic distribution of multi-city real estate developers, and find evidence of firm sorting.
Jan 05, 2016 1:00 pm, Hilton Union Square, Continental Parlors 7 & 8
American Economic Association
Productivity, Regulation and Allocation: Macro, Industry- and Firm-Level Evidence
(D2, O4)
Presiding:
Catherine L. Mann
(OECD )
Firm-Level Dispersion in Productivity: Is the Devil in the Details?
Lucia S. Foster
( U.S. Census Bureau)
Cheryl A. Grim
(U.S. Census Bureau)
John Haltiwanger
(University of Maryland and NBER)
Zoltan Wolf
(Westat and U.S. Census Bureau)
[View Abstract]
We explore current interpretations of firm-level dispersion in revenue-based productivity measures. Since revenue function estimates using proxy methods differ from factor elasticities, the residual emerging from this method remains a combination of demand and technical efficiency shocks, and is not equal to the concept of revenue productivity that plays an important role in recent literature on misallocation. This has implications for applications where measured revenue productivity dispersion is used as an indicator of misallocation. Our empirical evidence suggests, under iso-elastic demand, measured dispersion may indicate either distortions or variation in demand shocks and technical efficiency or all of the above.
Healthcare Exceptionalism? Productivity and Allocation in the U.S. Healthcare Sector
Amitabh Chandra
(Harvard University)
Amy Finkelstein
(Massachusetts Institute of Technology)
Adam Sacarny
(Columbia University)
Chad Syverson
(University of Chicago)
[View Abstract]
[Download Preview] The conventional wisdom in health economics is that large differences in average productivity across hospitals are the result of idiosyncratic, institutional features of the healthcare sector which dull the role of market forces. Strikingly, however, we find that productivity dispersion in heart attack treatment across hospitals is, if anything, smaller than in narrowly defined manufacturing industries such as ready-mixed concrete. While this fact admits multiple interpretations, we also find evidence against the conventional wisdom that the healthcare sector does not operate like an industry subject to standard market forces. In particular, we find that hospitals that are more productive at treating heart attacks have higher market shares at a point in time and are more likely to expand over time. For example, a 10 percent increase in hospital productivity today is associated with about 4 percent more patients in 5 years. Taken together, these facts suggest that the healthcare sector may have more in common with "traditional" sectors than is often assumed.
Market Regulations, Prices and Productivity
Gilbert Cette
(Banque de France)
Jimmy Lopez
(University of Bourgogne)
Jacques Mairesse
(CREST, Paris Tech-ENSAE and NBER)
[View Abstract]
[Download Preview] This study is to our knowledge the first attempt to infer the consequences on productivity entailed by anticompetitive regulations in product and labor markets through their impacts on production prices and wages. Results are encouraging showing that changes in production prices and wages at country*industry levels are informative about the creation of rents impeding productivity in different ways and to different extents. A simulation based on these results and on OECD regulation indicators suggests that nearly all countries, in particular European countries, could expect sizeable gains in multifactor productivity over the years from an economic policy that would be able to reform product and labor market regulation practices.
The Impact of Structural Policies on Productivity: New Evidence from Macroeconomic Estimates
Balazs Egert
(OECD)
[View Abstract]
[Download Preview] Empirical research on the drivers of multi-factor productivity (MFP) is abundant at the firm- and industry level but surprisingly little research has been conducted on the determinants of MFP at the macroeconomic level. In this paper, we seek to understand the drivers of country-level MFP with a special emphasis on product and labor market policies and the quality of institutions. For a panel of OECD countries, we find that anticompetitive product market regulations are associated with lower MFP levels and that higher innovation intensity and greater openness result in higher MFP. We also find that the impact of product market regulations on MFP may depend on the level of labor market regulations. Better institutions, a more business friendly environment and lower barriers to trade and investment amplify the positive impact of R&D spending on MFP. Finally, we also show that cross-country MFP variations can be explained to a considerable extent by cross-country variation in labor market regulations, barriers to trade and investment and institutions.
Discussants:
Jan K. De Loecker
(Princeton University)
Jonathan Haskel
(Imperial College London)
Catherine L Mann
(OECD)
Daniel Sichel
(Wellesley College)
Jan 05, 2016 1:00 pm, Hilton Union Square, Golden Gate 1 & 2
American Economic Association
Reference Dependence and the Labor Market
(J6, J3)
Presiding:
Stefano DellaVigna
(University of California-Berkeley)
Does Transparency Lead to Pay Compression?
Alexandre Mas
(Princeton University)
[View Abstract]
[Download Preview] This paper asks whether pay disclosure changes wage setting at the top of the public sector distribution. I examine a 2010 California mandate that required municipal salaries to be posted online. Among top managers, new disclosure led to approximately 7 percent average compensation declines, and a 75 percent increase in their quit rate. The wage cuts were largely nominal. Wage cuts were larger in cities with higher initial compensation, but not in cities where compensation was initially out of line with (measured) fundamentals. The response is more consistent with public aversion to high compensation than the effects of increased accountability.
The Morale Effects of Pay Inequality
Emily Breza
(Columbia University)
Supreet Kaur
(Columbia University)
Yogita Shamdasani
(Columbia University)
[View Abstract]
A long tradition in economics and psychology has advanced the notion that individuals care about not only their own pay, but also their pay relative to that of their co-workers. This has potentially broad implications for wage structure and the organization of labor markets, such as the prevalence of wage compression. We use a field experiment with full-time Indian manufacturing workers over a one-month period to test whether relative pay comparisons affect effort and labor supply. Workers perform individual production tasks, but are organized into distinct teams—defined by the type of product they produce. We randomize teams to receive either compressed wages (where all workers earn the same random daily wage) or heterogeneous wages (where each team member is paid a different wage according to his baseline productivity level). This enables effort comparisons across workers who receive the same absolute wage, but vary in the wages of their co-workers. We find that workers reduce output by 34% when their co-workers are paid more than themselves. They are also 20 percentage points less likely to come to work—giving up substantial earnings to avoid a workplace with unequal pay. These effects are concentrated among production tasks where it is more difficult to observe co-worker output. In addition, effort decreases are larger when the difference in baseline productivity between a worker and his higher-paid peers is small. These findings provide support for reference dependence in co-worker pay, and indicate that transparency about the firm’s rationale for pay is important for fairness perceptions and output. This may help explain why piece rates—which generate earnings dispersion but are transparent—are not perceived as unfair, while flat wages are often compressed. It also has implications for the types of tasks in which wage compression may be more likely.
Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior
Arindrajit Dube
(University of Massachusetts Amherst)
Laura Giuliano
(University of Miami)
Jonathan Leonard
(University of California-Berkeley)
[View Abstract]
[Download Preview] We analyze how quits responded to arbitrary differences in own and peer wages among entry- level employees using an unusual feature of a pay raise at a large U.S. retailer. The firm’s use of discrete pay steps created discontinuities in raises, where workers initially earning within 1 cent of each other received new wages that differed by 10 cents. First, we use a regression discontinuity design to estimate the impact of a higher wage on the probability of a worker quitting within 1 to 9 months of getting the raise. We find large causal effects of own wages on quits, with quit elasticities less than -10. Next, we address whether the overall quit response reflects the impact of comparisons to market wages or to in-store peer wages. Here we use a multi-dimensional regression discontinuity design to jointly estimate the impact of own and peer wages on quits. We find that the large effects of wages on quits mostly reflect relative pay concerns and not market comparisons. In fact, after accounting for peer effects, quits do not appear to be very sensitive to wages—consistent with significant search frictions in the labor market. Finally, we find that the relative pay concerns are asymmetric. The quit response is driven mainly by workers who are paid below their peers, suggesting concerns about fairness or disadvantageous inequity.
Reference-Dependent Job Search: Evidence from Hungary
Stefano DellaVigna
(University of California-Berkeley)
Johannes Friedrich Schmieder
(Boston University)
Attila Lindner
(University College London)
Balazs Reizer
(Central European University)
[View Abstract]
[Download Preview] We propose a model of job search with reference-dependent preferences, where the reference point is given by recent income. Newly unemployed individuals search hard given that they are at a loss, but over time they get used to lower income, and thus search less. They search harder again in anticipation of a benefit cut, only to ultimately get used to it. The model fits the typical shape of the exit from unemployment, including the spike at the UI exhaustion point. The model also makes unique predictions on the response to benefit changes. We provide evidence using a reform in the unemployment system in Hungary. In November 2005, Hungary switched from a single-step UI system to a two-step system, with unchanged overall generosity. We show that the system generated increased hazard rates in anticipation of, and especially following, benefit cuts in ways the standard model has a hard time fitting, even when allowing for unobserved heterogeneity. We structurally estimate the model and estimate a weight on gain-loss utility comparable to the weight on the standard utility term, and a speed of adjustment of the reference point in the order of eight months.The results suggest that a revenue-neutral shift to multiple-step UI systems can speed exit from unemployment.
Discussants:
Kory Kroft
(University of Toronto)
Peter Kuhn
(University of California-Santa Barbara)
Emily Breza
(Columbia University)
Henry Farber
(Princeton University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Golden Gate 3 & 4
American Economic Association
Safe Assets and Macroeconomic Policies
(E2, G1)
Presiding:
Eduardo Davila
(New York University)
A Model of the Reserve Asset
Arvind Krishnamurthy
(Stanford University)
Zhiguo He
(University of Chicago)
Konstantin Milbradt
(Northwestern University)
[View Abstract]
[Download Preview] A portion of the global wealth portfolio is directed towards a safe and liquid reserve asset, which recently has been the US Treasury bond. Our model links the determination of reserve asset status to relative fundamentals and relative debt sizes, by modeling two countries that issue sovereign bonds to satisfy investors’ reserve asset demands. A sovereign’s debt is more likely to be the reserve asset if its fundamentals are strong relative to other possible reserve assets, but not necessarily strong on an absolute basis. Debt size can enhance or detract from reserve asset status. If global demand for the reserve asset is high, a large-debt sovereign which offers a savings vehicle with better liquidity is more likely to be the reserve asset. If demand for the reserve asset is low, then large debt size is a negative as it carries more rollover risk, leading to a riskier vehicle for saving. When global demand is high, countries may make fiscal/debtstructuring decisions to enhance their reserve asset status. These actions have a tournament feature, and are self-defeating: countries may over-expand debt size to win the reserve asset tournament. Coordination can generate benefits. We use our model to study the benefits of “Eurobonds” – i.e. a coordinated common Europe-wide sovereign bond design. Eurobonds deliver welfare benefits only when they make up a sufficiently large fraction of countries’ debts. Small steps towards Eurobonds may hurt countries and not deliver welfare benefits.
The Safety Trap
Emmanuel Farhi
(Harvard University)
[View Abstract]
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.
Optimal Safe Bond Design
Eduardo Davila
(New York University)
Charles-Henri Weymuller
(French Treasury)
[View Abstract]
This paper studies the optimal design of a coordinated pooled borrowing arrangement among sovereigns. We show that spillover (free-riding) effects effects generated by issuing joint bonds without joint liabilities only create second order welfare losses. If the non-pecuniary benefits of issuing a joint bond are larger than the non-pecuniary benefits of issuing bonds separately for each country, it is optimal for countries to pool a strictly positive fraction of their bonds, despite generating spillover (free-riding) effects. We develop formulas for the optimal level of pooling, for the optimal shares of the different countries in the pooled bond and for the optimal level of tranching. All optimal formulas depend on the sensitivity of the individual country price schedules to the determinants of the pooled bond and on the equilibrium sensitivities on the levels of borrowing by each country.
Discussants:
Mathieu Taschereau-Dumouchel
(University of Pennsylvania)
Edouard Schaal
(New York University)
Anton Korinek
(Johns Hopkins University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 21
American Economic Association
Sorting, Tasks, and Inequality: New Theory and Evidence
(J2, J3)
Presiding:
Peter Gottschalk
(Boston College)
Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages
Georg Graetz
(Uppsala University)
[View Abstract]
[Download Preview] How do firms respond to technological advances that facilitate the automation of a wide range of job tasks? Which tasks will they automate, and what types of worker will be replaced as a result? Recent empirical evidence has linked automation to job polarization: the decline in middle wage jobs relative to both high and low wage ones. For instance, advances in information and communication technology (ICT) have led to the replacement of workers predominantly in middle wage jobs. Similarly, the adoption of steam power and later electricity in US manufacturing was associated with a replacement of middle wage workers such as artisans and the growth of low wage operator and high wage non-production jobs. These technologies have in common that they allowed firms to more cheaply automate (or mechanize) tasks. However, so far there exists no economic model that predicts an inherent connection between automation and job polarization.<br />
<br />
We develop a model that analyzes how firms take advantage of a fall in the cost of automation. We distinguish between a task’s engineering complexity and its training requirements. When two tasks are equally complex, firms will automate the task that requires more training and in which labor is hence more expensive. Under quite general conditions this leads to job polarization. Thus, our theory explains recent and historical instances of job polarization as caused by labor-replacing technologies. In addition, the model makes novel predictions regarding occupational training requirements.<br />
<br />
In particular, the model predicts that firms have an incentive to automate tasks with intermediate training requirements first. We test this prediction at the level of occupations: using data from the Dictionary of Occupational Titles and the O*NET database, we show that from 1971-2007, occupations that featured initially intermediate training requirements saw employment decline relatively, and experienced the largest decline in training requirements.<br />
Taking Selection to Task: Bounds on Trends in Occupational Task Prices for the U.S., 1984-2013
Peter T. Gottschalk
(Boston College)
David Alan Greene
(University of British Columbia)
Ben MacLean Sand
(York University)
[View Abstract]
[Download Preview] In the large literature on polarization in the wage and employment structure, arguments about shifts in relative demands for different task based groups have been built on comparisons of movements in employment and wages. In particular, increases in both wages and employment in cognitive task occupations relative to routine task occupations are the basis for arguments that Information Technology innovations are driving labor market polarization. But movements in average wages by occupation are misleading measures for determining underlying demand forces for two reasons. First, the workforce has undergone substantial compositional changes in terms of education levels, the age distribution, and the gender composition. Second, it seems reasonable to assume that the large shifts in the proportion of workers in different occupations has been accompanied by shifts in composition in terms of unobservable task related abilities. In this paper, we provide estimates of movements in task prices for the US for the period from 1984 to 2013. To do this, we adjust for changes in observable variable composition and address selection on unobservables through a bounding exercise. We tighten the bounds by appealing to the logic of standard Roy Models. In particular, we derive and implement the bounds associated with different versions of the Roy Model based on different assumptions about the joint distribution of abilities across sectors. We find that task prices for cognitive, routine and manual occupations increased strongly through the 1990s, with some evidence of polarization, but all three declined strongly, and to a similar extent, after 2000.
The Price of Polarization: Estimating Task Prices under Routine-Biased Technical Change
Michael Johannes Boehm
(University of Bonn)
[View Abstract]
[Download Preview] The debate about the impact of routine-biased technical change on the labor market revolves around the question whether employment and wages polarized. This paper instead shows that RBTC’s main prediction is that the prices paid for routine tasks should decline compared to abstract and manual tasks. I exploit the sorting of workers into tasks to estimate these price changes under relatively weak assumptions. Empirical results for male workers in two U.S. datasets reveal that task prices polarized during the 1990s and 2000s. The estimates go a long way in matching the change of the actual wage distribution over this period.
Task Specialization within Establishments and the Decline of Routine Employment
Guido Matias Cortes
(University of Manchester)
Andrea Salvatori
(ISER and University of Essex)
[View Abstract]
[Download Preview] The prevailing explanation for job polarization maintains that technology reduces the demand for routine middle-skill employment, but there is limited evidence on occupational changes at the firm level. This paper uncovers a rich new set of facts about the way in which establishments are organized from a task perspective, and the establishment-level patterns underlying the observed changes in the employment composition of the economy. Using workplace-level data from the UK, we show that establishments tend to specialize in particular tasks, with a substantial fraction of their employment concentrated within one broad occupational category. There is considerable variation in task specialization across establishments within industries, in contrast with the recurrent assumption of homogeneity in the technology of production within industries. We show that occupational specialization increased over time, and the fraction of private sector workplaces specializing in non-routine tasks increased sharply between 1998 and 2011. These changes account for most of the changes in aggregate employment shares, while changes in the intensity of use of different tasks conditional on specialization play a relatively minor role. Establishment entry and exit accounts for an important fraction of the change in the specialization composition of establishments. We also document a large increase in the use of computers in non-routine manual workplaces and find no support for the hypothesis that the adoption of new technologies is associated with a lower propensity to increase employment.
Discussants:
Zsofia Barany
(Sciences Po)
Ariell Reshef
(University of Virginia)
Jan 05, 2016 1:00 pm, Hilton Union Square, Plaza A
American Economic Association
The Design and Use of Patents
(O3)
Presiding:
Carl Shapiro
(University of California-Berkeley)
Patent and Research Investments: Assessing the Empirical Evidence
Eric Budish
(University of Chicago)
Benjamin Roin
(Massachusetts Institute of Technology)
Heidi Williams
(Massachusetts Institute of Technology)
[View Abstract]
[Download Preview] A long theoretical literature has analyzed optimal patent design, including optimal patent length. However, very little empirical evidence exists on a key parameter needed to inform these theoretical models in practice, which is how patent length affects research and development (R&D) investments. We provide a survey of estimates of the patent length-R&D elasticity, with a particular focus on heterogeneity across industries where available, and build on these estimates to provide an interpretation of what the available data say about optimal patent length and how it varies across industries.
Patent Licensing, Technology Transfer, and Innovation
Robin Feldman
(University of California-Hastings College of the Law)
Mark Lemley
(Stanford University)
[View Abstract]
[Download Preview] In recent studies, we looked for evidence of positive economic and social welfare effects from ex post patent licensing requests by non-practicing entities. Non-practicing entities (NPEs) are those whose core activity involves licensing or litigating patents. One study by the authors suggests that technology transfer and product creation rarely occur through patent licensing from assertion. Another study by one co-author finds that NPEs target companies for patent assertions near the major funding event of an IPO. The results are concerning for common justifications of NPE ex post licensing behavior and theories maintaining that those activities increase social welfare. We further discuss the necessity of expanded study of licensing, note takeaways from other recent papers, and comment on the difficulty of capturing information on assertion and licensing behavior. We also look ahead to new horizons in this subject area.
Patent Quality and Examination in Europe
Dietmar Harhoff
(Max Planck Institute for Innovation and Competition)
[View Abstract]
[Download Preview] Following the publication of the Federal Trade Commission (2003) report, policy-makers in many jurisdictions started to consider administrative patent system reforms. The three largest patent offices - the European Patent Office (EPO), the Japanese Patent Office (JPO) and the US Patent and Trademark Office (USPTO) - introduced measures to cope with the growing number of claims and volume of patent applications which were deemed too complex and thus prone to uncertain interpretation by courts and competitors. Besides revamping its fee structure, the EPO also modified its rule base in 2010 under the heading “Raising the Bar”, requiring applicants to restrict the scope of subject matter considered in prior art search and examination. This paper reports on some effects of these measures over the time period from 2005 to 2013. The number of claims declined in patent filings reaching the EPO, but still showed a “home bias” introduced by national rules in the respective origin countries. In granted patents, the number of claims declined starting in 2008 when new claims fees became effective, claims sections in patents became shorter and independent claims longer (narrower). The grant rate had declined at the EPO by 2013, but the EPO was unable to stem the use of divisional filings by setting time limits. The developments at the EPO point to the private value of delay options which allow applicants to define their patent rights over time. Delay may be achieved either by statutory means or by filing divisionals or continuations. The latter might be socially wasteful. The tradeoffs implied by these observations should be given more attention in the economic analysis and design of patent prosecution.
Patent Remedies
Carl Shapiro
(University of California-Berkeley)
[View Abstract]
[Download Preview] Since the Supreme Court’s eBay decision in 2006, the U.S. has employed a hybrid patent remedy system that mixes property and liability rules. When the patent owner and the infringer are competitors, the courts typically issue a permanent injunction requiring the infringer to cease its infringing activities. In contrast, when the patent owner and the infringer are not competitors, the courts often allow the infringer to continue its infringing activities so long as it pays specified ongoing royalties to the patent holder. This article studies the incentives for invention and for new product development in such a hybrid system..
Discussants:
Josh Lerner
(Harvard University)
Fiona M. Scott Morton
(Yale University)
Stuart Graham
(Georgia Institute of Technology)
Timothy Simcoe
(Boston University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Yosemite B
American Economic Association
Welfare and Mergers in Vertical Relationships: Theory, Evidence and Policy Implications
(L1, L4)
Presiding:
Gautam Gowrisankaran
(University of Arizona)
Efficiency and Foreclosure Effects of Vertical Rebates: Empirical Evidence
Christopher T. Conlon
(Columbia University)
Julie Mortimer
(Boston College)
[View Abstract]
[Download Preview] Vertical rebates, paid from a manufacturer to a retailer for meeting a set of conditions, are prominently used across a wide range of industries. These contracts may be used to induce greater retailer effort, but may also prompt a retailer to drop competing products in order to attain the rebate payment. We study these offsetting efficiency and foreclosure effects empirically, using detailed data on the sales and rebate payments of a retailer in the confections industry. We show how the rebate allocates the cost of effort between the manufacturer and retailer, and estimate structural models of demand and retailer behavior to quantify the efficiency gains induced by the rebate.
We find that the rebate increases industry profitability and consumer surplus, but that it fails to implement the product assortment that maximizes social surplus, and results in upstream foreclosure. The welfare effects of the rebate depend on what the rebating firm does when rebates are disallowed, and we compare social welfare under the rebate to alternatives in which the manufacturer re-optimizes her wholesale price or merges with an upstream competitor.
The Welfare Effects of Vertical Integration in Multichannel Television Markets
Gregory S. Crawford
(University of Zurich)
Robin S. Lee
(Harvard University)
Michael D. Whinston
(Massachusetts Institute of Technology)
Ali Yurukoglu
(Stanford University)
[View Abstract]
[Download Preview] We investigate the welfare effects of vertical integration of regional sports networks (RSNs) with programming distributors in U.S. multichannel television markets. Vertical integration can enhance efficiency by reducing double marginalization and increasing carriage of channels, but can also harm welfare due to foreclosure and raising rivals' costs incentives. We estimate a structural model of viewership, subscription, distributor pricing, and affiliate fee bargaining using a rich dataset on the U.S. cable and satellite television industry (2000-2010). We use these estimates to analyze the impact of simulated vertical mergers and de-mergers of RSNs on competition and welfare, and examine the efficacy of regulatory policies introduced by the U.S. Federal Communications Commission to address competition concerns in this industry.
"Nash-in-Nash" Bargaining: A Microfoundation for Applied Work
Allan Collard-Wexler
(Duke University)
Gautam Gowrisankaran
(University of Arizona)
Robin S. Lee
(Harvard University)
[View Abstract]
[Download Preview] A "Nash equilibrium in Nash bargains" has become the workhorse bargaining model in applied analyses of bilateral oligopoly. This paper proposes a non-cooperative foundation for "Nash-in-Nash" bargaining that extends the Rubinstein (1982) model to multiple upstream and downstream firms. Assuming there exists gains from trade for each firm pair, we prove that there exists an equilibrium with immediate agreement and negotiated prices that correspond to Rubinstein prices if and only if the marginal contribution of a set of agreements is weakly greater than the sum of the agreements' marginal contributions. We provide stronger conditions under which equilibrium prices are unique.
Bargaining Power and Upstream Mergers
Andres Elberg
(Universidad Diego Portales)
Gautam Gowrisankaran
(University of Arizona)
Carlos Noton
(University of Chile)
[View Abstract]
Evaluating the effects of mergers is especially challenging in industries where intermediate prices are negotiated between upstream and downstream players. A key issue that remains elusive to researchers is the mechanism through which mergers affect negotiated prices within the context of a bargaining model. Two main effects are at play: A bargaining leverage effect (changes in outside options or disagreement payoffs) and a bargaining power effect (the merged firm may have different bargaining skills from those of the merging firms). In this paper we empirically identify the role played by bargaining power vis-à-vis bargaining leverage following an upstream merger.
To do so, we make use of a unique dataset from the bottled water industry in Chile. Two features of this dataset allow us to disentangle the different effects of the merger. First, we observe both retail quantity and prices for bottled water at the store, brand and week level, as well as the wholesale prices at which upstream suppliers sell the water to the firms. Second, we have data before and after an important merger occurred in this sector where the third largest bottled water firm was acquired by the second largest firm, the Coca-Cola Company. We analyze the bottled water market through the lens of a structural model of the interactions between suppliers, supermarkets and final consumers. The model features two stages. In stage one, suppliers choose the retail prices that maximize the channel surplus. In the second stage, suppliers and supermarkets bargain over wholesale prices in bilateral negotiations which determine the way the channel surplus is shared among the players. Taking the model to the data we are able to back out marginal costs and to identify changes in bargaining power and bargaining leverage before and after the merger.
Discussants:
Sofia Villas-Boas
(University of California-Berkeley)
Gautam Gowrisankaran
(University of Arizona)
Michael Riordan
(Columbia University)
Aviv Nevo
(Northwestern University)
Jan 05, 2016 1:00 pm, Marriott Marquis, Yerba Buena Salons 1 & 2
American Finance Association
Bond Markets
(G1)
Presiding:
Pierre Collin-Dufresne
(Ecole Polytechnique Federale de Lausanne)
Jumps in Bond Yields at Known Times
Don Kim
(Federal Reserve Board)
Jonathan H. Wright
(Johns Hopkins University)
[View Abstract]
[Download Preview] We construct a no-arbitrage term structure model with jumps in the entire state vector at deterministic times but of random magnitudes. Jump risk premia are allowed for. We show that the model implies a closed-form representation of yields as a time-inhomogenous affine function of the state vector. We apply the model to the term structure of US Treasury rates, estimated at the daily frequency, allowing for jumps on days of employment report announcements. Our model can match the empirical fact that the term structure of interest rate volatility has a hump-shaped pattern on employment report days (but not on other days). The model also produces patterns in bond risk premia that are consistent with the empirical finding that much of the time-variation in excess bond returns accrues at times of important macroeconomic data releases.
Advance Refundings of Municipal Bonds
Andrew Ang
(Columbia University)
Richard C. Green
(Carnegie Mellon University)
Yuhang Xing
(Rice University)
[View Abstract]
In "advance refundings," a widespread practice where existing callable debt is
defeased by issuing new bonds, issuers lose by pre-committing to call. The average option value lost is 1% of par value, not including fees. This translates to an aggregate value lost of over $7 billion from 1995 to 2013 for the bonds in our sample, which are roughly two-thirds of all advance refunded bonds. A motivation for the transaction is that it enables issuers to borrow, in a non-transparent way, to fund current operating activities in exchange for future higher interest payments. Municipalities in states with more corruption destroy more option value.
Dealer Inventory and the Cross-Section of Corporate Bond Returns
Nils Friewald
(Norwegian School of Economics)
Florian Nagler
(Vienna Graduate School of Finance)
[View Abstract]
[Download Preview] Inventory models of dealership markets following Ho and Stoll (1981) imply that intermediaries rely on pricing policies to reduce their exposure to inventory risk, i.e., the risk of unfavorable price movements in the assets on their inventories. Consequently, extreme inventory positions of intermediaries affect market prices, and thus, subsequent returns. We study dealer inventory positions in the US corporate bond market over the time period from 2003 to 2013 based on a complete set of transactions data. In particular, we examine asset pricing implications of inventory models by relating the cross-section of dealer inventories to bond returns. We find strong support for the implications of inventory models. A long-short quintile portfolio based on dealers' inventory positions yields significant positive risk-adjusted returns of 18 bp per week. The results are robust to different sample periods, i.e., full, pre-crisis, and crisis period.
Transmission of Quantitative Easing: The Role of Central Bank Reserves
Jens Christensen
(Federal Reserve Bank of San Francisco)
Signe Krogstrup
(Swiss National Bank)
[View Abstract]
[Download Preview] We argue that the issuance of central bank reserves per se can matter for the effect of central bank large-scale asset purchases---commonly known as quantitative easing---on long-term interest rates. This effect is independent of the assets purchased, and runs through a reserve-induced portfolio balance channel. For evidence we analyze the reaction of Swiss long-term government bond yields to announcements by the Swiss National Bank to expand central bank reserves without acquiring any long-lived securities. We find that declines in long-term yields following the announcements mainly reflected reduced term premiums suggestive of reserve-induced portfolio balance effects.
Discussants:
Mikhail Chernov
(University of California-Los Angeles)
Francis Longstaff
(University of California-Los Angeles)
Jens Dick-Nielsen
(Copenhagen Business School)
Greg Duffee
(Johns Hopkins University)
Jan 05, 2016 1:00 pm, Marriott Marquis, Yerba Buena Salons 3 & 4
American Finance Association
Commodities
(G1)
Presiding:
Lars Lochstoer
(Columbia University)
Commodity Financialization: Risk Sharing and Price Discovery in Commodity Futures Markets
Itay Goldstein
(University of Pennsylvania)
Liyan Yang
(University of Toronto)
[View Abstract]
[Download Preview] We theoretically study how commodity financialization affects trading behavior, prices and welfare through affecting risk sharing and price discovery in futures markets. In our model, the general equilibrium feature makes financial traders either provide or demand liquidity in the futures market, depending on the information environment. Consistent with recent evidence, commodity financialization reduces the futures price bias through broadening risk sharing and injecting information into the market. Each financial trader loses and final-end commodity consumers benefit in the process of commodity financialization. Commercial hedgers can either lose or win, and their welfare improves with commodity financialization only when the number of active financial traders takes intermediate values.
Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution
Erik Gilje
(University of Pennsylvania)
Robert Ready
(University of Rochester)
Nikolai Roussanov
(University of Pennsylvania)
[View Abstract]
[Download Preview] We quantify the effect of a significant technological innovation, shale oil development, on asset prices. We use stock price changes on major shale news announcement days to link aggregate stock price changes to shale development activity. Using these announcement days, we exploit industry cross-sectional variation in price changes to construct a shale mimicking portfolio. We show that this portfolio can help explain aggregate stock market fluctuations, but only during the time period of shale oil development. Based on the estimated effect of this mimicking portfolio on aggregate stock market returns, we find that $2.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be attributed to shale oil. Industries benefiting the most from the shale oil revolution, as indicated by their shale announcement day returns, added more jobs over the shale period than those unrelated to shale.
Heterogeneous Beliefs and the Oil State Price Density
Peter Christoffersen
(University of Toronto)
Xuhui (Nick) Pan
(Tulane University)
[View Abstract]
Standard asset pricing theory suggests that state price densities (SPDs or the pricing kernel) monotonically decrease with returns. We find that the SPDs implicit in the crude oil market display a time varying U-shape pattern. This implies that investors assign high state prices to both negative and positive returns. We use data of the crude oil derivatives market, where speculation and short sales are not regulated, to document how the SPDs are dependent on investor beliefs. Investors' preferences over return states are reflected in belief dispersion in options and underlying futures contracts. Investors overall assign higher state prices to negative returns when there are higher demands for out-of-the-money put options, and when there are increased speculations in the crude oil market after 2004-2005.
Commodities as Collateral
Ke Tang
(Tsinghua University)
Haoxiang Zhu
(Massachusetts Institute of Technology)
[View Abstract]
This paper proposes and tests a theory of using commodities as collateral for financing. Under capital control and collateral constraint, financial investors import commodities and pledge them as collateral to earn higher expected returns. Higher collateral demands increase commodity prices and make the inventory-convenience yield relation less negative; lower collateral demands do the opposite. A model illustrates these equilibrium behaviors and suggests that the violation of covered interest-rate parity in the FX market is a natural proxy for collateral demands. Evidence from eight commodities in China and developed markets supports our theoretical predictions, and the economic magnitudes are large. Our theory and evidence complement the theory of storage and provide new insights on the financialization of commodity markets.
Discussants:
Anna Pavlova
(London Business School)
Ing-Haw Cheng
(Dartmouth College)
Anders Trolle
(Swiss Finance Institute)
Bryan R. Routledge
(Tepper School of Business Carnegie-Mellon University)
Jan 05, 2016 1:00 pm, Marriott Marquis, Yerba Buena Salons 10 & 11
American Finance Association
Empirical Studies of Banking
(G2)
Presiding:
Philip Strahan
(Boston College)
Credit Default Swaps and Moral Hazard in Bank Lending
Indraneel Chakraborty
(Southern Methodist University)
Sudheer Chava
(Georgia Institute of Technology)
Rohan Ganduri
(Georgia Institute of Technology)
[View Abstract]
[Download Preview] We analyze whether introducing Credit Default Swaps (CDSs) on a borrower's debt leads to lender moral hazard around covenant violations, wherein lending banks can terminate or accelerate the loan. Using a regression discontinuity design, we show that CDS firms, including those with agency problems, do not decrease their investment after covenant violations, pay a higher loan spread, and perform poorly, but do not go bankrupt at a higher rate when compared with non-CDS firms that violate covenants. These results are magnified when lenders have weaker incentives to monitor and suggest that introducing CDSs misaligns incentives between lenders and borrowers.
Got Rejected? Real Effects of Not Getting a Loan
Tobias Berg
(Bonn University)
[View Abstract]
[Download Preview] Using a lender cut-off rule that generates plausibly exogenous variation in credit supply, I analyze real effects of loan rejections in a sample of small and medium-sized enterprises. I find that loan rejections reduce asset growth, investments, and employment, and these effects are concentrated among low liquidity firms. Precautionary savings motives aggravate real effects: firms whose loan applications got rejected increase cash holdings and cut non-cash assets in excess of the requested loan amount. These results point to the amplifying effect of precautionary savings motives in the transmission of credit supply shocks.
What drives banks’ geographic expansion? The role of locally non-diversifiable risk
Reint Gropp
(IWH-Halle Institute for Economic Research)
Felix Noth
(University of Magdeburg)
Ulrich Schüwer
(Goethe University-Frankfurt)
[View Abstract]
[Download Preview] [Download PowerPoint] Why do some banks react to deregulation by expanding geographically while others
do not? This paper examines this question using exogenous variation in locally
non-diversifiable risk that banks face in their home state. As a measure of locally
non-diversifiable risk we use data on damages arising from natural disasters in the
U.S. Combining this data with information on the staggered deregulation in the
90s, we find that banks facing such risks expand significantly more into other states
after deregulation than banks that do not face such risks. Only large banks are
able to take advantage of deregulation, small banks are not. Finally, banks that do
expand, do not necessarily seek to reduce their exposure to risk when expanding.
Discussants:
Greg Nini
(Drexel University)
Heitor Almeida
(University of Illinois-Urbana-Champai)
Matthieu Chavaz
(Bank of England)
Jan 05, 2016 1:00 pm, Marriott Marquis, Yerba Buena Salons 12 & 13
American Finance Association
Illiquidity in Financial Markets: Information, Taxes and Temperature
(G1)
Presiding:
Brett Green
(University of California-Berkeley)
The Paradox of Financial Fire Sales and the Role of Arbitrage Capital
James Dow
(London Business School)
Jungsuk Han
(Stockholm School of Economics)
[View Abstract]
[Download Preview] Why do fire sales happen for financial assets, even when there are well-capitalized investors somewhere in the economy? We propose a theory of financial fire sales based on a noisy rational expectations equilibrium framework with endogenous adverse selection. When informed market participants are liquidity-constrained due to market-wide shocks, prices become less informative. This creates an adverse selection problem, decreasing the supply of high-quality assets. This "lemons" problem makes well-capitalized uninformed market participants unwilling to absorb the supply, thereby freezing the market. Our results shed light on the paradoxical nature of fire sales in which capital seems to move out of the market and appears likely to earn higher returns.
Asymmetric Information and Liquidity Provision
Alberto Teguia
(Rice University)
[View Abstract]
[Download Preview] The presence of information asymmetry increases the probability that a potential predator
will provide liquidity rather than engaging in predatory trading during liquidation by a
distressed trader. More information asymmetry is associated with greater expected
gains from liquidation for the distressed trader. There is a negative correlation between
the degree of information asymmetry and the returns from predatory trading, which is
consistent with empirical findings. These results imply that strategic traders are more
likely to stabilize markets by providing liquidity when information is asymmetric. These
findings highly a cost associated with disclosure and can explain the documented rarity of
illiquidity episodes in financial markets.
Financial Transaction Taxes, Market Composition, and Liquidity
Jean-Edouard Colliard
(HEC Paris)
Peter Hoffmann
(European Central Bank)
[View Abstract]
[Download Preview] We use the introduction of a financial transactions tax (FTT) in France in 2012 to test competing theories on the impact of FTTs. We find no support for the idea that an FTT improves market quality by affecting the composition of trading volume. Instead, our results are in line with the idea that a lower trading volume reduces liquidity, and thereby market quality. Moreover, short-term institutional investors sell 8% of their holdings of French stocks, which are bought by more long-term investors. This effect on shareholder composition suggests that the debate on FTTs should include their indirect effects on corporate governance and not only on market quality.
Liquidity and Market Returns: A Natural Experiment in Pre-1903 Manhattan Summers
Thummim Cho
(Harvard University)
[View Abstract]
[Download Preview] What causes the daily reversals in a stock market index? Using exogenous temperature variation in Manhattan in the summers of 1889-1902, I provide evidence that non-informational trades by ‘outside investors’ (Grossman and Miller 1988) underlie short-term reversals in the market index return, consistent with the model of Campbell, Grossman, and Wang (1993). An increase in outside investors by 1% of the average daily trade volume is estimated to cause a 1-2% standard deviation increase in aggregate liquidity imbalance, a 0.2 percentage point increase the likelihood of a next-day market index return reversal, and a 0.018 decrease in the daily index return autocorrelation.
Discussants:
Brendan Daley
(Duke University)
S. Viswanathan
(Duke University)
David Sraer
(University of California-Berkeley)
Peter Koudijs
(Stanford University )
Jan 05, 2016 1:00 pm, Marriott Marquis, Yerba Buena Salons 5 & 6
American Finance Association
In Honor of Rick Green
(G1)
Presiding:
Vincent Glode
(University of Pennsylvania)
Tax-Loss Carry Forwards, Investment and Returns
Jack Favilukis
(University of British Columbia)
Ron Giammarino
(University of British Columbia)
Jose Pizarro
(University of British Columbia)
[View Abstract]
[Download Preview] Tax loss carry forward (TLCF), the accumulated corporate losses that can be applied to future or past taxable income, form an important but understudied asset in the corporate portfolio. In our sample TCLF was on average equal to 17% of pre-tax income with considerable cross-sectional variation. We show that a firm's TLCF are a complex contingent claim that has a significant non-monotonic affect on the cash flow risk of assets in place. Consistent with this theoretical finding and a calibrated model, we show that TLCF are highly significant in positively forecasting returns, volatility and betas. These results run counter to previous findings of a negative relationship between risk and more general measures of tax shields.
Relationship Trading in OTC Markets
Terry Hendershott
(University of California-Berkeley)
Dan Li
(Federal Reserve Board)
Dmitri Livdan
(niversity of California-Berkeley)
Norman Schurhoff
(University of Lausanne)
[View Abstract]
[Download Preview] Trading in OTC markets is bilateral between dealer and client. Using trade-by-trade data on insurer transactions with corporate bond dealers, we document a tradeoff between order flow concentration and dealer competition for best execution. Consistent with assortative matching, both large and small insurers trade with large dealers offering good execution. Large insurers form more relations than small, leading to better execution by fostering price competition among dealers. Low-quality insurers not establishing trading relations with large dealers receive poor execution from small regional dealers. These findings have implications for the impact of regulation and technological advances on price formation and trading outcomes in bond markets.
High Water Marks in Competitive Capital Markets
Susan Christoffersen
(University of Toronto)
David Musto
(University of Pennsylvania)
Bilge Yilmaz
(University of Pennsylvania)
[View Abstract]
We analyze the effectiveness of hedge fundshigh-water mark provisions (HWMs)
at mitigating moral hazard and adverse selection, when the supply of capital is
competitive. We show that the HWM does not allow better managers to distin-
guish themselves ex ante. Regarding moral hazard, we
nd that precision of beliefs
about a managers ability is crucial to the HWMs effectiveness. When precision
is low, the HWM encourages shirking. However, if precision is high, and the be-
liefs themselves are high as well, then the HWM encourages costly effort by the
manager. Furthermore, the HWM boosts the initial fund size, depresses initial
expected returns and increases subsequent expected returns.
Discussants:
Robert McDonald
(Northwestern University)
Burton Hollifield
(Carnegie Mellon University)
Jonathan Berk
(Stanford University)
Jan 05, 2016 1:00 pm, Marriott Marquis, Yerba Buena Salons 14 & 15
American Finance Association
International Risk Sharing and Capital Flows
(G1)
Presiding:
Tarun Ramadorai
(University of Oxford)
Risk Sharing in International Economies and Market Incompleteness
Gurdip Bakshi
(University of Maryland-College Park)
Mario Cerrato
(University of Glasgow)
John Crosby
(University of Glasgow)
[View Abstract]
[Download Preview] We develop an incomplete markets framework to show that international risk sharing can be low, particularly among countries with large interest-rate differentials. Furthermore, risk sharing computed from asset returns can be consistent with that computed from consumption.
The fundamental departure in our paper is that exchange rate growth need not equal the ratio of stochastic discount factors (SDFs), and we develop a
restriction that precludes ``good deals" in international economies with incomplete markets. Our innovation is to compute the lowest risk sharing consistent with SDFs that (i) are nonnegative, (ii) correctly price returns, and (iii) disallow ``good deals."
Limited Risk Sharing and International Equity Returns
Shaojun Zhang
(Hong Kong University)
[View Abstract]
This paper examines, empirically and theoretically, whether accounting for limited stock market participation can help explain international consumption risk sharing and asset prices. Empirically, for stock markets that are integrated with the U.S. market (such as European markets), U.S. stockholders' long-run consumption growth can explain the equity market index returns, as well as the within-market cross-section of equity returns. In contrast, there is little explanatory power for the asset returns of markets segmented from the U.S. market (such as Japanese and other Asia-Pacific markets). Consistent with these results, I present new evidence, employing micro-level household consumption data in the U.S. and U.K., showing that stockholders' consumption correlation is considerably higher than that of the aggregate consumption growth. I construct an incomplete market model that features limited stock market participation in each country. Besides matching the salient features of asset prices, the model quantitatively rationalizes the above empirical results, as well as explains the international equity premium puzzle (low aggregate consumption correlation and high asset return correlation). The model demonstrates that financial integration can generate excess comovement of asset prices relative to comovement in aggregate fundamentals, as in data. I study the welfare implications of a financial integration, and find that the benefits are all captured by the stockholders.
A Pure Measure of Home Bias
Ian Cooper
(London Business School)
Piet Sercu
(KU Leuven)
Rosanne Vanpée
(KU Leuven)
[View Abstract]
[Download Preview] The literature on international equity holdings distinguishes between the home bias (overweighting of home stocks) and the foreign bias (relative underweighting of stocks from countries that are far from home geographically, economically, culturally, or informationally). In fact, the two biases may not be distinct at all. We characterize a measure of “pure” home bias as the amount by which home bias exceeds the level that would be predicted for a foreign country with zero “distance”. We establish that there is no pure bias in 24 developed markets. In 4 countries there is negative pure bias explained by the fact that they are tax havens. There is positive and large pure bias in 13 younger markets. . We identify country characteristics that are correlated with the degree of pure home bias. These are mainly development and governance measures.
The Coming Wave: Where Do Emerging Market Investors Put Their Money?
Andrew Karolyi
(Cornell University)
Eswar S. Prasad
(Cornell University)
David Ng
(Cornell University)
[View Abstract]
[Download Preview] We examine the patterns and determinants of external portfolio equity allocations of emerging<br />
market economies. Using both aggregate data on bilateral asset holdings and an extensive dataset of institutional investor portfolios, we find strong evidence of a foreign allocation bias in the composition of external portfolio equity assets of emerging markets. Deviations from an allocation based on the market-capitalization weighted global portfolio are on average larger for emerging market investors than for advanced economy investors. We find evidence to support the information endowment hypothesis, which implies that capital and trade flows from one country to another create an information endowment (or advantage) for investors in the recipient country, who then tend to invest preferentially in the source country. This effect is stronger for emerging market investors, particularly when there is a large difference in size (as measured by GDP or market capitalization) between the source and destination countries, implying larger incentives to rely on information endowments.
Discussants:
Ilaria Piatti
(University of Oxford)
Rui Albuquerque
(Boston University)
Ingrid Werner
(Ohio State University)
Pab Jotikasthira
(University of North Carolina)
Jan 05, 2016 1:00 pm, Marriott Marquis, Nob Hill A & B
American Finance Association
Shareholder Activism and the Market for Corporate Control
(G3)
Presiding:
Doron Levit
(University of Pennsylvania)
Can Institutional Investors Improve Corporate Governance Through Collective Action?
Craig Doidge
(University of Toronto)
I. J. Alexander Dyck
(University of Toronto)
Hamed Mahmudi
(University of Oklahoma)
Aazam Virani
(University of Arizona)
[View Abstract]
[Download Preview] Can institutional investors generate sufficient power through collective action to drive improvements in governance? We use proprietary data on the private communications of a formal coalition of Canadian institutional investors and find that its private engagements influenced firms’ adoption of majority voting and say-on-pay advisory votes, improved compensation structure and disclosure, and influenced CEO incentive intensity. Spillovers to non-engaged firms occur through board interlocks and to firms in which the CCGG is expected to be more powerful in a voting contest. This form of activism is both a substitute and complement to other interventions to address governance concerns.
Influencing Control: Jawboning in Risk Arbitrage
Wei Jiang
(Columbia University)
Tao Li
(Warwick Business School)
Danqing Mei
(Columbia University)
[View Abstract]
[Download Preview] We provide the first study on a relatively new phenomenon of “activist risk arbitrage,” in which activist shareholders attempt to block an announced M&A deal with public campaigns in order to extract better terms. Compared to the conventional (passive) risk arbitrage, we find that activist arbitrageurs are more likely to select deals that are susceptible to managerial conflict of interest, including going-private deals, “friendly” deals, and deals with lower announcement premiums. Moreover, while it does not significantly change the probability of deal completion, activists’ action increases its sensitivity to market price signals. Finally, activist risk arbitrage yields significantly higher returns than passive ones, with little incremental deal risk.
Hedge Fund Activism versus Hostile Takeover Bids
Mike Burkart
(Stockholm School of Economics & Swedish )
Samuel Lee
(Santa Clara University)
[View Abstract]
[Download Preview] We compare hedge fund activism and hostile tender offers in a unified framework where any investor who acquires an equity stake to improve firm value faces a dual free-rider problem: Neither do dispersed shareholders sell their shares unless the price fully reflects the anticipated value improvement nor do those who retain their shares participate in the costs. We show that activism and tender offers are polar approaches to this problem, and in terms of profitability, react contrarily to changes in the marginal return to effort. Activists can hence contribute to a more efficient control allocation by brokering takeovers, along the extensive margin (takeover activity) as well as the intensive margin (ownership concentration), partially obviating tender offers. We also show that pre-campaign coordination between bidders and activists reduces hold-up problems, and that allowing activists to disentangle votes and cash flow rights improves their incentives and ultimately serves to unify both sets of rights in the hands of bidders.
Selling Assets: When is the Whole Worth More than the Sum of its Parts?
Robert Marquez
(University of California-Davis)
Rajdeep Singh
(University of Minnesota )
[View Abstract]
[Download Preview] When is it better to sell assets separately versus pooling them together? We study this issue in a setting where the number of potential buyers for an asset is endogenous and is a function not just of the costs associated with due diligence but also of the composition of the set of other possible buyers. We show that if buyers anticipate that there may be another buyer who in expectation has a higher value for the target, they will be less likely to enter since they anticipate being less likely to win, and having to pay a higher price when they do win. This reduces competition and lowers revenue for the seller of the asset. This reduction in competition, however, is different depending on how the assets are sold and is attenuated when assets are sold together relative to when they are sold separately. We characterize when this competitive effect leads the seller to prefer to sell the assets together rather than individually.
Discussants:
Laura Starks
(University of Texas-Austin)
Nickolay Gantchev
(University of North Carolina )
Robert Marquez
(University of California-Davis)
Andrey Malenko
(Massachusetts Institute of Technology)
Jan 05, 2016 1:00 pm, Marriott Marquis, Nob Hill C & D
American Finance Association
Transparency, Corporate Governance, and Firm Value
(G3)
Presiding:
Margarita Tsoutsoura
(University of Chicago)
Tax Enforcement, Corporate Governance, and Income Diversion: Evidence after Putin's election in 2000
Juan-Pedro Gomez
(IE Business School)
Maxim Mironov
(IE Business School)
[View Abstract]
[Download Preview] Using a direct estimate of income diversion for 156 firms from 1999 through 2004, we show that an increase in tax enforcement following the election of Vladimir Putin in 2000 is associated with a decrease in the appropriation of private rents by insiders in those firms investigated for tax evasion. We also find evidence consistent with a simultaneous spillover effect: the largest non-government controlled companies in Russia decrease income diversion even though they were not explicitly targeted as tax evaders. This effect is significant both economically and statistically after controlling for changes in firm-level corporate governance and it cannot be explained by trends in the general improvement of corporate governance in Russia during our sample period. Finally, we find no significant evidence of either substitution or complementarity between firms’ corporate governance and government’s tax enforcement vis-à-vis income diversion.
Corporate Tax Havens and Transparency
Morten Bennedsen
(INSEAD)
Stefan Zeume
(University of Michigan)
[View Abstract]
[Download Preview] Using a novel hand-collected dataset of 17,331 publicly listed firms from 52 countries and their international subsidiaries, we identify expropriation-related motives for the use of tax haven subsidiaries. We document four results: First, increased transparency through the signing of Tax Information Exchange Agreements (TIEAs) between home countries and tax havens increases average shareholder value of affected firms by 2.5 percent. Second, the positive effect is stronger for firms with more complex firm structures within tax havens. Third, one third of firms respond to TIEAs by engaging in haven hopping, i.e., moving their subsidiaries from tax havens that entered TIEAs to tax havens that did not; TIEAs did not impact average shareholder value for such haven hoppers. Fourth, the positive shareholder effect of increased transparency is larger for firms with lower institutional ownership. These results suggest that (i) entrenched managers or controlling owners use tax haven subsidiaries for expropriation activities beyond pure tax saving and (ii) increased transparency is applauded by non-controlling shareholders.
Are Foreign Investors Locusts? The Long-Term Effects of Foreign Institutional Ownership
Jan Bena
(University of British Columbia)
Miguel Ferreira
(Nova School of Business and Economics)
Pedro Matos
(University of Virginia)
Pedro Pires
(Nova School of Business and Economics)
[View Abstract]
[Download Preview] This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forego long-term investment. We find that greater foreign institutional ownership fosters long-term investment in R&D, fixed capital, and human capital. Foreign institutions also lead to significant increases in innovation output and productivity. Using the exogenous variation in foreign institutional ownership that follows the addition of a stock to the MSCI World index, we show that the effect of foreign institutions on long-term investment and innovation output is causal. This effect is explained by the monitoring role of foreign institutions when managers are more entrenched.
Discussants:
I. J. Alexander Dyck
(University of Toronto)
Michelle Hanlon
(Massachusetts Institute of Technology)
Olga Kuzmina
(New Economic School)
Jan 05, 2016 1:00 pm, Parc 55, Powell I
American Real Estate & Urban Economic Association
Education, Schools, and the Housing Market
(R3, I2)
Presiding:
Eric Brunner
(University of Connecticut)
Are We Punishing Our Poorest Neighborhoods? Evaluating the Consequences of No Child Left Behind
Keren Horn
(University of Massachusetts-Boston)
[View Abstract]
School reforms in our country have historically been made with no consideration of the communities that are served by each given school. However, school reforms could have important implications for surrounding communities as households place great weight on school quality and take schools into account when making residential choices. How households respond to school reforms can therefore hold important implications for the future of the neighborhood. No Child Left Behind (NCLB), our current large scale school reform, is no exception. Notifying parents that their local school is failing to meet Adequate Yearly Progress (AYP) could lead households with resources in a poor neighborhood to leave, creating further decline in a neighborhood where many households are already disadvantaged. On the other hand, the additional resources that a school receives, or the choice provisions that result from failing to meet AYP could attract households to enter these neighborhoods. This paper will fill the gap in our knowledge of how school reforms shape neighborhoods, focusing specifically on the effects of NCLB. I begin by identifying all the schools across the country that failed to meet AYP targets and describing the communities surrounding these
schools. I then identify how these reforms have affected neighborhoods in five diverse urban school districts: New York, Los Angeles, Detroit, Philadelphia and Tucson. I examine whether housing demand and neighborhood composition change as a result of this failure.
Decentralized School Finance and Metropolitan Suburbanization
Kuzey Yilmaz
(University of Rochester)
[View Abstract]
[Download Preview] The residential patterns across the metropolitan areas have changed notably since
1950s; The population has suburbanized and the poor now live closer to the city
center. The recent research by urban economists finds that the income elasticity of
land demand is too low to explain the poor's urbanization, which mainly comes from
better access to public transportation in cities. We take the new findings seriously
and develop a new hybrid Tiebout-Alonso model by explicitly introducing (i) a
public transportation as an alternative mode of commute to automobile, and (ii) a
housing production function that allows us to work with the income elasticity of land
demand directly. We later extend the model in several other directions, including
an extended model with a decentralized employment centers. Our model finds that
the neighborhood amenities (i.e education and property taxes) have substantial effect
on the residential patterns across metropolitan areas that cannot be ignored, and
produces some testable predictions.
JEL Primary Field Name: Public Finance
JEL Classification: H4, H7, I2
Keywords: Suburbanization, Public Transportation, Tiebout Model.
Do Housing Vouchers Improve Academic Performance? Evidence from New York City
Amy Schwartz
(Syracuse University)
Sarah Cordes
(New York University)
Ingrid Ellen
(New York University)
Keren Horn
(University of Massachusetts-Boston)
[View Abstract]
[Download Preview] Historically, housing and education have been inextricably linked in the United States, with access to high quality schools often limited to middle and upper income families while poor children and households are “stuck” living in poor neighborhoods with low quality schools. Housing subsidies potentially play an important role in addressing this inequality. Specifically, the Housing Choice Voucher program, which allows low-income families to choose and lease units in neighborhoods they otherwise might not be able to afford, currently serves over 2 million households, and over 2.5 million children under the age of eighteen. In this paper we seek to shed light on whether – and to what extent -- this large national program improves educational outcomes for children whose families receive housing vouchers. Using data on the largest school district in the country, New York City, we match over 88,000 voucher families to public school records and follow their schooling and residential experiences. To identify the causal effects of vouchers, we use a difference-in-differences strategy, exploiting the random timing of voucher receipt to compare changes in outcomes of students whose families receive a housing voucher to changes in outcomes of students whose families will receive one in the future. We then compare changes in outcomes among children whose families receive vouchers to changes among children whose families receive other forms of housing assistance, specifically those who live in public housing. Preliminary results suggest that students in voucher households perform slightly better in both ELA and math in the years that they are in the program. We also find that students in voucher households perform better than their peers in public housing, suggesting that portable subsidies, such as vouchers, may be more effective at improving outcomes for children than place-based subsidies such as public housing.
School Accountability Ratings and Housing Prices: Testing No Child Left Behind
Douglas Woodward
(University of South Carolina)
Marcus Allen
(Florida Gulf Coast University)
Paulo Guimaraes
(University of Porto and Bank of Portugal)
Joseph Von Nessen
(University of South Carolina)
[View Abstract]
This paper investigates how school quality ratings affect U.S. housing prices. With more than 50,000 housing market transactions for Charleston, South Carolina, we evaluate the effects of the school rating measure mandated by the federal No Child Left Behind (NCLB) legislation. This information was widely reported as a signal of school quality during the time period we analyze: the 2003-2007 housing boom. Our hedonic housing price regression tests for how the NCLB’s annual school evaluation influenced housing prices, with comprehensive controls for other potential determinants: housing characteristics, demographic traits, average proficiency average proficiency test scores, and neighborhood effects. The results indicate that NCLB ratings have a positive impact on housing prices. Depending on the year, we find that buyers paid more for homes zoned with high schools that achieved a positive rating, reaching a high of 7.1 percent. . Nevertheless, NCLB has been criticized as sending a misleading signal to the public about school quality. It appears that reform efforts, which pushed uniform school quality ratings across the United States, had unintended consequences for the housing market. Nevertheless, NCLB has been criticized as sending a misleading signal to the public about school quality. It appears that reform efforts, which pushed uniform school quality ratings across the United States, had unintended consequences for the housing market. Nevertheless, NCLB has been criticized as sending a misleading signal to the public about school quality. It appears that reform efforts, which pushed uniform school quality ratings across the United States, had unintended consequences for the housing market.
Discussants:
Stephen Billings
(University of North Carolina-Charlotte)
Nicolai Kuminoff
(Arizona State University)
Rajashri Chakrabarti
(Federal Reserve Bank of New York)
Erik Johnson
(University of Richmond)
Jan 05, 2016 1:00 pm, Parc 55, Powell II
American Real Estate & Urban Economic Association/American Finance Association
Special Topics: Real Estate
(G1, R2)
Presiding:
Sheridan Titman
(University of Texas-Austin)
Default Option Exercise over the Financial Crisis and Beyond
Stuart Gabriel
(University of California-Los Angeles)
Xudong An
(San Diego State University)
Yongheng Deng
(National University of Singapore)
[View Abstract]
[Download Preview] We provide new evidence of cyclical variation in mortgage default option exercise. For a given level of negative equity, borrower propensity to default rose markedly during the financial crisis and among hard-hit metropolitan areas. Shifts in borrower default propensity were material to the crisis: results show that changes in borrower sensitivity to negative equity were more salient to crisis-period defaults than were adverse shocks to home equity. Analysis of time-series and panel data indicates that local economic conditions, consumer sentiment, and federal foreclosure mitigation programs explain much of the rise in the negative equity beta. Difference-in-difference tests further corroborate unintended consequences of the Home Affordable Modification Program (HAMP) in boosting borrower propensity to default in the presence of negative equity.
When Real Estate is the Only Game in Town
Hyun-Soo Choi
(Singapore Management University)
Harrison Hong
(Princeton University)
Jeffrey Kubik
(Syracuse University)
Jeffrey Thompson
(Federal Reserve Board )
[View Abstract]
[Download Preview] The excesses of the historic US housing cycle of the 2000s were concentrated in the Metropolitan Statistical Areas (MSAs) of Nevada, Phoenix, Florida, and California. Even controlling for factors associated with leading explanations of this housing cycle such as differences across MSAs in the amount of subprime lending and their housing supply elasticities, these Sand State MSAs had more than double the mortgage origination, price appreciation and subsequent crash as other MSAs. We show that these excesses, can however, be explained by Sand State MSAs having an abnormally low supply of public equities (measured using the book value of firms headquartered there) relative to total income. Because households are locally biased in their investments, they purchase investment homes nearby rather than owning stocks, amplifying the housing cycle in these MSAs.
Understanding Mortgage Spreads
Nina Boyarchenko
(Federal Reserve Bank of New York)
Andreas Fuster
(Federal Reserve Bank of New York)
David Lucca
(Federal Reserve Bank of New York)
[View Abstract]
[Download Preview] Most mortgages in the United States are securitized in agency mortgage-backed securities (MBS), and thus the yield spreads on these securities are a key determinant of homeowners’ funding costs. We study the variation in these spreads, over time and across securities, and document that they display a cross-sectional smile pattern with respect to the securities’ coupon rates. We propose non-interest-rate prepayment risk as a candidate driver of the spread variation and present a new pricing model that uses "stripped" MBS prices to identify the contribution of this risk. The pricing model finds the smile to be explained by prepayment risk, while the time-series variation is mostly accounted for by a non-prepayment risk factor that co-moves with MBS supply and credit risk in other fixed-income markets. We then study the MBS market’s response to the Fed’s large-scale asset purchases and use the pricing model to interpret the post-announcement divergence of spreads across MBS.
Understanding Housing Market Spillovers: Migration, Sentiment and Information Acquisition
Cristian Badarinza
(National University of Singapore)
[View Abstract]
Prices and liquidity are closely related in residential real estate markets, both at local level and across neighborhoods. In this paper, I provide empirical evidence for spatial correlation in housing market turnover, controlling for the role of migration flows. Using micro-level panel data on household valuations of their own non-traded properties, I find that perceived house price growth rates are strongly linked to developments in neighboring areas, consistent with a framework in which spillovers arise through spatial learning. These mechanisms have the potential to explain the regional clustering of house prices, boom-bust phenomena, feedback effects in housing market liquidity, and the aggregate transmission of shocks from narrow segments of the market.
Discussants:
Timothy Riddiough
(University of Wisconsin-Madison)
Christopher Parsons
(University of California-San Diego)
Amit Seru
(University of Chicago)
Chester Spatt
(Carnegie Mellon University)
Jan 05, 2016 1:00 pm, Parc 55, Divisadero
Association for Comparative Economic Studies
International Trade Issues in Developing and Transitional Economies
(F1, F6)
Presiding:
Elizabeth Brainerd
(Brandeis University)
Effects of Export Spillovers, FDI, and Ownership Structures on Firms’ Performance
Jan Hanousek
(Charles University)
Evžen Kočenda
(Charles University)
Pavla Vozárová
(Prague School of Economics)
[View Abstract]
The literature analyzing the FDI effects on host economies chiefly explores horizontal and vertical directions. A horizontal level represents interactions among the FDI and its local competitors. A vertical level represents interactions of the FDI with its suppliers or customers and can be further divided into upstream and downstream interactions. For both directions of effects the literature recognizes two main channels of interactions between the FDI and other firms in the economy. One channel involves changes in market structure: increase of competition on horizontal level is potentially off-set by higher demand for intermediate goods on the vertical level. Second channel involves technological spillovers in the form of the technology transfers from the FDI that positively affect local firms. In connection to the above, simple theoretical models consider variants of three different scenarios: i) the goods on the domestic market are produced by domestic firms, ii) the goods are produced by FDI operating in the domestic market and iii) the goods are imported from abroad. While theoretical models conclude that second and third scenarios increase competition within industry and could crowd out the local firms, the empirical results suggest that the overall effect strongly depends on the exports of the FDI firm, as well as the interactions of the FDI with the local suppliers (horizontal level effects). We consider the FDI production combined with traded output and analyze interactions at horizontal and vertical levels, including exports from the local economy. For our analysis we employ double-digit industry-sector data from the Amadeus database to cover the firm level activity in the European Union countries. We further link data on firm, sector and type of the goods produced with the BACI database covering the detailed exchange of goods between countries. Based on the availability of the ownership structure data we cover period 2000-2012.
Emerging from the Shadows: Entrance to the WTO and Change in the Composition of the Declared Imports
Vladimir Sokolov
(Higher School of Economics)
Dmitry Livdan
(University of California-Berkeley)
[View Abstract]
Using the detailed Russian customs data for 2010-2013, we study how the country’s entrance to the World Trade Organization (WTO) in 2012 influenced the composition of goods declared for imports. We hypothesize that the decrease and harmonization of import tariffs that followed the WTO entrance resulted not only in the increase of the volume of imports but also changed the composition of goods declared for imports. Our data contains over 10 million observations of custom declarations of goods imported into Russia during each year of our sample where all goods are classified according to the refined 10-digits coding system. This enables us to calculate an index that characterizes the complexity of imports at the international 4-digits products categorization. We compare these indices for each 4-digits category of products in the periods before and after the WTO entrance and find that the complexity of imported goods significantly increased after the event. We motivate our further analysis by the results of the annual survey of retailers conducted by RosBusinessConsulting which finds that the composition of goods that are officially declared as imports to Russia and the composition of imported goods sold by retailers significantly differs each year. This survey also finds that within the same product category goods that are sold by retailers tend to be more sophisticated than goods that they declare for imports. This evidence suggests that in high and differential tariff environment that characterized Russia prior to the WTO entrance importers had an incentive to misclassify the imported goods and declare them as simple products in order to pay lower tariffs. Being able to identify importing firms and composition of goods they declare for imports before and after the event we study how the import tariffs harmonization decreases the importers’ incentive of such product misclassification.
Fragmentation and Vertical Intra-Branch Specialization: The Case of Romania
Christophe Rault
(Laboratoire d'Economie d'Orléans, CESifo, IZA and WDI University of Michigan)
Anamaria Sova
(Economic & Business Research Centre)
Robert Sova
(Academy of Economic Studies Bucharest and Bucharest University of Economic Studies)
[View Abstract]
The economic convergence vis-à-vis the EU member states remains an important goal for Romania in long term. This relies in part on international trade. International trade specialization reflects differences in relative factor productivity and endowments or economies of scale and can have an important impact on economic growth.<br />
The analysis of Romanian trade with EU countries shows that exports and imports have increased in the sector of electrical machinery and dropped in the traditional sector of manufactured articles. This could be interpreted as development of intraindustry trade. However, the increasing trade seems to be caused in large parts by increasing exchanges of parts and components between countries as a consequence of international fragmentation of production.<br />
In this paper, we analyze the trade specialization of Romania vis-à-vis EU member states over the period 1990-2014. Specifically, we focus on whether there is a shift towards intraindustry trade leading to economic convergence. Besides, we try to explain the trade pattern taking also into consideration the theory of production fragmentation. Our empirical analysis is based on economic indicators and the econometric estimation of a gravity model.<br />
The results underline that Romania is going from an inter-industry specialization (with traditional products) to a vertical intra-industry specialization. The analysis of trade of intermediate goods highlights the main determinant which explains the fragmentation of production process, more precisely the cheap labor factor. In other words, Romania has followed the strategy of exploiting their comparative advantage of low labor costs in the context of the international division of production processes.
Economic Globalization and Governance: The Role of Social Globalization
Nabamita Dutta
(University of Wisconsin-La Crosse)
Deepraj Mukherjee
(Kent State University)
[View Abstract]
[Download Preview] Recent decades have experienced a marked acceleration in the process of globalization. This remarkable proliferation in globalization has been associated with significant consequences felt in economic, social and political well-being around the globe. In this context, this paper analyzes the role of economic globalization in improving different governance issues that are of particular importance for developing nations. We contribute to the literature by exploring the role of economic globalization, comprising of different aspects of internationalization like trade openness, FDI inflows, and portfolio investments, in affecting different dimensions of governance. While a large part of globalization implies greater trade and FDI inflows, it also implies integration of culture, ideas and vision. Keeping this in mind, we delve into the role of a different aspect of globalization where emergence of neo transnational capital played a pivotal role in changing different social mindsets across the world into a more cosmopolitan one (social globalization). In particular we analyze if social globalization acts as a moderator in the relationship between economic globalization and governance. Thus, our contributions in the paper are twofold. First our results show that economic globalization enhances most indicators of governance like rule of law, government effectiveness, reducing corruption, regulatory quality and voice and accountability. Second, our results importantly show that indeed social globalization acts as a moderator. The estimated marginal impacts show that countries with low levels of social globalization, fail to benefit from economic globalization. Yet, this impact is enhanced for countries with higher levels of social globalization.
Discussants:
Vladimir Sokolov
(Higher School of Economics)
Mostafa Beshkar
(Indiana University-Bloomington)
Evžen Kočenda
(Charles University)
Gustavo Torrens
(Indiana University-Bloomington)
Jan 05, 2016 1:00 pm, Marriott Marquis, Pacific H
Association for Evolutionary Economics
Institutional Approaches to Firms, Development and Markets
(B5, O1)
Presiding:
Tim Wunder
(University of Texas-Arlington)
Shareholders as Rent-Seekers: Institutional Realities of Corporate Governance and the Implications for Economic Theory
Anthony Bonen
(New School University)
[View Abstract]
[Download Preview] The narrative embedded in agency theory that shareholders are the ultimate owners of corporate assets is shown to be false under standard legal postulates. Shareholders, like other classes of `pseudo-owners', are liable to inefficiently divert the corporation's surplus income to themselves. Building on the idea of the corporation as a commons, outside shareholders and shareholding managers are modeled as striking an optimal bargain over the distribution of a joint surplus. The distributive outcomes map, through retained earnings, into investment policy and therefore have implications for surplus maximization. Comparative statics demonstrate that the model reproduces the salient moral hazard features of the principal-agent model while adding the possibility of excessive payouts and underinvestment -- a set of suboptimal equilibria termed shareholder rent-seeking. It is shown that running a firm according to shareholder value maximization can lead to suboptimal underinvestment by giving outside shareholders excessive bargaining power.
Matching Economic Development Policy to the Local Context: Must We?
Richard V. Adkisson
(New Mexico State University)
Robert Steiner
(New Mexico State University)
[View Abstract]
[Download Preview] This paper examines 2013 data on high-tech manufacturing employment across metropolitan statistical areas in the United States. The purpose is to discover how a broad set of social/demographic/economic variables relate to varying densities of high-tech manufacturing employment. Two questions are addressed. (1) Do social and industrial circumstances evolve together as suggested by institutionalist theories, and (2) is there any evidence to suggest that economic development policy is likely to be effective at creating the conditions that might invite local development of high-tech manufacturing.
Vested Interest’s Influence over Health Care Legislation in the United States in 2009-2010
Antoon Spithoven
(Utrecht University-The Netherlands)
[View Abstract]
[Download Preview] Lobbying through collective organizations of vested interests significantly influences health care regulation. Its regulatory impact is enhanced through complementary lobbying by non-collective organizations. Institutionalization of lobbying together with perspectivistic distortion explain lobbying by organizations even if it seems at odds against their ever being successful to influence regulation.
Inside Institutional Emergence and Evolution: The Case of New Markets in Collaborative Consumption Goods
Eric Scorsone
(Michigan State University)
David Schweikhardt
(Michigan State University)
Mary Doidge
(Michigan State University)
Danielle Kaminski
(Michigan State University)
Samantha Padilla
(Michigan State University)
[View Abstract]
[Download Preview] The legal-economic nexus is the structure of legal institutions within which a market operates, and is determined by the array of property rights and duties owned by each individual. New markets in collaborative consumption goods, such as Uber, represent new challenges to the existing legal economic nexus.
An Invisible Dimension of the Visible Hand: Entry Control in Internal Labor Markets
Anton Oleinik
(Memorial University of Newfoundland-Canada)
[View Abstract]
The theory of internal labor markets differentiates its two segments, internal and external, as well as connecting links (the ports of entry). The concept of gatekeeping sheds light on benefits of controlling the ports of entry. The case study of four universities suggests that the academic labor market does indeed have a dual character and the opportunities for gatekeeping are seized by the university administration.
Discussants:
Tim Wunder
(University of Texas-Arlington)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 5 & 6
Association of Environmental & Resource Economists
Environmental Regulation in Second-Best Settings
(Q5)
Presiding:
Meredith Fowlie
(University of California-Berkeley)
Limit Pricing and the (In)Effectiveness of the Carbon Tax
Julien Daubanes
(ETH Zurich)
Saraly Andrade de Sa
(ETH Zurich)
[View Abstract]
[Download Preview] The conventional analysis of policy-induced changes in resource extraction is inconsistent with the actual way OPEC is exerting its market power. We claim that OPEC is practicing limit pricing, and we extend to non-renewable resources the limit-pricing theory. Facing a very inelastic demand, an oil extractive cartel seeks to induce the highest price that does not destroy its demand, unlike the conventional Hotellian analysis: the cartel tolerates some ordinary substitutes to its oil but deters high-potential ones. With limit pricing, policy-induced extraction changes do not obey the usual logic.
For example, oil taxes have no effect on current oil production. Extraction increases when high-potential substitutes are promoted, but can be effectively reduced by supporting ordinary substitutes.
The carbon tax not only applies to oil; it also penalizes its ordinary (carbon) substitutes, whose market shares are taken over by the cartel. Thus the carbon tax ambiguously affects current and long-term oil production and carbon emissions.
Knowledge Spillovers from Clean and Dirty Technologies
Antoine Dechezleprêtre
(London School of Economics)
Ralf Martin
(Imperial College)
Myra Mohnen
(University College London)
[View Abstract]
[Download Preview] Can a policy-induced switch to clean technologies affect economic growth? We use<br />
patent citation data to investigate the relative intensity of knowledge spillovers in clean<br />
and dirty technologies in two technological fields: energy production and transportation.<br />
We introduce a new methodology that takes into account the whole history of patent<br />
citations to capture the indirect knowledge spillovers generated by patents. We find<br />
that conditional on a wide range of potential confounding factors clean patents receive<br />
on average 43% more citations than dirty patents. Knowledge spillovers from clean<br />
technologies are comparable in scale to those observed in the IT sector. The radical<br />
novelty of clean technologies relative to more incremental dirty inventions seems to<br />
account for their superiority. We then use firm-level financial data to investigate the<br />
impact of knowledge spillovers on firms’ market value and find that marginal value of<br />
spillovers from clean technologies is also greater. Taken together, these results suggest<br />
that green policies might be able to boost economic growth through induced knowledge<br />
spillovers.
Is One Bird in the Hand Worth Two in the Bush? Second-Best Analysis of European Energy Policy Instruments
Michael Hübler
(Leibniz Universitat Hannover)
Oliver Schenker
(ZEW Centre For European Economic Research)
Carolyn Fischer
(Resources for the Future)
[View Abstract]
[Download Preview] This paper studies policy instruments that correct insufficient learning-by-doing
(LbD) and research and development (R&D) of renewable electricity technologies and
insufficient investments in energy efficiency (EE) in the presence of carbon pricing.
The theoretical model analysis shows how to re-adjust the first-best in second-best
situations, in which one of the policy instruments is restricted. Calibrated to the
European power sector, the first-best choice of all instruments reduces the climate
policy cost by one third. Feed-in tariffs turn out to be good substitutes for LbD, but
not for R&D or EE subsidies.
Beneficial Leakage: The Effect of Regional Greenhouse Gas Initiative on Aggregate Emissions
Peter Maniloff
(Colorado School of Mines)
Harrison Fell
(Colorado School of Mines)
[View Abstract]
[Download Preview] Regional policies aimed at reducing greenhouse gases are often thought to be less effective than more geographically comprehensive policies as production and emissions of trade exposed industries may move from regulated to unregulated regions. This so-called leakage may negate emission reductions from the regulated regions and may even lead to an overall increase in emissions if the unregulated regions has more emissions intensive production (Carbone and Rivers (2014) review international leakage effects and Bushnell and Chen (2012) and Bushnell et al. (2014) document examples of sub-national leakage). However, if the unregulated regions have less emissions intensive production, the regional regulation may prompt more switching to the relatively cleaner producers than would otherwise occur, creating a type of beneficial leakage. We use detailed electricity generation and transmission data to show that this might be the case for the Regional Greenhouse Gas Initiative (RGGI), a CO2 cap-and-trade program for the electricity sector in select Northeastern U.S. states. Using difference-in-differences and event study methodologies with nonparametric price controls, we find evidence that RGGI induced coal-fired generators in RGGI-states to reduce capacity utilization by around ten percentage points, while natural gas (NG)-fired plants utilization rates remained constant. At the same time, after controlling for load, fuel prices and other regulatory issues, we find evidence that RGGI induced NG-fired generators in states surrounding RGGI to increase utilization rates by around eleven percentage points, though production from coal-fired plants in these surrounding regions remained constant. Thus, it appears that cleaner NG-fired generation from surrounding regions supplanted coal-fired generation in RGGI. Analysis of transmission flows to RGGI regions and other surrounding areas from PJM further support this assertion. Back-of-the-envelope calculations suggest that one-quarter to one-third of apparent emissions reductions actually leaked but that this served to reduce total combined emissions by an additional three to five percent.
Discussants:
Ryan Kellogg
(University of Michigan)
Sabrina Howell
(New York University)
Derek Lemoine
(University of Arizona)
Erin Mansur
(Dartmouth College)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 19
Econometric Society
Debt Constraints and the Macroeconomy
(A1)
Presiding:
Patrick J. Kehoe
(University of Minnesota)
Discount Factors and Employment
Patrick J. Kehoe
(University of Minnesota)
Virgiliu Midrigan
(New York University)
Elena Pastorino
(University of Minnesota)
[View Abstract]
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: the surplus from a match is then 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 the 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.
Financial Sector Interconnectedness and Monetary Policy Transmission
Alessandro Barattieri
(ESG UQAM and Collegio Carlo Alberto)
Maya Eden
(World Bank)
Dalibor Stevanovic
(Université du Québec à Montréal)
[View Abstract]
[Download Preview] We document that in the U.S., the share of financial assets that have a direct counterpart in the financial system has increased by between 15.8 and 21.8 percentage points during the period 1952-2011. We suggest that this increase may have dampened the sensitivity of the real variables to monetary shocks. Using a SVAR and a FAVAR, we establish that the impulse responses to monetary policy shocks are dampened as the level of interconnectedness increases. Finally, we present a stylized model that illustrates how interbank trading can reduce the sensitivity of lending to the entrepreneur's net worth.
Money and Credit Redux
Chao Gu
(University of Missouri)
Fabrizio Mattesini
(University of Rome Tor Vergata)
Randall Wright
(U Wisconsin)
[View Abstract]
[Download Preview] We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money can be essential, but then credit is irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for exogenous or endogenous policy and debt limits, secured or unsecured lending, and a general class of pricing mechanisms. While we show how to overturn some results, the benchmark model suggests credit might matter less than people think.
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 14
Econometric Society
Dynamic Contracting With and Without Commitment
(A1)
Presiding:
Daniel Vincent Barron
(Northwestern University)
Optimal Incentive Contract with Costly and Flexible Monitoring
Anqi Li
(Washington University-St. Louis)
[View Abstract]
[Download Preview] We study optimal incentive contracting between a principal and one or more agents, where the principal can specify the qualitative and quantitative natures of the monitoring technology at a cost that is increasing in the entropy of the agent's compensation. In the case of a single agent, costly and flexible monitoring yields an endogenous performance signal that trivially satisfies the monotone likelihood ratio property, as well as a wage scheme that is increasing in the agent's performance. In the case of multiple tasks, it leads the principal to conduct overall performance evaluation. In the case of multiple agents, it justifies the use of heterogeneous group-based compensations when monitoring is sufficiently costly.
Policies in Relational Contracts
Michael Powell
(Northwestern University)
Daniel Barron
(Northwestern University)
[View Abstract]
[Download Preview] [Download PowerPoint] How should a firm set policies--public decision plans that determine the role of its employees, divisions, and suppliers--to strengthen its relationships? We explore whether and how a principal might bias the decisions she makes to foster relational contracts with her agents. To this end, we examine a flexible dynamic game between a principal and several agents with unrestricted vertical transfers and symmetric information. We show that if relationships are bilateral--each agent observes only his own output and payoff then the principal may optimally make decisions in a systematically backward-looking, history-dependent way in order to credibly reward agents who performed well in the past. We first show that these backward-looking policies are prevalent in a broad class of settings. Then we show by example how such policies might affect firm performance: for example, hiring might lag increases in demand or investment might be awarded in a biased tournament. In contrast to the game with bilateral relationships, we show that if monitoring is public, optimal policies never involve biased decisions.
Dynamic Moral Hazard with Manipulation of Output Reports
Guy Arie
(University of Rochester)
Esat Doruk Cetemen
(University of Rochester)
Dmitry Orlov
(University of Rochester)
[View Abstract]
[Download Preview] [Download PowerPoint] An agent exerting unobservable effort often has the ability to decide when the principal sees output. This is referred to as "earnings management" in corporate governance settings: a firm experiencing $100M in quarterly profits can report only $90M today and defer the remaining $10M to next quarter. We derive the necessary and sufficient conditions for truthful reporting and characterize the optimal contract. The possibility to manipulate output has two main implications. First, it increases the agent's risk in the optimal contract, which in turn increases the cost of incentives to the principal. Second, it increases the cost of increasing incentives and effort over time, which in some settings destroys a main benefit of the long term relationship to the principal.
Relational Contracting with External Enforcement
Joel Watson
(University of California-San Diego)
David Miller
(University of Michigan)
Trond Olsen
(Norwegian School of Economics)
[View Abstract]
We propose a model of long-term relational contracting with external enforcement. The underlying game is a stationary repeated game with monetary transfers and payoffs that are linear in money. The external enforcer compels monetary transfers as specified by contract, as a function of the verifiable aspects of the history. Long-term contracts can create non-stationarities. We show that for a class of stage games that avoid compactness problems, the optimal contract can be expressed as the combination of (1) a "simple stationary" long-term component that specifies a transfer in the current period as a function of only the current-period productive outcome and (2) a short-term component that the players negotiate in each period. We also study how the nature of the optimal contract changes with the addition of limited-liability and liquidity constraints.
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 15
Econometric Society
Frontiers in Regression Discontinuity Designs
(A1)
Presiding:
Marinho Bertanha
(Stanford University)
Nonparametric Quantile Regression with Discontinuities
Tatsushi Oka
(National University of Singapore)
[View Abstract]
This paper proposes a nonparametric estimation method for conditional quantile functions when these functions contain multiple discontinuities at unknown locations but are otherwise smooth. Estimators of the jump locations and sizes are based on comparisons of one-sided local linear quantile estimators. This method captures the change in the whole conditional distribution under a flexible functional form assumption. The proposed jump location estimator is robust to outliers and avoids the mis-specification problems that are present in parametric estimation techniques while maintaining the parametric convergence rate. I provide the limiting distribution of the discontinuous jump locations and their sizes. I also show that there is possible efficiency gain from a joint analysis of multiple quantiles. I subsequently apply this method to the estimation of a ``tipping point'' in dynamic demographic change and show a discontinuous effect of the minority share in a city on the conditional distribution of white population transitions.
Identification and Inference in Regression Discontinuity Designs with a Manipulated Running Variable (with Francois Gerard and Christoph Rothe)
Miikka Rokkanen
(Columbia University)
[View Abstract]
[Download Preview] A key assumption in regression discontinuity analysis is that units cannot manipulate the value of their running variable in a way that guarantees or avoids assignment to the treatment. Standard identification arguments break down if this condition is violated. This paper shows that treatment effects remain partially identified in this case. We derive sharp bounds on the treatment effects, show how to estimate them, and propose ways to construct valid condence intervals. Our results apply to both sharp and fuzzy regression discontinuity designs. We illustrate our methods by studying the effect of unemployment insurance on unemployment duration in Brazil, where we find strong evidence of manipulation at eligibility cutoffs.
Interpreting Regression Discontinuity Designs with Multiple Cutoffs
Matias Cattaneo
(University of Michigan)
Luke Keele
(Penn State University)
Rocio Titiunik
(University of Michigan)
Gonzalo Vazquez-Bare
(University of Michigan)
[View Abstract]
[Download Preview] We consider a regression discontinuity (RD) design where the treatment is received if a score is above a cutoff, but the cutoff may vary for each unit in the sample instead of being equal for all units. This Multi-Cutoff Regression Discontinuity Design is very common in empirical work, and researchers often normalize the score variable and use the zero cutoff on the normalized score for all observations to estimate a pooled RD treatment effect. We formally derive the form that this pooled parameter takes, and discuss its interpretation under different assumptions. We show that this normalizing-and-pooling strategy so commonly employed in practice may not fully exploit all the information available in a multi-cutoff RD setup. We illustrate our methodological results with three empirical examples based on vote shares, population, and test scores.
Regression Discontinuity with Many Thresholds
Marinho Bertanha
(Stanford University)
[View Abstract]
In recent years, numerous studies have employed regression discontinuity designs with many cutoffs assigning individuals to heterogeneous treatments. A common practice is to normalize all of the cutoffs to zero and estimate only one effect. This procedure identifies the average of local treatment effects weighted by the observed relative density of individuals at the existing cutoffs. However, researchers often want to make inferences on more meaningful average treatment effects (ATE) computed over general counterfactual distributions of individuals rather than simply the observed distribution of individuals local to existing cutoffs. In this paper, we propose a root-n consistent and asymptotically normal estimator for such ATEs when heterogeneity follows a non-parametric smooth function of cutoff characteristics. In the case of parametric heterogeneity, observations are optimally combined to minimize the mean squared error of the ATE estimator. Inference results are also provided for the fuzzy regression discontinuity case, where the parametric heterogeneity assumption yields identification of treatment effects on individuals who comply with at least one of the multiple treatments.
Identifying Multiple Marginal Effects with a Single Binary Instrument or by Regression Discontinuity
Carolina Caetano
(University of Rochester)
Juan Carlos Escanciano
(Indiana University)
[View Abstract]
[Download Preview] This paper proposes a new strategy for the identification of all the marginal effects of an endogenous multi-valued variable (which can be continuous, or a vector) in a regression model with one binary instrumental variable (IV). Identification is achieved by exploiting heterogeneity of the “first stage” in covariates that are separable from the endogenous variables of interest. The covariates themselves may be endogenous, and their endogeneity does not need to be modeled. With some modifications, the identification strategy is extended to the Regression Discontinuity Design (RDD). Ours is the first paper to obtain identification of nonparametric marginal effects in an RDD setting. This paper also provides parametric, semiparametric and nonparametric Two-Stage Least Squares (TSLS) estimators which are simple to implement, discusses their asymptotic properties, and shows that the estimators have satisfactory performance in moderate samples sizes. Finally, we apply our methods to the problem of estimating the effect of air quality on house prices, based on Chay and Greenstone (2005).
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 20
Econometric Society
Housing and Macroeconomics
(A1)
Presiding:
Stefano Giglio
(University of Chicago)
Unconventional Monetary Policy and the Allocation of Credit
Christopher Palmer
(University of California-Berkeley)
Amir Kermani
(University of California-Berkeley)
Marco Di Maggio
(Columbia University)
[View Abstract]
[Download Preview] Despite massive large-scale asset purchases (LSAPs) by central banks around the world since the global financial crisis, there is a lack of empirical evidence on whether and how the composition of purchased assets matters. Using rich mortgage-market data, we document that there is a “flypaper effect” of LSAPs, where the transmission of unconventional monetary policy to interest rates and (more importantly) origination volumes depends crucially on the nature of the assets purchased. For example, QE1, which involved significant purchases of GSE-guaranteed mortgages, increased GSE-guaranteed mortgage originations significantly more than the origination of non-GSE mortgages. In contrast, QE2’s focus on purchasing Treasuries did not have such differential effects. Moreover, we find that most bank proceeds from LSAPs remained in Excess Reserves with the Fed, with little evidence supporting the bank-lending channel or bank-portfolio rebalancing transmission mechanism of LSAPs. The targeted nature of the Fed’s RMBS purchasing program thus de facto allocated credit across mortgage market segments and more broadly across fixed-income markets. This led to an unintended consequence of the program: many borrowers delevered to take advantage of QE-induced low interest rates by refinancing existing mortgages into GSE-eligible loans that were below local Conforming Loan Limits and below 80% LTV. Finally, we show that HARP significantly alleviated this behavior, suggesting that complementary interventions enhanced the strength of Quantitative Easing on the real economy.
Rational Bubbles: Time-Series Versus Cross-Sectional Tests
Stefano Giglio
(University of Chicago)
Matteo Maggiori
(Harvard University)
Johannes Stroebel
(New York University)
N/A
Homeowner Borrowing and Housing Collateral: New Evidence from Expiring Price Controls
Anthony DeFusco
(Northwestern University)
[View Abstract]
[Download Preview] I empirically analyze how changes to the collateral value of real estate assets affect homeowner borrowing behavior. To isolate the role of collateral constraints from that of wealth effects, I exploit the fully-anticipated expiration of resale price controls on owner-occupied housing in Montgomery County, Maryland. I estimate a marginal propensity to borrow out of housing collateral that ranges between $0.04–$0.13 and is correlated with homeowners’ initial leverage. Additional analysis of residential investment and ex-post loan performance indicates that some of the extracted funds generated new expenditures. These results suggest an important role for house price growth in driving aggregate consumption.
Further Evidence on Loan Originations and Defaults in the Mortgage Crisis
Manuel Adelino
(Duke University)
Antoinette Schoar
(Massachusetts Institute of Technology)
Felipe Severino
(Dartmouth College)
N/A
Discussants:
Alexander Chinco
(University of Illinois-Urbana-Champaign)
Marco Di Maggio
(Columbia University)
Philipp Schnabl
(New York University)
Charles G. Nathanson
(Northwestern University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 13
Econometric Society
Insurance, Migration and Economic Growth
(A1)
Presiding:
Mark Rosenzweig
(Yale University)
Migration and Consumption Insurance in Bangladesh
Costas Meghir
(Yale University)
Mushfiq Mobarak
(Yale University)
Corina Mommaerts
(Yale University)
Melanie Morten
(Stanford University)
Ahmed Mobarak
(Yale University)
[View Abstract]
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.
Selection, Risk and Urban-Rural Wage Gaps
David Lagakos
(University of California-San Diego)
Mushfiq Mobarak
(Yale University)
Michael Waugh
(New York University)
[View Abstract]
To what extent do the large urban-rural wage gaps in developing countries reflect a misallocation of labor? We answer this questions using a dynamic model of internal migration that encompasses three potential explanations of rural-urban wage gaps: risk, migration costs and sorting by heterogenous workers. We discipline the model using new cross-sectional survey data on migration preferences and evidence from a migration experiment in Bangladesh. We then use the model to draw insights about the scope for aggregate productivity gains coming from a more efficient allocation of workers between rural and urban areas.
Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap
Mark Rosenzweig
(Yale University)
Kaivan Munshi
(University of Cambridge)
[View Abstract]
[Download Preview] We provide an explanation for large spatial wage disparities and low male migration in India that is based on the trade-off between consumption-smoothing, provided by caste-based rural insurance networks, and the income-gains from migration. Our theory generates two key predictions, which we verify empirically: (i) relatively wealthy households within the caste who benet less from the redistributive (surplus-maximizing) network will be more likely to have migrant members, and (ii) households facing greater rural income-risk (who benet more from the insurance network) are less likely to have migrant members. Structural estimates of the model show that even small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration.
Eating Up Productivity: Social Insurance Traps to Growth
Leandro DeMagalhaes
(University of Bristol)
Dongya Koh
(University of Arkansas)
Raul Santaeulalia-Llopis
(Washington University-St. Louis)
Yu Zheng
(City University of Hong Kong)
[View Abstract]
We study rural and urban lifecycle consumption, i.e., macro- and micro-nutrient intake, and expenditures in four African countries. We find higher and steeper lifecycle profiles for expenditures and consumption risk -- i.e., unanticipated changes in consumption -- in urban areas than in rural areas. This implies a potential substantial loss of relative consumption insurance over the life cycle in urban areas compared with rural areas. We propose a structural transformation model with heterogeneous agents, rural-urban migration, and endogenous skill acquisition choices that explicitly depend on the expected consumption/expenditures and its risk in each residential area. The model aims at replicating the lifecycle profiles (mean and variance) of consumption and income in rural and urban areas, and the transmission from income to consumption in each area. To do so, we entertain the possibility of two separate borrowing constraints, one associated with consumption and one with inputs for production. Further, in rural areas we introduce a tax/subsidy scheme that enhances consumption insurance but imposes saving constraints on rural households. Our preliminary quantitative assessment shows that the rural-urban differences in consumption insurance can drop the welfare gains from both rural-to-urban migration and skill acquisition by roughly 50% if measured in expenditures units and to more than 80% in consumption units (i.e., nutrients). Migrant selection potentially implies substantial differences in welfare gains (along the transition path) from changing the tax/subsidy scheme that preserves insurance in rural areas. Our preliminary results suggest that the relatively worse risk-sharing arrangements in urban areas compared with rural, in particular those that preserve subsistence nutrient intake, build an insurance trap that deters migration and skill acquisition for African economies.
Discussants:
John Kennan
(University of Wisconsin-Madison)
Todd Schoellman
(Arizona State University)
Clement Imbert
(University of Warwick)
Mushfiq Mobarak
(Yale University)
Jan 05, 2016 1:00 pm, Hilton Union Square, Union Square 16
Econometric Society
Structural Econometrics Models
(A1)
Presiding:
Bradley Larsen
(Stanford University)
IV Quantile Regression for Group-Level Treatments, with an Application to the Distributional Effects of Trade
Denis Chetverikov
(University of California-Los Angeles)
Bradley Larsen
(Stanford University)
Christopher Palmer
(University of California-Berkeley)
[View Abstract]
[Download Preview] We present a methodology for estimating the distributional effects of an endogenous treatment that varies at the group level when there are group-level unobservables, a quantile extension of Hausman and Taylor (1981). Because of the presence of group-level unobservables, standard quantile regression techniques are inconsistent in our setting even if the treatment is independent of unobservables. In contrast, our estimation technique is consistent as well as computationally simple, consisting of group-by-group quantile regression followed by two-stage least squares. Using the Bahadur representation of quantile estimators, we derive weak conditions on the growth of the number of observations per group that are sufficient for consistency and asymptotic zero-mean normality of our estimator. As in Hausman and Taylor (1981), micro-level covariates can be used as internal instruments for the endogenous group-level treatment if they satisfy relevance and exogeneity conditions. Our approach applies to a broad range of settings including labor, public finance, industrial organization, urban economics, and development; we illustrate its usefulness with several such examples. Finally, an empirical application of our estimator finds that low-wage earners in the US from 1990-2007 were significantly more affected by increased Chinese import competition than high-wage earners.
Love and Chance: Equilibrium and Identification in a Large NTU Matching Market with Stochastic Choice
Yu-Wei Hsieh
(University of Southern California)
Alfred Galichon
(Sciences Po)
[View Abstract]
[Download Preview] We consider the problem of one-to-one matching with nontransferable utility
(NTU) and stochastic unobserved heterogeneity in agents’ preferences. Assuming that
there is unobserved heterogeneity only on tastes, and without making distributional assumptions on utility shocks, we 1. characterize the set of aggregate stable matchings as a nonlinear complementarity problem, 2. prove the existence of an aggregate stable matching using a discrete choice version of the Deferred Acceptance algorithm, 3. show the marriage matching function implied by NTU matchings is a Leontief matching function. We characterize the identified set when only single matching market is available, and provide a sufficient condition for point identification. Using CPS data from 1970-2014, we find
that the evolution of marriage shorting along education is not only driven by the increasing
college attendance rate, but also driven by men’s increasing intensity of preference over
women’s educational attainment. On the other hand, women’s preference is relatively
stable over time.
Bargaining with Heterogeneous Beliefs: A Structural Analysis of Florida Medical Malpractice Lawsuits
Xun Tang
(Rice University)
Antonio Merlo
(Rice University)
[View Abstract]
We propose a structural bargaining model where players hold heterogeneous beliefs about the final resolution if no settlement is reached outside the court. We show the distribution of their beliefs and the stochastic surplus are nonparametrically identified from the probability for reaching an settlement and the distribution of final transfers between players. We then use a Simulated Maximum Likelihood (SML) approach to estimate the beliefs of doctors and patients in medical malpractice lawsuits in Florida in the 1980s and 1990s. We find strong evidence that the beliefs for both parties vary with the severity of the injury and the qualification of the doctors in the lawsuits, even though these characteristics are statistically insignificant in explaining whether the court rules in favor of the plaintiff or the defendant.
Firm Expansion, Size Spillovers and Market Dominance in Retail Chain Dynamics
Ahmed Khwaja
(Yale University)
Jason Blevins
(Ohio State University)
Nathan Yang
(McGill University)
[View Abstract]
A firm's decision to expand or contract has long term strategic implications for its market outcomes, industry evolution and structure. Further, some firms may expand and become more profitable whereas expansion may be detrimental for others. Thus, there may be a heterogeneous relationship between firm size and profitability. Moreover, it is a stylized fact that the dynamics of retail market structure are more richly driven by expansion and contraction than de novo entry or permanent exit. Motivated by these considerations this paper develops a dynamic oligopoly model of endogenous firm size that allows size to affect future profitability, and market dominance. The model allows the dynamic link between firm size and profitability to be heterogenous. The spillovers of firm size on future profitability are implemented through a firm specific unobservable (to the researcher) that incorporates retention of past size spillovers through serial persistence due to firm specific heterogeneity. As a methodological contribution, the hurdle of estimating the model is surmounted by extending the Bajari, Benkard and Levin (2007) two-step procedure that doesn't require solving the game. The first stage combines semi-parametric Conditional Choice Probability estimation with particle filters to integrate out the serially correlated unobservables. The second stage uses a forward simulation approach to estimate payoff parameters. Data on Canadian hamburger chains from their inception in 1970 to 2005 provides evidence of heterogeneity in size spillovers and serial persistence in profitability across firms. This heterogeneous dynamic linkage shows how some firms become dominant and others falter as they evolve, thus affecting market structure and industry concentration.
Identifying Collusion in English Auctions
Vadim Marmer
(University of British Columbia)
Artyom Shneyerov
(Concordia University, CIRANO, CIREQ)
[View Abstract]
[Download Preview] We develop a fully nonparametric identification framework and a test of collusion in English auctions. Assuming efficient collusion, we show that the underlying distributions of values can be identified despite collusive behavior when at least one competitive bider with a known identity participates in auctions. We propose a nonparametric estimation procedure for the distributions of values and a bootstrap-type test of the null hypothesis of competitive behavior against the alternative of collusion. The test is based on the discrepancy between the distribution of bids in data and that predicted under competitive behavior. Our framework allows for asymmetric bidders, and the test can be performed on individual bidders.