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Natural gas production through hydraulic fracturing (specifically horizontal slickwater fracking) since 1998 has brought or is likely to bring economic development in many parts of the U.S. Examples include: Marcellus Shale in New York, Barnett Shale in Texas, Eagle Ford Shale in Texas, Haynesville Shale in Louisiana, Arkansas and Texas, Bakken Shale in North Dakota and Montana, Niobrara shale in the Great plains of U.S., and Utica shale in the northeastern part of the U.S. Hydraulic fracturing has been the subject of much controversy and discussion because of its impact on groundwater quality, groundwater quantity, environmental quality, and health. The impact of hydraulic fracturing has also been linked to human rights (UN Human Right Council) as it can cause both direct and indirect impacts on human lives through its environmental impact.

Worldwide, about 70 percent of water extracted or diverted for consumptive use goes to agriculture, but in many groundwater basins, this proportion can be as high as 95 to 99 percent. Thus, any investigation into the economics of groundwater must consider the agricultural industry. This paper focuses exclusively on the groundwater used for agriculture. Many of the world's most productive agricultural basins depend on groundwater and have experienced declines in water table levels. Increasing competition for water from cities and environmental needs, as well as concerns about future climate variability and more frequent droughts, have caused policy makers to declare "water crises" and look for ways to decrease the consumptive use of water. Rising energy prices have also posed a concern, as they are an important component of water extraction costs. In this paper we examine the effects of energy prices on groundwater extraction using an econometric model of a farmer's irrigation water pumping decision that accounts for both the intensive and extensive margins.

To meet the growing demand for freshwater, many regions have increased pumping of groundwater in recent years, resulting in declining groundwater levels worldwide. Induced technical change regarding groundwater substitutes such as desalination and wastewater recycling is a source of hope for limiting water scarcity. However, because these technologies are energy intensive, optimal implementation also depends on future energy price trends. We provide an operational model for the application to reverse-osmosis seawater desalination. With this foundation, we outline a research agenda for extending the framework to other groundwater substitutes and for adaptation to climate change. Keywords:Groundwater management, water-energy nexus, dynamic optimization JEL code:Q25

In this paper we develop a new structural approach to measuring the gains from economic integration based on a Ricardian model in which heterogenous factors of production are allocated to multiple local markets based on comparative advantage. We implement our approach using data on crop markets in approximately 1,500 US counties from 1880 to 2002. Central to our empirical analysis is the use of a novel agronomic data source on predicted output by crop for small spatial units. Crucially, this dataset contains information about the productivity of all units for all crops, not just those that are actually being grown. Using this new approach we find that the long-run gains from economic integration among US agricultural markets have been substantial.

The paper evaluates the global welfare impact of China's trade integration and technological change in a quantitative Ricardian-Heckscher-Ohlin model implemented on 75 countries. We simulate two alternative productivity growth scenarios: a "balanced" one in which China's productivity grows at the same rate in each sector, and an "unbalanced" one in which China's comparative advantage sectors catch up disporportionally faster to the world productivity frontier. Contary to a well-known conjecture (Samuelson 2004), the large majority of countries in the sample, including the developed ones, experience an order of magnitude larger welfare gains when China's productivity growth is based towards its comparative disadvantage sectors. We demonstrate both analytically and quantitatively that this finding is driven by the inherently multilateral nature of world trade. As a separate but related excercise we quantify the world wide gains from China's trade integration.

The Zollverein was arguably the most important free-trade agreement of the 19th century. This paper investigates the economic impact of the Zollverein on trade in Germany. Although 1834 is the official date of the Zollverein's establishment, member states in fact joined in a non-random sequence over several decades. This was because the benefits of becoming a member increased, both as the size of the union increased, and as membership in the union became increasingly important for accessing foreign markets. Our key innovation in this paper is to incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. We find these effects are important-our estimated effects are several times larger than the simpler estimates that do not take these effects into account. This paper discusses the implications of this for Germany's economic history as for other studies of trade liberalization.

Following Samuelson's seminal 1939 contribution, existing formulations of the aggregate gains from trade are rooted in the theory of consumer demand. We provide an alternative gains from trade formulation which is rooted in production theory and embeds Ricardo's 1817 formulation of the gains from trade into a multi-factor general equilibrium framework. Without imposing strong assumptions on consumer rationality or requiring necessarily data from the economy's autarky equilibrium, our formulation reveals information about both the magnitude and the components of the aggregate gains from trade. A high quality data set on product and task-specific factor employments in 19th-century Japan permits us to apply this approach to answer the following counterfactual: What factor augmentation would have been necessary to compensate the economy for an overnight suspension of trade in its early trade years of 1865-1876? Over the entire period, we find that trade was revealed to be equivalent to a 5.5% increase in Japan's female labour force, a 3.3% increase in its male labour force and a 3.9% increase in its arable land. Efficiency losses associated with a counterfactual suspension of trade averaged between 6.3 and 7.7 percent of the economy's productive capacity.

This paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labor supply, and consumption/ saving decisions. Altruistic parents make inter vivos transfers to their children. Labor supply during college, government grants and loans, as well as private loans, complement parental transfers as sources of funding for college education. We find that the current financial aid system in the U.S. improves welfare, and removing it would reduce GDP by two percentage points in the long-run. Any further relaxation of government-sponsored loan limits would have no salient effects. The short-run partial equilibrium effects of expanding tuition grants (especially their need-based component) are sizeable. However, long-run general equilibrium effects are 3-4 times smaller. Every additional dollar of government grants crowds out 20-30 cents of parental transfers.

We provide empirical evidence on the intergenerational mobility of wealth using administrative wealth records of three generations of Danes. Our preferred estimate for the intergenerational wealth elasticity (IWE) is 0.2 (and 0.27 when limiting attention to those with positive wealth only). We construct a theoretical framework that allows for understanding the variability of the IWE across time, samples, and countries. Our framework highlights that the IWE can be interpreted as the weighted average of elasticities corresponding to different sources of intergenerational correlation that may in principle vary in importance across different contexts. However, we find that the IWE is surprisingly stable when estimated for different age groups, when using parents-grandparents pairs instead of children and parents, when eliminating bequests, and when explicitly shutting down many of the potential channels behind intergenerational wealth mobility, including income and education. This suggests that parental wealth is a sufficient statistic for the channels that we control for and those that vary across different samples, that is, the effect of these parental characteristics on wealth of children can be summarized by their effect on wealth of parents. By exploiting information for three generations we find that the standard child-parents elasticity severely underestimates the long-term persistence in the formation of wealth across generations. We show that either the true elasticity is significantly underestimated or that grandparental characteristics matter beyond information incorporated in parental characteristics.

In this paper, we study the impact of housing reform and the rapid development of the housing market in China on parental wealth and financial transfers they receive from children. During the 1990s, the Chinese government gave property rights to many urban residents who had been allocated housing by their danwei employers. These unexpected windfalls were substantial in size, and grew with the rapid increase in housing prices over time, significantly impacting the asset holdings and wealth of affected urban residents. We find that these exogenous changes in wealth had a considerable impact on transfers received from adult non-resident children. We also find a non-linear relationship between transfers and recipient wealth, and strong evidence for altruistic transfer motives.

Rural China offers a unique and important setting for studying the economics of intergenerational transfers, given the rapidity of China's population aging, traditions of filial piety and co-residence, decrease in number of children, and dearth of formal social security, at a relatively low income level. In 2009, China launched a pension program for rural residents, now covering several hundred million Chinese. This study provides some early evidence on the program's intergenerational impact, drawing on data from 3 sources: rich household and social network data from multiple survey waves in rural Guizhou province; a July 2012 detailed household survey in one rural county of Shandong province; and the 2012 nationally representative China Health and Retirement Longitudinal Study (an HRS sister study). Employing regression discontinuity analysis, we find that rural pension receipt impacts intergenerational transfers and the living arrangements of the extended family (allowing both generations greater privacy), as well as the occupational choices and migration decisions of the pensioners' adult children. All adult children--both daughters and sons--are more likely to migrate and take off-farm jobs after the parents' pension receipt. We also utilize the extensive social network data in the Guizhou survey to explore how social networks shape pension take-up and household strategic responses.

We examine the long-run impact of an early childhood exposure to a traumatic event on risk attitudes by studying the Korean War. We find that those who spent their early childhood during the peak of the war remain more risk averse five decades later, even after controlling for age. Furthermore, within the cohorts, those who resided in more severely affected provinces are more risk averse. Also by using data from the World Values Survey and Armed Conflict Data set that spans 51 countries, we confirm that an early childhood exposure to a major civil war is associated with stronger risk aversion.

We consider a myopic decision maker with smooth ambiguity averse preferences facing a recurrent decision problem. We study selfconfirming strategies. We show that a long run bias emerges that favors "tested" actions, that is, actions on which information has been collected over time. In so doing we provide, inter alia, a learning foundation for the selfconfirming equilibrium with model uncertainty of Battigalli et al. (2011, IGIER w.p. 428). The intuition behind our result is that tested actions become "certainty traps": the decision maker observes ex post the consequences of chosen actions, hence he learns to be approximately certain about the risks (probabilities of consequences) implied by tested actions, wheras he remains uncertain about the risks implied by deviations. Ambiguity aversion then implies a bias toward tested actions.

This paper investigates the relationship between time preferences and lifetime social and economic behavior. We use a Swedish longitudinal dataset that links information from a large survey on children's time preferences at age 13 to administrative registers spanning over five decades. We document how time preferences are related to human capital investments in terms of educational choices and school performance as early as in compulsory school. We then follow the children throughout life, observing their completed education, results on military enlistment tests, fertility decisions, indicators of health, labor market success, and lifetime income. Our results indicate a substantial adverse relationship between high discount rates and school performance, health, labor supply, and lifetime income. Males and high ability children gain significantly more from being future-oriented. These discrepancies are largest regarding outcomes later in life. We also show that the relationship between time preferences and long-run outcomes operates through early human capital investments. Most earlier studies on the relationship between time preferences and outcomes are cross-sectional in nature or follow adult individuals over a short period of time. The strength and novelty of our study lie in the use of a very rich data source. The data enable us to link time preferences during childhood to social and economic outcomes observed for a very long portion of the respondents' lives. We measure time preferences at age 13 and are able to follow individuals for more than five decades. No other data have enabled researchers to analyze the importance of time preferences for such an extended period.

In this paper, we demonstrate that payoffs linked to a committee member's individual vote may explain over-cautious behavior in committees. A committee of experts must decide whether to approve or reject a proposed innovation on behalf of society. In addition to a payoff linked to the adequateness of the committee's decision, each expert receives a disesteem payoff if he/she voted in favor of an ill-fated innovation. An example is FDA committees, where committee members can be exposed to a disesteem (negative) payoff if they vote to pass a drug that proves to be fatal for some users. We show that no matter how small the disesteem payoffs are, information aggregation fails in large committees: under any majority rule, the committee rejects the innovation almost surely. We then show that this inefficiency can be mitigated by pre-vote information pooling, but only if the decision is take under unanimity: in the presence of disesteem payoffs, committee members will only vote efficiently if they are all responsible for the final decision.

This paper suggests that the evolutionarily optimal belief of an agent’s intrinsic reproductive ability is systematically different from the posterior belief obtained by the perfect Bayesian updating. In particular, the optimal belief depends on how risk-averse the agent is. Although the perfect Bayesian updating remains evolutionarily optimal for a risk-neutral agent, it is not for any other. Specifically, the belief is always positively biased for a risk-averse agent, and the more risk-averse an agent is, the more positively biased the optimally updated belief is. Such biased beliefs align with experimental findings and also offer an alternative explanation to the empirical puzzle that people across the population appear overconfident by consistently overestimating their personal hereditary traits.

Economists have long been puzzled by event-ticket underpricing: underpricing reduces revenue for the performer, and encourages socially wasteful rent-seeking by ticket brokers. Why not use an auction to set price correctly? This paper studies the recent introduction of auctions into the event-ticket market by Ticketmaster. By combining primary-market data from Ticketmaster with secondary-market resale value data from eBay, we show that Ticketmaster's auctions work: the auctions substantially improve price discovery, roughly double performer revenues, and, on average, nearly eliminate the arbitrage profits associated with underpriced tickets. The data thus suggest that auctions can eliminate the speculator rent-seeking that has been associated with this market since the 19th century, and that seems to have exploded in volume in the 21st century.

This paper examines the impact of smallpox on economic growth and human capital development in the United States. Smallpox is a serious infectious disease with a long and destructive history - over the centuries it has killed more people than all other infectious diseases combined. The fatality rate of smallpox is over 30 percent and there is still no specific treatment for the disease. The invention of the smallpox vaccine in 1796 hence represented a dramatic turning point. By the mid-19th century, a number of countries had begun to mandate smallpox vaccinations for their populace. In particular, states in the U.S. that are close to the eastern seaboard - and hence more susceptible to smallpox invasions from overseas - made smallpox vaccinations compulsory for the public. Since the decision to get vaccinated may be endogenous and the timing of the mandates was determined primarily by geographical factors, I exploit the staggered implementation of the smallpox vaccination mandates to examine the impact of smallpox reduction. I use historical Census and newly digitized smallpox mortality data from 1850 to 1930 to investigate the following questions. First, I examine the impact of smallpox on mortality, and demonstrate that the vaccination mandates were very effective in reducing mortality rates. Second, I show that the cohorts that were affected by the mandates had higher life expectancy as well as higher literacy rates. One possible mechanisms is that vaccinations increased human capital accumulation by directly increasing health and productivity. It is also possible that human capital investment increased because the number of years that people can earn a return on education rose significantly. Finally, I provide evidence that within-state larger smallpox reductions are associated with faster economic growth, implying that public health interventions could potentially impact society on a macro-scale.

How much of the geographic clustering of economic activity is attributable to agglomeration spillovers as opposed to natural advantages? I present evidence on this question using data on the long-run effects of large scale hydroelectric dams built in the U.S. over the 20th century, obtained through a unique comparison between counties with or without dams but with similar hydropower potential. Until mid-century, the availability of cheap local power from hydroelectric dams conveyed an important advantage that attracted industry and population. By the 1950s, however, these advantages were attenuated by improvements in the efficiency of thermal power generation and the advent of high tension transmission lines. Using a novel combination of synthetic control methods and event-study techniques, I show that, on average, dams built before 1950 had substantial short run effects on local population and employment growth, whereas those built after 1950 had no such effects. Moreover, the impact of pre-1950 dams persisted and continued to grow after the advantages of cheap local hydroelectricity were attenuated, suggesting the presence of important agglomeration spillovers. Over a 50 year horizon, I estimate that at least one half of the long run effect of pre-1950 dams is due to spillovers. The estimated short and long run effects are highly robust to alternative procedures for selecting synthetic controls, to controls for confounding factors such as proximity to transportation networks, and to alternative sample restrictions, such as dropping dams built by the Tennessee Valley Authority or removing control counties with environmental regulations. I also find small local agglomeration effects from smaller dam projects, and small spillovers to nearby locations from large dams. Lastly, I find relatively small costs of environmental regulations associated with hydroelectric licensing rules.

South Korea successfully implemented a sustained, nation-wide deworming campaign, jump-started in 1969 with a three-year massive assistance program from the Overseas Technical Cooperation Agency (OTCA), Japan, culminating in the 1995 WHO declaration that the country is essentially worm-free. We propose to study the long-term impacts of this sustained deworming campaign on educational attainment and productivity gains on the part of beneficiaries. For the purpose, we match individual workers from a current longitudinal study of Korean workers from the Korea Labor and Income Panel Study (KLIPS) with the prevailing worm infection rate at the middle school attended by the worker during his/her last year in junior high school attendance, taking advantage of the identification of the middle school attended by the subjects in the KLIPS. A complementary analysis using population census is conducted. The empirical strategy is inspired by the series of investigations by Hoyt Bleakley on the long-term impacts of deworming in the American South. The results suggests that the full exposure to the risk of soil-transmitted helminthes infection during the childhood lowers years of schooling by 1.0~2.4 years, the probability of achieving high school diploma by 20~51%p and adult earning by 5%p. Further, the effect is estimated to be larger for women than for men, which suggests that the STH eradication campaign was more beneficial to the more disadvantaged group of population.

Traditional teacher compensation schemes may create incentives for teachers to seek out students who are the easiest to teach, leaving the most disadvantaged students with the weakest or least experienced teachers. We estimate the impacts of an intervention that attempts to redistribute some of the high-performing teachers in ten school districts by offering a $20,000 transfer bonus to induce these teachers to transfer into and stay for at least two years in one of the lowest-achieving schools in their district. Lowest achieving schools with eligible vacancies were randomly assigned either the opportunity to hire a high-performing teacher (treatment) or to fill their vacancy using their usual methods (control). We examine the effects of this intervention on teacher effectiveness, as measured by differences in student test score growth, and on teacher retention rates during and after the intervention. Finally, we estimate the net benefits of this intervention to schools who successfully hired a high-performing teacher.

Following the death of Mao in 1976, abandonment of collective farming lifted millions from poverty and heralded sweeping pro-market policies. Did China's excess in male births respond to rural land reform? In newly-available data from over 1,000 counties, a second child following a daughter was 5.5 percent more likely to be a boy after land reform, doubling the prevailing rate of sex selection. We argue that having a son may be a normal good. Larger increases in sex ratios are found in families with more education and in counties with larger output gains from the reform. Proximately, sex selection was achieved in part through prenatal ultrasounds obtained in provincial capitals and increased mortality of female children. The One Child Policy was implemented over the same time period as land reform and is frequently blamed for increased sex ratios during the early 1980s. Our results point to China's watershed economic liberalization as a more likely culprit.

We ask whether children conceived during heat waves have better health and educational outcomes later in life. Using Census data from 22 countries, we show that children conceived during heat waves have higher literacy rates, attain more years of schooling, and lower rates of disability than children conceived during periods of normal temperatures. We then explore several channels through which this effect may occur using a combined AIS, DHS, and MIS data set from sub-Saharan Africa. We find evidence more educated and wealthier women are more likely to conceive a child during a heat wave, implying that part of the effect is explained by selection into conception by different types of parents. We also show that differential reductions in sexual activity during heat waves among higher educated parents could be driving this effect. We also find higher rates of fetal loss for children conceived during heat waves, implying that part of the result may be explained by natural selection.

We examine the effect of pregnancy and parenthood on the research productivity of academic economists. Combining the survey responses of nearly 10,000 economists with their publication records as documented in their RePEc accounts, we do not find that motherhood is associated with low research productivity. Nor do we find a statistically significant unconditional effect of a first child on research productivity. Conditional difference-in-differences estimates, however, suggest that the effect of parenthood on research productivity is negative for unmarried women and positive for untenured men. Moreover, becoming a mother before 30 years of age appears to have a detrimental effect on research productivity.

This paper shows that mothers take into account the long-term academic consequences of their children when they make decisions on the birth timing. Many countries require children to reach a certain age by a specified date in the calendar year in order to start kindergarten/primary school. There is a clear trade-off for parents to time a birth after the school entry cutoff date; births just after cutoff date may benefit children from being older among the school cohort, which is shown to provide the children with academic advantage, while parents have to bear an additional year of child care costs. Using the universe of births during 1974-2010 in Japan, I find that more than 1,800 births per year are shifted roughly a week before the cutoff date to a week following the cutoff date. The overall shifts in births, however, may mask heterogeneous responses of mothers. I find that births by younger mothers, 2nd-born births, and male births are more shifted than births by older mothers, 1st-born births, and female births, respectively. I also find some suggestive evidence that families with high socioeconomic status are more likely to time births after the school entry cutoff date. This study may have implications for growing literature that assumes births around the school entrance cut-off dates are random.

Fertility change is distinct from other forms of social and economic change because it directly alters the size and composition of the next generation. This paper studies how the association between a mother's fertility and her daughter's fertility affects aggregate fertility rates over the course of the fertility transition. Microdata from 40 developing countries show that the intergenerational transmission of fertility strengthens during the fertility transition, as the relationship between sibship size and educational attainment flips from positive to negative. As a result, intergenerational transmission becomes an important determinant of aggregate fertility rates in late-transition countries, elevating average fertility by as much as 10%.

Over the last several years highly accurate methods of gender selection before conception have been developed. Given that strong preferences for gender variety in offspring have been documented for the U.S., we move beyond bio-ethical and moral considerations and ask what the demographic consequences of gender selection technology could be. Lacking variation across space and time in access to this technology,we estimate a dynamic programming model of fertility decisions with microdata on fertility histories from the National Survey of Family Growth. After recovering preferences for gender variety, we simulate the introduction of this technology. While this technology can reduce fertility by allowing parents efficiently reach their preferred gender mix, it could also increase fertility. This is because without this technology, many parents may opt not to have another baby given the uncertainty about its gender. Preliminary results suggest that these two effects operate simultaneously, but on net, gender selection technology ends up increasing the total fertility rate by about ten percent in the steady state.

This paper develops and estimates a dynamic model of individual's and couples labor supply and savings decisions to examine how the design of an individual retirement accounts pension system influences retirement decisions, pension accumulations and consumption levels of men and women. Chile has one of the longest-running nationwide private retirement accounts systems, operating since 1980, and its pension system served as a model for many other Latin American countries. In 2008, Chile undertook a major reform of its pension system with a focus on reducing old age poverty and promoting gender equity. Women can be particularly vulnerable to poverty under a private retirements account system, because they typically have less regular labor force participation than men, lower average wages and longer life spans. The pension reform introduced several new features designed to reduce gender gaps in pension accumulations and pension benefits. The behavioral model is estimated using household survey data from the Encuesta de Proteccion Social merged with administrative data on pension contribution. The estimated model is used to simulate the short-term and long-term effects of the 2008 pension reform and to compare with alternative pension system designs.

We use Danish register data for the three cohorts of high school students of 1984-86. We exploit exogenous variation from a high school pilot scheme to identify the channels through which advanced high school math causes more favorable career outcomes. The pilot scheme reduced the costs of choosing advanced math - in particular for girls at the top of the math ability distribution - because it allowed for a more flexible combination of math with other courses. Only one out of ten female high school students chooses advanced math without the pilot scheme, and this fraction almost doubled after introduction of the pilot scheme. It is this exogenous cost variation that we exploit in order to understand the potential of advanced math to attract females to high-powered careers. We specifically analyze the causal effect of advanced high school math on earnings. We further explore potential mechanisms by analyzing the causal effect of math on college enrollment and graduation, PhD graduation, field of major, promotion to top-corporate jobs, and choice of sector and industry. Consistent with earlier work, we find strong evidence of a causal effect of math on earnings for students who are induced to choose math after being exposed to the pilot scheme. Studying marginal treatment effects, we cannot reject that the returns to advanced math are equal across gender for individuals with an identical propensity to choose advanced math. This indicates that there is no gender discrimination in the labor market as to rewarding individuals with similar math ability equally for their advanced math qualifications. This further indicates that the underlying math ability distribution is also equal.

This study uses linked employer-employee data to estimate the labor supply elasticity facing the rm, separately by gender, for a comprehensive sample of U.S. firms. Using a dynamic model of labor supply, which identifies the labor supply elasticity tothe firm o of job to job transitions, I find evidence of substantial search frictions in the economy, with females facing a higher level of frictions than males. However, the majority of the gender gap in labor supply elasticities is driven by across firm sorting rather than within rm differences, a feature predicted in the search theory literature, but which has not been previously documented. On average, I find that males face a labor supply elasticity 0.15 points higher than females, a differential which leads to 3.3% lower earnings for women (or about 14% of the adjusted gender earnings gap). Roughly 60% of the elasticity differential can be explained by marriage and children penalties faced by women but not men.

In a real effort experiment with repeated competition we find striking differences in how the work effort of men and women responds to previous wins and losses. For women losing per se is detrimental to productivity, but for men a loss impacts negatively on productivity only when the prize at stake is big enough. Responses to luck are more persistent and explain more of the variation in behavior for women, and account for about half of the gender performance gap in our experiment. Our findings shed new light on why women may be less inclined to pursue competition-intensive careers. To the best of our knowledge, our paper is the first to report how the work effort of men and women responds to the outcome of previous competitions. In each of 10 rounds subjects are paired and informed of the value of the monetary prize that they are competing for. The prize, which can be interpreted as a relative-performance bonus, is awarded to one of the pair members depending on the relative work efforts of the pair members in the "slider task", which involves positioning a number of sliders on a screen, and some element of chance which we control. In our empirical analysis we explore how effort provision responds to the outcomes of previous rounds of competitive interaction, i.e., previous wins and losses. We use fixed effects dynamic panel data methods and control for permanent individual-level ability, time effects and prize effects. We exploit randomization induced by the experimental design to obtain a number of valid instruments for the variables measuring previous competitive outcomes. We note that the randomness present in the experimental design is critical to our identification strategy: it is this randomness that allows us to estimate the causal effect of previous competitive outcomes on current effort provision.

We use controlled experiments to identify the proximal causes of gender differences in the repayment of microcredit. We recruit male and female subjects from a patriarchal and a matrilineal community in Bangladesh, who live in the same villages, and find that the female subjects have a greater willingness to repay microcredit in every society irrespective of the type of loan. Thus, the observed gender differences in the repayment of microcredit cannot be explained by the different roles that women play in different societies. In other words, women are “naturally” better credit risks than men in microcredit. We confirm that our results are not driven by the common culture and values among our subjects that stem from geographical proximity.

Abstract Is difficulty of purchasing health insurance as an individual or small business a major barrier to entrepreneurship in the United States? I answer this question by taking advantage of the natural experiment provided by the Affordable Care Act’s dependent coverage mandate, which allowed many 19-25 year olds to acquire health insurance independently of their employment. This mandate provides a means to estimate the number of potential entrepreneurs discouraged by the current system of employer-based health insurance. A difference-in-difference strategy finds that the dependent coverage mandate led to a 13-24% increase in self-employment among the treated group. The effect is found to be larger for women and for unincorporated businesses. An instrumental variables strategy finds that those actually receiving health insurance coverage as dependents were much more likely to start businesses.

Absenteeism due to sickness imposes large costs on firms and workers. While firms experience production loss, workers potentially suffer from lost earnings. A large literature in health economics estimates the relationship between individuals' health and their labor market outcomes, but due to endogeneity and measurement issues, a causal relationship is difficult to establish. Similarly, answering the question to what extent more comprehensive health insurance can reduce the negative effects of health shocks on labor market outcomes is hampered by selection issues. In this paper, we exploit accidents and other unpredictable health shocks as sources of identifying variation and avoid these problems. Combining hospital discharge data with administrative earnings data from Chile, we can (a) estimate the causal short-term and long-term effects of health shocks on employment and earnings and (b) investigate if access to high quality health care through more comprehensive health insurance leads to better outcomes conditional on health. A dynamic model of labor supply and health investment predicts that workers aim to smooth their consumption over time. Negative health shocks reduce the worker's productivity and time endowment and lead to lower earnings and may reduce labor supply to zero. Risk averse individuals can purchase better more expensive insurance that reduces the negative effects of health shocks by providing access to high quality health care in order to reduce the income drop due to health shocks. We exploit the dual health care system in Chile (public and private) and panel data on monthly earnings to test the predictions of this model. Workers' employment and earnings fall by about five percent on average in the month after a health shock and recover only slowly and not completely. These effects are about twice as large for individuals with public health insurance showing that more expensive health insurance improves consumption smoothing.

Background: The tendency of an individual to conform to or be affected by others has been reported for many health variables (mental health, obesity, mortality, etc.) and in a variety of social contexts (family, friends, co-workers, etc.). Examining social spillovers in health among hospital patients holds potential for better understanding and improving patient hospitalization experiences and outcomes. Goal: This study is an empirical examination of spillovers in health among patients hospitalized in an acute care hospital, using data on quasi-random hospital roommate assignments and a longitudinal measure of the patient's clinical condition. Mechanisms of transmission of social spillovers in health among hospital patients are also explored. Data and setting: The sample includes 1,392 females and 1,251 males who were discharged from a large urban teaching hospital during 6/1/11-12/31/11 and who had at least one roommate throughout the duration of their entire hospital stay. The clinical condition measure is the Rothman Index, an automatically generated and continuously updated score calculated based on a set of clinical variables using a novel clinically validated algorithm adopted by the study hospital. All data were obtained from the hospital's electronic medical records. Analysis: The study estimates a standard lagged linear-in-means peer influence model. The focus patient's clinical condition score at discharge (t) is regressed on the average admission clinical condition score (t-1) of his/her roommates weighted by the proportion of stay spent with each roommate, conditional on the patient's own clinical condition at admission (t-1) and a set of controls for the patient's characteristics and room assignments. Identification: Empirical studies of social spillovers face important identification challenges including unobserved selection bias, endogeneity (or reflection) bias, and bias from shared exposure to common environmental factors. The identifying source of variation in this study is variation in the clinical condition of the patient's roommates. Patients were assigned to rooms based on gender, diagnosis, and care needs. Balancing tests support that, conditional on a set of observable patient characteristics (gender, diagnosis) and room fixed effects, roommate assignments were plausibly exogenous (that is, the patient's clinical condition score at the time of admission was uncorrelated with the admission scores of his/her roommates). Conditional randomization of roommate assignments deals with unobserved selection, and using a pre-exposure measure of the roommate's clinical condition deals with confounding due to reflection and shared exposure to the common environment. Results: The study finds evidence of social spillovers in health for females - sharing a room with healthier patients lead to a better clinical condition at discharge (close to a half a point higher discharge patient condition score of the focus patient for every 1 standard deviation increase in the average clinical condition score of the roommates). Female patients with healthier roommates also had significantly lower odds of being readmitted back to the hospital after discharge. The study further shows that these effects are unlikely to be the result of indirect spillover effects through rivalry for care; rather, the spillovers appear to operate through psychological pathways. No similar effects were observed for male patients.

We present empirical evidence for the impact of patient reviews on consumers’ physician choices. Our study is based on ZocDoc.com—a unique website that integrates patient reviews, and appointment scheduling for physicians on one platform. Using ZocDoc we construct a novel data set consisting of all reviews written for physicians in Manhattan, New York. We then pair these reviews with data on appointments that are booked through ZocDoc, during February-May, 2013. Our data suggest that patient reviews are becoming an important source of reputation for physicians. About 25% of New York primary care physicians are now listed on ZocDoc, and 84% of them have at least 5 reviews. Because ZocDoc displays each physician’s rounded average rating to patients, we can use regression discontinuity to identify the causal impact of patient ratings on patient demand. We find that half a star improvement in ratings, on a scale of 1 to 5 stars, leads to a 10% increase in the likelihood, at the mean, that a doctor will fill an appointment.

This paper examines the causal impact of labor force participation on informal caregiving. To address the endogeneity of labor force participation, we exploit local business cycles and instrument for individual labor force participation with state unemployment rates. Using data from the Survey of Income and Program Participation (SIPP), we find that labor force participation significantly reduces informal caregiving. Among women, working an additional 10 hours per week reduces the probability of providing informal care by 12.5 percentage points and reduces the number of care hours by 32 percent. We also find that the effect of labor force participation is stronger among women with low income and wealth, who are the most important target of many welfare policies that promote labor force participation. Our results imply that demographic trends and work-promoting policies have the unintended consequence of reducing informal caregiving in an aging society that faces rising demand for informal care.

Despite their lower socioeconomic status, Mexican immigrants in the United States have similar or better health outcomes than natives. However, while second-generation Mexicans assimilate socio-economically, their health deteriorates. This phenomenon is commonly known as the ``Hispanic health paradox''. There is an open debate about whether this unhealthy assimilation is explained by selection on health or by the adoption of less healthy lifestyles. This paper uses a unique dataset linking the birth records of two generations of children born in California and Florida (1970--2009), to analyze the mechanisms behind the generational decline observed in birth outcomes. I show that a modest positive selection on health at the time of migration can account for the the initial advantage in birth outcomes of second-generation Mexicans. At the same time, a simple process of regression towards the mean reverses the apparent paradox, predicting a worse deterioration than the one observed in the data. Using a subset of siblings, and holding constant grandmother-fixed effects, I show that the persistence of healthier behaviors (e.g. smoking during pregnancy) among second-generation Mexican mothers can explain more than half of the difference between the model prediction and the observed birth outcomes of third-generation Mexicans.

In this paper we study the role of a dimension of ability, vocational ability, that has received little attention by economists when analyzing schooling choices and labor market outcomes. We first describe this ability and then analyze its effect on schooling decisions and wages. To analyze its contribution, we estimate a Roy model with factor structure that deals with the endogeneity of schooling and also allows to differentiate tests scores from unobserved abilities. The results indicate that vocational ability has a positive reward on the labor market as all other dimensions of ability. But, in contrast with standard measures of ability, vocational ability reduces the probability of going to college. In particular, the results from the simulation indicate that one standard deviation increase in cognitive ability is associated with an increase of 9 percentage points in the probability of attending 4-year college and 2 percentage points for noncognitive ability, while the same increase in vocational ability reduces the probability in 5 percentage points. The returns to cognitive and noncognitive ability are considerably higher than the returns to vocational (6 and 4 percent respectively compared to 0.5 percent for vocational ability). However we find that that for the highest decile of vocational ability the conditional mean of hourly wages is higher than the alternative, suggesting that for individuals with very high levels of vocational ability but low levels of standard ability (cognitive and noncognitive) not going to college is associated with the highest expected hourly wage.

This paper explores the effect of using an individualized interactive online practice tool on basic math skills of 7th grade students with a randomized field experiment. The results show that practicing with the online tool leads to a substantial and significant increase in math performance growth. On top of that, a positive and significant relation between additional minutes practiced per week and math performance is revealed. The effect is robust to adding student characteristics that influence their practice behavior and to adding usage and attitude towards the tool of the non-randomized teachers. So, the effect holds, despite the fact that there is large heterogeneity in teachers’ usage and attitude towards the practice tool and despite the fact that there is large variation in practice behavior by students. Moreover, there are low implementation barriers, and a cost-benefit analysis indicates that the potential cost savings of this method are very large.

There is scant evidence on the effects of providing school quality information, other than test scores, on parents' school choice decisions. This paper investigates the causal effects of a novel measure of quality, school inspection ratings. Using variation in the timing of inspections, I demonstrate that a school's market share, measured by total enrollment, responds to the top and bottom ratings. Next, using data on parents' ranked preferences over local schools, and exploiting the gradual rollout of a policy reform which led to major simplifications in the presentation style of the reports, the paper estimates a random utility model. The results show that there is a strong response to all ratings, not just those at the extreme, suggesting that families discriminate between the majority of schools located in the middle of the quality distribution. These effects are very large relative to parents' response to school test scores.

The quality of a student's high school courses can influence later academic success, including admission to a selective college. Recent evidence suggests that some low-income high school students choose not to attend selective colleges because (a) they mis-estimate their true abilities and (b) their classmates and course options are not sufficiently challenging. We use student-level high school transcript and test score data from the Chicago Public Schools, along with detailed Census information to investigate how low-income students' high school academic behavior is changed after taking the ACT test. Beginning in the 2000-2001 school year, the state of Illinois mandated that high school juniors take the ACT. This rule change was first used by Goodman (2013) as a behavior-changing mechanism. Goodman shows that this mechanism reveals information to students about how competitive they will be for selective colleges. By comparing the lower-income students to higher-income students in the time before and after the ACT rule change, we can estimate the impact of revealed information on changes in course quality, course absences, course grades, and other inputs to become competitive for selective colleges.

Our study analyzes the impact of the International Baccalaureate Diploma Programme, a college-preparatory educational program designed for higher-achieving students, on high school academic achievement in Chicago Public Schools. We exploit exogenous variation in the offering of the program across schools over time with a difference-in-differences framework. We estimate a positive effect of the program on the probability of obtaining a B average or better in coursework, with most of the effect accruing to performance in mathematics. Most importantly, the program led to a decrease in the likelihood of high school dropout and an increase in the probability of high school graduation. These findings are especially promising for this urban school district, given its overall disadvantaged student population, which may otherwise constrain access to postsecondary education and impede successful labor market outcomes even for the program's target population of higher-achieving students. The enhanced educational attainment is policy relevant in light of the increases in the high school wage premium and employment gap over the past 30 years.

As video games gain popularity among all age groups, the extent to which video games can and should be considered addictive has become an increasingly important question. I develop a model of rational addiction for video games and apply it to a unique panel dataset collected from the popular online video game Team Fortress 2. I provide evidence of rational addition in video games: past and future consumption play a significant role in determining how much an individual plays today. The micro nature of these data allow me to estimate the model at the individual level and characterize potential addicts in a way consistent with rational addiction. Finally, I extend the model to allow for learning and provide evidence of a skill-playtime feedback loop: by playing today an individual improves his skill which reinforces his decision to play in the future.

It is well-known that parental income strongly predicts children's college attainment. However, there remains debate over whether this relationship is driven by parental income or by other factors, and how impacts of parental income vary across stages of childhood. I develop a new research design to estimate the causal effects of parental income during late childhood on children's college outcomes using administrative data on the U.S. population. The design compares outcomes of children whose fathers lose jobs before college decisions with outcomes of children whose fathers lose jobs after college decisions. I find that an unanticipated $1000 decrease in permanent income due to a father's layoff reduces children's enrollment by 0.18%. This impact is precisely estimated and smaller than estimates in prior work that rely on variation in firm closures rather than timing of layoffs. I replicate these larger estimates and show they are driven by selection of workers into closing firms. Causal effects of income during late childhood account for 10-15% of the cross-sectional correlation between income and enrollment. Income losses have even smaller impacts on the lowest-income children, consistent with the fact that these children rely less heavily on parental income to finance college. These findings suggest that relaxing parental liquidity constraints during late childhood will do little to increase enrollment compared to improvements in financial aid, especially for low-income children.

This paper uses tax return data from 1999 to 2009 to provide new estimates of wage losses during unemployment, and to examine how other types of income change during an unemployment spell. Periods of unemployment are associated with significant reductions in wage income, equivalent to approximately 16% of pre-unemployment household-level earnings and 30% of individual-level earnings. Households partially compensate for these wage losses in ways that vary across groups: Spousal earnings increase in the case of married couples, filers more likely to have accrued financial and housing wealth realize greater amounts of capital gains, and older filers take early withdrawals from restricted savings accounts. More generous UI benefits crowd out wage income of unemployed workers, but have mostly small or zero effect on spousal earnings and non-wage income.

This paper studies the role of employer behavior in generating "negative duration dependence," the adverse effect of a longer unemployment spell, by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions and find that duration dependence is stronger when the local labor market is tighter. This result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.

This paper provides evidence on the behavior of reservation wages over the spell of unemployment using high-frequency longitudinal data. Using data from our survey of unemployed workers in New Jersey, where workers were interviewed each week for up to 24 weeks, we find that self-reported reservation wages decline at a modest rate over the spell of unemployment, with point estimates ranging from 0.05 to 0.14 percent per week of unemployment. The decline in reservation wages is driven primarily by older individuals and those with personal savings at the start of the survey. The longitudinal nature of the data also allows us to test the relationship between job acceptance and the reservation wage and offered wage, where the reservation wage is measured from a previous interview to avoid bias due to cognitive dissonance. Job offers are more likely to be accepted if the offered wage exceeds the reservation wage, and the reservation wage has more predictive power in this regard than the pre-displacement wage, suggesting the reservation wage contains useful information about workers’ future decisions. In addition, there is a discrete rise in job acceptance when the offered wage exceeds the reservation wage. In comparison to a calibrated job search model, the reservation wage starts out too high and declines too slowly, on average, suggesting that many workers persistently misjudge their prospects or anchor their reservation wage on their previous wage.

A recent theory conjectures that cross country variation in economic growth may be largely explained by variation in the local stock of a particular type of human capital that drives innovation: the young, restless, and creative. We examine the advent of crowdfunding, which led to a shock in the access to capital for individuals seeking to raise funding to develop innovative projects and ventures. Although the shock occurred uniformly across the U.S., regions varied in their response. Using data from a non-equity-based crowdfunding platform, we report evidence that the regional response to this new access to capital is correlated with the presence of young (20-29 years), creative (university graduates), and restless (unemployed) human capital. Specifically, locations with more unemployed recent graduates attract funding for more projects. Locations with more recent graduates with degrees in the social sciences and humanities raise funding for more arts-related projects. Locations with more recent graduates in engineering and computer science raise funds for more technology-related projects. Looking at the timing of when fund raising campaigns are launched, we find that they are disproportionately launched during college breaks in locations with top colleges.

To what extent does "false science" impact the rate and direction of scientific change? We examine the impact of more than 1,100 scientific retractions on the citation trajectories of articles that are close neighbors of retracted articles in intellectual space but were published prior to the retraction event. Our results indicate that following retraction and relative to carefully selected controls, related articles experience a lasting five to ten percent decline in the rate at which they are cited. We probe the mechanisms that might underlie these negative spillovers over intellectual space. One view holds that adjacent fields atrophy post-retraction because the shoulders they offer to follow-on researchers have been proven to be shaky or absent. An alternative view holds that scientists avoid the "infected" fields lest their own status suffers through mere association. Two pieces of evidence are consistent with the latter view. First, for-profit citers are much less responsive to the retraction event than are academic citers. Second, the penalty suffered by related articles is much more severe when the associated retracted article includes fraud or misconduct, relative to cases where the retraction occurred because of honest mistakes.

An endogenous growth model is developed where each period firms invest in researching and developing new ideas. An idea increases a firm's productivity. By how much depends on how central the idea is to a firm's activity. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it fails to innovate. The developed model is matched up with stylized facts about the market for patents in the U.S. The analysis attempts to gauge how efficiency in the patent market affects growth.

Existing theories of technological innovation posit a split between the incremental innovations produced by large incumbents and the radical innovations produced by entrepreneurial start-ups. This study presents empirical evidence challenging this foundational assumption by demonstrating that entrepreneurs play a leading role, not a subordinate role, in sourcing incremental innovations through secondary inventions and design modifications. In making this argument, I present parallels between two separate instances involving the diffusion of radical innovations: the mechanized reaper (1804 - 1884) and cloud computing services (1960 - 2011). Although these technologies arose in markedly different environments and eras, each instance demonstrates that without the sustained introduction of secondary inventions and design modifications by entrepreneurs, the dominant designs would have remained dormant. Applying the techniques of historical econometrics, this study reveals that among the highest-ranked incremental innovations leading to the commercialization of the mechanized reaper and cloud computing services, nearly 90% were attributable to entrepreneurial start-ups. Paradoxically, however, an entrepreneurial start-up had only a one in fourteen chance of garnering returns from a reaper innovation and a one in nine chance of gains from a cloud computing improvement.

We examine the causal effect of unionization on firm innovation. To establish causality, we use a regression discontinuity design relying on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Passing a union election leads to an 8.7% (12.5%) decline in patent quantity (quality) three years after the election. A reduction in R&D expenditures, reduced productivity of current and newly hired inventors, and departures of innovative inventors appear plausible mechanisms through which unionization impedes firm innovation. Our paper provides new insights into the real effects of unionization and has important implications for policy makers when they alter union regulations or labor laws to encourage innovation.

Does macroeconomic uncertainty increase or decrease aggregate growth and asset prices? To address question, we decompose aggregate uncertainty of macroeconomic data into `good' and `bad' uncertainty components, which correspond respectively to the volatility associated with positive and negative innovations to macroeconomic growth rates. We document that in line with our theoretical framework, these two types of uncertainty have dierent impact on the macroeconomy and asset prices. Good uncertainty predicts an increase in future economic activity, such as consumption, output, and investment, and is positively related to valuation ratios, while bad uncertainty forecasts a decline in economic growth and depresses asset prices. Further, we show that the market price of risk and equity beta to good uncertainty shocks are positive, while they are negative to bad uncertainty shocks. Hence, both good and bad uncertainty risks contribute positively to equity risk premia and help explain the cross section of expected returns beyond cash ow risk.

This paper studies a DSGE model with endogenous financial asset supply and ambiguity averse investors. An increase in uncertainty about financial conditions leads firms to substitute away from debt and reduce shareholder payout in bad times when measured risk premia are high. Regime shifts in volatility generate large low frequency movements in asset prices due to uncertainty premia that are disconnected from the business cycle.

A growing body of evidence suggests that uncertainty is counter cyclical, rising sharply in recessions and falling in booms. But what is the causal relationship between uncertainty and growth? To identify this we construct cross country panel data on stock market levels and volatility as proxies for the first and second moments of business conditions. We then use natural disasters, terrorist attacks and unexpected political shocks as instruments for our stock market proxies of first and second moment shocks. We find that both the first and second moments are highly significant in explaining GDP growth, with second moment shocks accounting for at least a half of the variation in growth. Variations in higher moments of stock market returns appear to have little impact on growth.

Regulatory stress-testing has become one of the most important tools for determining banks' capital adequacy. In the United States, the current methodology focuses on ensuring the banking system is well capitalized after experiencing losses in one or a few stress scenarios that involve macroeconomic weakness. However, by only focusing on a few scenarios, the current approach does not ensure the banking system is also well capitalized against the wider set of plausible scenarios that could affect the banking system. For example, the 2012 CCAR stress-test ensured banks were well capitalized to a scenario with a weakening economy, low interest rates and inflation. But, the CCAR stress-test approach left unclear how well capitalized the banking system would have been to a stagflation scenario with a weakening economy, rising interest rates and inflation even though such a scenario is plausible. To improve stress testing practices, this paper proposes a framework for modeling systemic risk. The framework is used to identify areas where current stress-testing practices can be improved. Based on the framework, the paper proposes a new approach for systemic risk stress-testing and recapitalization policy that ensures the banking system is well capitalized against a wide set of plausible shocks, but minimizes the costs of achieving this goal through better allocation of equity capital and better sharing of risk.

Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses and defaults under a wide range of shock distributions. In contrast to most work on financial networks, we assume only minimal information about network structure and rely instead on information about the individual institutions that are the nodes of the network. The key node-level quantities are asset size, leverage, and a financial connectivity measure given by the fraction of a financial institution's liabilities held by other financial institutions. We combine these measures to derive explicit bounds on the potential magnitude of network effects on contagion and loss amplification. Spillover effects are most significant when node sizes are heterogeneous and the originating node is highly leveraged and has high financial connectivity. Our results also highlight the importance of mechanisms that go beyond simple spillover effects to magnify shocks; these include bankruptcy costs, and mark-to-market losses resulting from credit quality deterioration or a loss of confidence. We illustrate the results with data on the European banking system.

An emerging literature proposes using conditional value at risk (CoVaR) and marginal expected shortfall (MES) to measure financial institution systemic risk. We identify two weaknesses in this literature: (1) it lacks formal statistical hypothesis tests; and, (2) it confounds systemic and systematic risk. We address these weaknesses by introducing a null hypothesis that stock returns are normally distributed. This allows us to separate systemic from systematic risk and construct hypothesis tests for the presence of systemic risk. We calculate the sampling distribution of these new test statistics and apply our tests to daily stock returns data over the period 2006-2007. The null hypothesis is rejected in many instances, consistent with tail dependence and systemic risk but the CoVaR and MES tests often disagree about which firms are potentially systemic. The highly restrictive nature of the null hypothesis and the wide range of firms identified as systemic makes us reluctant to interpret rejections as clear evidence of systemic risk. The introduction of hypothesis testing is our primary contribution, and the results highlight the importance of generalizing the approach to less restrictive stock return processes and to other systemic risk measures derived from return data.

This paper assess the usefulness of top-down approaches to stress testing of banks by evaluating the impact of negative shocks to macroeconomic variables on the income-to-assets ratio of a panel of banks in the U.S. The path of negative shocks used is the same that was used in 2013 by the banking industry as part of the stress tests on large banks, mandated by the Dodd-Frank Act. We show that the relationship between macroeconomic variables and the income-to-assets ratio varies dramatically over the business cycle. Accounting for this variation has important implications for the outcomes of top-down stress tests conducted on individual banks. We also document that the set of macroeconomic variables used by the Federal Reserve for the stress test exercise are highly collinear, and propose a principal components approach for constructing stress-test scenario projections. Finally, properly allowing for bank heterogeneity can be very important.

This paper estimates an education production function using data on the College Scholastic Ability Test score and high school characteristics from Seoul, Korea, where on entering high school students are randomly assigned to schools within each school district. We derive a school production function by aggregating the individuals' potential outcomes under the random assignment and no cohort effect assumption. We find that the school production function coefficients differ between districts and that the single-sex school effect estimate is much larger than that found in previous studies.

This article develops a Bayesian framework for estimating multivariate treatment effect models in the presence of sample selection. Modeling is at the intersection of four areas including treatment effect models, sample selection, endogeneity, and discrete data modeling which presents several statistical and econometric problems. These issues, in conjunction with one another, render standard two-stage estimators inapplicable. Motivated by these difficulties, this paper presents a method of estimation that does not require simulation of the missing outcomes due to incidental truncation or the joint distribution of the potential outcomes which follows from Chib (2007) and Chib, Greenberg and Jeliazkov (2009). This methodology is appealing because it is computationally efficient and can capture a variety of interactions in the system. This framework is applied to a banking study that evaluates the effectiveness of bank recapitalization programs and their ability to resuscitate the banking system. By employing a novel bank-level data set from the Reconstruction Finance Corporation, a major recapitalization program established during the Great Depression, this paper jointly models a bank's decision to apply for a bailout, the federal government's decision to approve or decline the bailout, and the bank's failure or success. Properly incorporating missing data into the model and allowing for treatment response outcomes leads to a more comprehensive evaluation of the impacts of a bank bailout. This analysis addresses questions regarding lender of last resort regulation including whether and to what extent these programs stabilize the economy or simply privatize the gains and nationalize the loses. Overall, this model offers practical estimation tools to unveil new answers to questions involving treatment response data and incidental truncation.

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This study proposes a new estimator for estimating a treatment effect in one particular fuzzy regression discontinuity (RD) setting, in which the treatment effect is homogeneous on the support of an assignment variable and the treatment assignment is exogenous conditional on that assignment variable. The estimator is constructed using orthogonality conditions and can be easily implemented by an instrumental variable estimation procedure. We use Monte Carlo experiments to show that the proposed estimator can substantially reduce the bias in estimating the treatment effect caused by misspecifying the regression model of the observed outcome. We also use two empirical studies to demonstrate the advantages of our proposed estimator over alternative estimators. Furthermore, we use the first empirical study to highlight a connection between our proposed estimator and propensity-score matching estimators. The second empirical study emphasizes that the proposed estimator can work in a fuzzy RD setting where the cutoff point is either unknown or not exactly known. Our proposed estimator depends on the two assumptions aforementioned. As shown by Angrist and Rokkanen (2012), the assumption of a homogeneous treatment effect with respect to the assignment variable allows for identifying a treatment effect away from the cutoff. The assumption of the exogeneity of a treatment conditional on the assignment variable emphasizes a randomization that results from imperfect control over the assignment variable (Lee, 2008). However, for fuzzy RD designs the possibility of nonrandom treatment assignment may not be avoided when we focus on the population near the cutoff, where there can be selection based on potential gain from the treatment. In this case our proposed estimator will fail, and identification of a treatment effect only at the cutoff remains a distinct possibility, although the generalizability of that treatment effect can be questioned by empirical studies focused on public policy evaluations.

This study uses longitudinal data from the Early Childhood Longitudinal Study – Birth Cohort, a nationally representative sample of over 10,000 children born in the U.S. in 2001, to study – (i) how market childcare prices and market wages determine choice of childcare settings; (ii) is cognitive development affected by choice of childcare and time spent in different settings: (iii) is there evidence of association between cognitive ability and delayed entry or early enrollment in kindergarten; and, (iv) what are the potential policy implications of delayed and early enrollments in kindergarten, if any? Delayed and early enrollments are calculated by comparing child's birth date and kindergarten cut-off dates in child's state of residence at age five. Childcare expenditures are observed only when parents use paid care services, and mothers' salaries are observed only when they participate in labor market. Market prices and wages are, thus, predicted using suitable selection models. Mother's employment in two-parent households is considered to be endogenous and fathers' employment is assumed to be exogenous. Amount of time spent in different care settings are estimated using a demand system model and censored regression method. We examine two types of households – single-mother households, and two-parent households. Results, so far, indicate that childcare prices and wages do determine the amount of time spent in different childcare settings, which include parental care, paid relative care, unpaid relative care, non-relative care, center care and Head Start. Additionally, child care choices and time spent in different settings in turn affect math and reading scores of pre-kindergartners. We also note that cognitive ability affects delayed enrollment, while market childcare prices affect early enrollment. Our final results will discuss the effectiveness of subsidizing childcare costs, and the impact of skill distribution of kindergarten cohorts on national aggregate achievement gaps.

This paper examines the effect of conflict on agricultural production of small-farmers. First, we develop an intertemporal model of agricultural production in which the impact of conflict is transmitted through two channels: violent shocks and uncertainty brought by conflict. The model shows how conflict induces sub-optimal agricultural decisions in terms of land use and investment. We test the model using a unique household survey applied to 4.800 households in four micro-regions of Colombia. The survey collects detailed information on households’ economic conditions, incidence of violent shocks, and presence of non-state armed actors. The results show conflict affects agricultural production through different channels. In regions with an intense conflict, households reduce land allocated to perennial crops, increase production of seasonal crops and pasture, and cut back investments. Households seem to learn to live amidst conflict. Recent presence of non-state armed actors induces farmers to cut-back strongly land use on perennial crops, pasture and investments. As presence is more prolonged, farmer increase land use on perennial crops and pasture, and investments rebound. However, total agricultural production might be lower because shocks and presence result in more land being idle land. Households habituate to conflict, yet in a lower equilibrium.

This paper explores the relationship between trade liberalization and productivity focusing on the impact of an expansion in imports on the productivity of domestic firms. The key innovation is that we focus on direct and indirect effects through the supply chain and explore a variety of different channels through which exposure to imports impacts on firm-level productivity, both for firms that import and those that do not. Our identification strategy exploits differences in the effects in competitive and concentrated sectors and in the impact of imports from competitive and concentrated upstream sectors. We use firm level enterprise survey data from Vietnam for the 2002 to 2011 period. We pay particular attention to the differential effects of imports in pre and post trade liberalization. Our results suggest that the main impact if imports on the productivity of domestic firms is through within-sector competition induced efficiency gains through reallocations and within-firm behavioral responses. There is some evidence that some of these gains are transmitted through the supply chain to domestic users of domestic inputs. We find no evidence to suggest that imported intermediates yield productivity spillovers for domestic firms.

We study production factor adjustment taking into account factor utilisation in all its dimensions (labour and capital working time, capital capacity utilisation) through a unique survey among French manufacturing firms. This survey also allows us to examine the impact of obstacles to increasing capital operating time on this adjustment path. These obstacles may be regulatory, technical or due to the poor quality of labour relations. This survey, merged with balanced sheet and profit and loss accounts from fiscal reports, yields an unbalanced panel of 6,066 observations over 1993-2010. Factor utilisation adjusts the most rapidly, first through capital capacity utilisation, then the capital workweek and finally labour working time. The adjustment is slow for the number of employees and even slower for the capital stock. In case of a change in factor volume targets, the three factor utilisation degrees adjust to offset the very slow reaction of factor volumes. Obstacles to increasing the capital operating time lead to a slower adjustment of the capital stock gap through capital capacity utilisation and capital operating time, the short-term adjustment relying more on labour level and utilisation. Regulatory obstacles appear to be the most stringent obstacle, while union or labour opposition mostly constraint adjustment through labour or capital workweek.

We study the causal effect of demand shocks on productivity using an instrumental variable approach. The demand shock we examine leverages reforms to U.S. energy policy that mandated a higher ethanol content of gasoline which subsequently increased demand for corn. Exploiting variation in the demand for corn due to the geographic segmentation of markets we create instruments based on distance and numbers of cattle (as a by-product of ethanol production can be used as an animal feed). To obviate the conflation of productivity and price effects using standard revenue based measures of productivity we use as our outcome physical TFP (yield). We show that the demand shock caused firms to make productivity improvements and provide evidence that this occurred through technology adoption. Other tests reveal that only permanent demand shocks motivate productivity change, suggesting a link between demand uncertainty in the operating environment and investment. We also show that the results are externally valid, invariant to using alternative control groups, and are robust to a battery of robustness, falsification and placebo tests.

We construct a tractable general equilibrium model of cumulative innovation and growth, in which new ideas strictly improve upon frontier technologies, and productivity improvements are drawn in a stochastic manner. The presence of positive knowledge spillovers implies that the decentralized equilibrium features an allocation of labor to R&D activity that is strictly lower than the social planner's benchmark, which suggests a role for patent policy. We focus on a "non-infringing inventive step" requirement, which stipulates the minimum improvement to the best patented technology that a new idea needs to make for it to be patentable and non-infringing. We establish that there exists a finite required inventive step that maximizes the rate of innovation, as well as a separate optimal required inventive step that maximizes welfare, with the former being strictly greater than the latter. These conclusions are robust to allowing for the availability of an additional instrument in the form of patent length policy.

This paper shows that defined benefit pension and health care plans are important for firm leverage and real investment around the world. While consolidating off-balance sheet post-retirement plans typically increases effective leverage by 32%, firms reduce their level of regular debt by only 23 cents for every dollar of projected benefit obligation, yielding overall higher total leverage of plan sponsors by 24% compared to similar firms without post-retirement plan. Substitution rates between regular debt and post-retirement obligations are lower in countries with weaker employment laws and protection, more labor market freedom, pension guarantee funds, stricter rule of law as well as larger private bond market capitalization and private credit. Since post-retirement benefit obligations have more flexible terms than regular debt, they can be used to investigate the effect of financial flexibility on real investment. The results show that post-retirement benefit obligations are positively related to R&D, which generates growth options, and negatively related to capital expenditures, which exercises growth options. Compared to an otherwise similar firm without a post-retirement plan, the average plan sponsor has 5% less capital expenditures and 12% more research and development. The results are robust to other dimensions of financial policy, such as debt maturity, dividends, preferred stock, convertible debt, and leverage that also affect real investment.

This paper investigates the relation between life expectancy assumptions and pension liabilities for a large sample of U.S. corporate defined benefit pension plans. We show that longevity assumptions are systematically related to the lagged funding status of a pension plan: under- funded plans make lower life expectancy assumptions. Cross-sectional analysis further reveals that each year of life expectancy increases pension liabilities by around 4-5 percent. The eco- nomic magnitude is substantial: a one-year shock to longevity would more than double the degree of aggregate pension underfunding. Forecasts of future life expectancy typically under- estimate realized improvements, thereby increasing chances of lumpy adjustments to pension liabilities.

This paper investigates the effects of (non-)compliance with national numerical fiscal rules on fiscal policy in 11 EU member states with 23 fiscal rules in place from 1990-2013. Introducing a new dataset of legal texts stating the fiscal rules, allows a joint empirical analysis of different types and designs of numerical fiscal rules. Descriptive statistics show that countries tend to comply with fiscal rules more often in the forecasts than in the actual values (fiscal institutions like fiscal councils seem to diminish this effect). But econometric estimations find that the constrained variables tend to move towards their numerical constraint, i.e. decrease if the constraint is violated and increase if not. This effect is not visible when looking at more general fiscal variables (not necessarily the variables constrained by the fiscal rules).

The highway and bridge construction industry in the US is an important part of the infrastructure sector of the national economy. Annually, the government buys upwards of $70 bn of construction services from this industry. It is therefore a policy-relevant exercise to examine the relationship between a given amount of government spending and job creation at firms in the industry. We provide an estimate of this relationship for the state of Texas during 1999-2006. The predominant format of disbursal of government funds in this industry is first-price sealed-bid procurement auctions. In order to measure the effect of construction spending on job growth, one needs to track the amounts disbursed at each auction as well as the employment level of the bidder who wins the auction. We compile a unique dataset that allows us to do so. For all road construction firms in Texas during 1999-2006, we collected data on the dollar value of work won by each of them in Texas Department of Transportation (TxDoT) auctions. We matched this to data on their monthly employment levels during this time, using the Texas Workforce Commission's Quarterly Census of Employment and Wages database. Regressing a firm's monthly employment level on its monthly work commitments--measured by payments received from TxDoT, which we observe--allows us to infer the response of firms (in terms of hiring additional workers) to an increase in their production targets. We find a firm-level employment elasticity of 1.3% in response to an increase in its work commitments.

This paper contributes to the literature on the link between political institutions (in particular presidentialism vs. parliamentarism) and fiscal policy with municipal-level panel data from Germany. Historically, the power of the municipal council vs. that of the mayor varied between the German States: southern states had powerful mayors while northern states had powerful councils. In the mid-nineties, however, many northern states switched to the southern system. That is, the northern states changed from an essentially parliamentary to a presidential system for local politics. Using a panel dataset that covers municipalities in two German States - North Rhine-Westphalia (treatment state) and Bavaria (control state) - over the period 1990-2010, we establish with difference-in-difference regressions how this switch to a quasi-presidential system affected municipal spending and taxation. The main contribution of this paper is a credible identification of the causal effect of political institutions: while the previous literature relies primarily on cross-sectional regressions with country-level data, we account for unobserved heterogeneity through the use of subnational and time-varying data.

Using data from a randomized experiment in rural China, this paper studies the influence of social networks on weather insurance adoption and the mechanisms through which social networks operate. To quantify network effects, the experiment provides intensive information sessions about the insurance product to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take-up is equivalent to granting a 15% reduction in the insurance premium. By varying the information available about peers' decisions and using randomized default options, the experiment shows that the network effect is driven by the diffusion of insurance knowledge rather than purchase decisions.

This paper examines the effect of peers on individual risk taking. In the absence of informational motives, we investigate experimentally why social utility concerns may drive peer effects. We test for two main channels: utility from payoff differences and from conforming to the peer. We show that social utility generates substantial peer effects in risk taking: on average, individuals change over 30% of their risky choices in the presence of a peer. While conformity plays a role, our results suggest that social utility stems mainly from utility from payoff differences, in line with outcome-based social preferences. Full paper PDF: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2204956

I study the relative academic performance of students tracked or randomly assigned to South African university dormitories. This advances the literature on peer effects under different peer group assignment policies and on optimal group design. I find that tracking reduces low-scoring students' GPAs but has little effect on high-scoring students. The net effect is to reduce mean GPA and increase the spread or inequality of GPA. I also directly estimate peer effects using random variation in dormitory peer groups. I find that own and peer characteristics are substitutes in GPA production and that peer effects are considerably stronger within than across race groups. I finally explore whether peer effects estimated under random assignment can predict the effects of tracking. The quantitative predictions are sensitive to model specification choices over which neither economic theory nor model selection tests provide clear guidance.

Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing his ability to possess the asset. Then, we randomize whether the second member of the pair: (1) receives no information about the first member, or (2) is informed of the first member's desire to purchase the asset and the result of the randomization that determined possession. This allows us to estimate the effects of learning plus possession, and learning alone, relative to a (no information) control group. We find that both social learning and social utility channels have statistically and economically significant effects on investment decisions. Evidence from a follow-up survey reveals that social learning effects are greatest when the first (second) investor is financially sophisticated (financially unsophisticated); investors report updating their beliefs about asset quality after learning about their peer's revealed preference; and, they report motivations consistent with "keeping up with the Joneses" when learning about their peer's possession of the asset. These results can help shed light on the mechanisms underlying herding behavior in financial markets and peer effects in consumption and investment decisions.

An understanding of the magnitude and distribution of returns to investments is an important aspect of economic analysis in many contexts. Most existing studies, however, have assumed additive errors and provide standard errors of returns based on single-year estimates that fail to take into account the variability of profits due to stochastic shocks that interact with investments. These specifications are inconsistent with the idea that investments are risky. In this paper we use seven years of investment, rainfall and profit data from the new set of ICRISAT Indian surveys. We estimate the effects of planting-stage investments, which take place prior to the realization of current-period rainfall shocks, on yearly profits in a framework that permits investment returns to vary with rainfall levels. Identification exploits the annual forecasts of July-September rainfall levels issued by the Indian Meteorological Institute. We show that the forecasts, which can have no direct effects on profits (given governmental price-setting), influence farmer investments in accord with a simple dynamic model of risky agriculture. Our estimates show that sampling error alone accounts for a small fraction of the total error for any single-year estimate of investment returns and we characterize the true distribution of coefficient errors given the actual values of parameters describing the distribution of rainfall. Our estimates also indicate that ICRISAT farmers on average substantially under-invest for any reasonable values of returns on riskless investments.

This paper presents mid-line results from an ongoing, multi-year study of the effect of rain- fall insurance on farmer investment behavior. Exploiting variation from a randomized experiment which offered subsidized insurance policies to farmers, we find farmers covered by rainfall insurance modestly increased investments in cash crops. Poor, but typically not catastrophic, weather characterized much of the study period. We find that insured farmers earned more from policy payouts than they spent on insurance premia, but they also experienced reduced agricultural revenue.

Catastrophic health risks are ubiquitous in developing countries, yet few households are protected from their financial consequences with health insurance. In recent years, governments and private actors have tried to introduce health insurance. Several microfinance institutions have started offering catastrophic health insurance to their clients. To overcome adverse selection, insurance is often mandatory with a new loan or loan renewal. Insurance premium is folded in the interest rate. In a randomized controlled trial, we study the introduction of such a program by a large MFI in Andhra Pradesh, India. We show that health insurance led to large decreases in renewal rate of the microfinance loan in treatment villages (where health insurance was mandatory) than in control villages. Drop out is larger when there are other MFI present in the village, but remain large even without alternative sources of microfinance. With low demand for insurance, bundling with credit thus does not solve any of the problem associated with a voluntary program and may have made households worst off by causing loss in credit access. Faced with this increase in drop out, the MFI made insurance voluntary, and the take up of insurance dropped near zero.

Insurers choose plan characteristics to selectively attract cheap consumers. In a model with multidimensional heterogeneity, this sorting incentive is proportional to the covariance, among marginal consumers, between marginal willingness-to-pay and cost to the insurer. Standard forms of cost-sharing attract high cost consumers, but lowering the comprehensiveness of a plan repels them. In competitive equilibrium, this covariance over the full population must vanish. A competitive equilibrium with positive insurance is possible when insurance value is sufficiently negatively correlated with cost, unlike in Handel, Hendel and Whinston (2013)’s data, where Rothschild and Stiglitz (1976)’s non-existence result still holds.

Many standard intuitions about the distortions created by market power and selection are reversed when these forces co-exist. Adverse selection may be socially beneficial under monopoly, for example, and market power may be beneficial in the presence of advantageous selection. We develop a simple, but quite general, model of symmetric imperfect competition in selection markets that parameterizes the degree of both market power and selection. We derive basic comparative statics verbally and illustrate them graphically to build intuition. We emphasize the relevance of the most counter-intuitive effects with a calibrated model of the insurance market and empirical results from the credit card industry. Among other policy insights, we show that in selection markets four core principles of the United States Horizontal Merger Guidelines are reversed.

Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that insurance markets may "unravel". This short paper clarifies the distinction between these two notions of unraveling. I first show that the two concepts are mutually exclusive occurrences. Moreover, under a regularity condition of full support of the type distribution, the two concepts are exhaustive of the set of possible occurrences. Akerlof unraveling characterizes when there are no gains to trade, Rothschild and Stiglitz unraveling shows that the standard notion of competition (pure strategy Nash equilibrium) is inadequate to describe the workings of insurance markets when there are gains to trade.

This paper examines the welfare consequences of adverse selection in an environment where consumers have information frictions in plan choice. Information frictions arise from (i) not having information available or (ii) an inability to easily process information. Information frictions impact consumer choices, but may not represent welfare relevant factors in and of themselves. We empirically investigate these issues with a large micro-level data set that combines administrative claims and choice data with a comprehensive survey on consumer choices. We estimate an individual-level plan choice model with health risk, risk preferences, and information frictions, and study the welfare consequences of adverse selection. We show that (i) information frictions impact the extent of adverse selection and (ii) holding information frictions constant, the welfare impact of adverse selection changes when information frictions are included in the model. This suggests that the welfare impact of policies investigated with models without information frictions may not be sufficient for the true welfare impact of those policies.

This paper studies the natural rate of interest in the context of quantitative dynamic general equilibrium models. In the modern New Keynesian framework the natural rate of interest--that which would prevail in an otherwise equivalent general equilibrium model with flexible prices, can vary dramatically over time. Further, there is an entire term structure of natural real rates. Taking account of these observations we attempt to reconstruct the history of the natural rate, with particular attention to the Great Recession and implications for policy in a period with a binding zero lower bound.

The natural rate of unemployment is identified in a variety of ways, but two dominate. The first relates the unemployment rate to inflation and leads to the "non-accelerating inflation rate of unemployment" (NAIRU), the unemployment rate that leads to a no-change forecast of inflation in a traditional Phillips curve. The second identifies the natural rate with the low-frequency level of the unemployment rate, which is related to observable factors such as demographic changes, sectoral shifts in the product market, changing incentives for work versus leisure, or other factors. The variability of these factors during the Great Recession and its aftermath (including potential instability or nonlinearity in the Phillips curve) suggests potentially important changes in the value of the natural rate of unemployment. And, because the NAIRU or natural rate serves as the anchor for the unemployment "gap," these changes in the natural rate lead to different interpretations of the current level of the measured unemployment rate for evaluating slack in the labor market, the outlook for future inflation, and for the appropriate policy responses. This paper will empirically investigate recent changes in the natural rate using both of these frameworks.

What do modern growth theory and empirical evidence suggest about the future of U.S. economic growth? Rising educational attainment and research intensity reveal that up to 75% of growth during the last 50 years may have been due to transition dynamics. Moreover, because of the nonrivalry of ideas, long-run future growth in income per person is arguably tied to population growth, which seems to be slowing around the world. Both of these channels suggest substantially slower U.S. economic growth at some point in the future. Counterbalancing these concerns, at least for awhile, is the rise of China, India, and other emerging economies, which likely implies rapid growth in world researchers for at least the next several decades. Finally, and more speculatively, the shape of the idea production function introduces a fundamental uncertainty into the future of growth. For example, the possibility that artificial intelligence will allow machines to replace workers to some extent could lead to higher growth in the future.

We construct and analyze a model of delegated portfolio management in which money managers signal their investment skills via their choice of transparency for their fund. We show that a natural equilibrium is one in which high- and low-skill managers pool in opaque funds, while medium-skill managers separate in transparent funds. In this equilibrium, high-skill managers rely on their eventual performance to separate from low-skill managers over time, saving the monitoring costs associated with transparency. In contrast, medium-skill managers rely on transparency to separate from low-skill managers, especially when it is difficult for investors to tell them apart through performance alone. Low-skill managers prefer mimicking high-skill managers in opaque funds in the hope of replicating their performance and compensation. The model yields several novel empirical predictions that contrast transparent funds (e.g., mutual funds) and opaque funds (e.g., hedge funds).

We find that socially connected fund managers have more similar holdings and trades. The portfolio overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers are neighbors longer or are of a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long-short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk-adjusted returns. Unlike prior empirical work, our tests disentangle social interaction from community effects.

This paper documents temporary abnormal returns in mutual fund performance due to peer effects among mutual funds associated by similar asset holdings. With a network specification of instrumental variables to control for correlated shocks to associated funds, I find that flows to and from peer mutual funds funds account for 1.6% of mutual fund quarterly excess return which reverses 1.1% in the following year. Temporary abnormal returns may explain mutual fund performance persistence in the absence of frictions inhibiting reallocation of investor funds across mutual funds.

In this paper we investigate how mutual funds react to the distress of another fund in the same fund family. We test three alternative hypotheses: (1) funds help the distressed fund, (2) funds front-run the distressed fund improving their relative performance in the fund family and, (3) the family coordinates and benefits from front-running the distressed fund. Our results suggest that fund managers front-run their distressed siblings and that this is the outcome of a coordinated strategy. First, we find that funds in the same family exhibit higher risk-adjusted returns when one of the funds in the family is in distress. Second, distressed funds have lower returns for a given outflow when they have a high portfolio overlap with their siblings. Third, consistent with a coordinated strategy on the family level we find that the higher risk-adjusted returns are clustered among the most important funds of the family.

As illustrated in the tale of ?the dog that did not bark,? the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions.

For each stock in the U.S. universe in turn, we take the stock?s distribution of past returns, and compute the value that would be assigned to this distribution by (cumulative) prospect theory. We find that this ?prospect theory value? predicts subsequent returns in the cross-section, with a negative sign. This is particularly true for stocks traded primarily by individual investors and for stocks that are hard to arbitrage. We repeat our tests in 46 international markets, and find a similar pattern in a majority of those markets. Our conjecture is that some investors are influenced in their trading by the quick initial impression of a stock that they form after glancing at a chart of the stock?s historical price movements ? a so-called ?system 1? impression that we quantify as the stock?s prospect theory value. Stocks with high prospect theory values make a positive impression on these investors, who tilt toward them, causing them to be overpriced and to earn low subsequent returns.

We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree of mean reversion, driven by industry participants? competitive investment responses to increases in demand. This mean reversion is not fully reflected in ship prices. We show that high current ship earnings are associated with high secondhand ship prices and heightened industry investment, but forecast low future returns. We suggest and estimate a behavioral model that can account for the evidence. In our model, individual firms overestimate their ability to respond to common shocks and underestimate the ability of the competition, leading to excessive industry investment during booms and low subsequent returns on capital. Our model nests both rational expectations at one extreme and Kaldor?s (1938) cobweb theory at the other, in which producers naively set current production quantities based on lagged prices. Formal estimation of our model suggests significant competition neglect in the shippin

Since 2005, recovery rates in the multi-trillion dollar credit default swap (CDS) market have been determined using a novel and complex auction format. This paper undertakes the first detailed empirical investigation of these auctions. We find that the auction price is significantly biased compared to pre- and post-auction market prices for the same instruments, with the average bias exceeding 20%. Nonetheless, econometric analysis shows that the auction is also significantly informative: information generated in the auction is critical for post-auction market price formation. Bidder behavior and auction outcomes are heavily influenced by "winner's curse" concerns, by a proxy variable that captures the size of bidders' CDS positions entering the auction, and by illiquidity concerns; all these factors contribute substantially to the observed bias. Other factors, such as exercise of monopsonistic market power also appear to matter.

We develop a model in which credit default swaps (CDSs) are non-redundant securities, based on the observation that they are more liquid than the underlying reference bonds. The introduction of a CDS has an ambiguous effect on bond prices: The CDS market (i) crowds out long bond investors with relatively frequent trading needs, (ii) reduces short selling of the bond, and (iii) leads to the endogenous emergence of basis traders who take levered hedged positions in the bond and the CDS. The model generates testable predictions on the effects of CDS introduction on bond prices, turnover in bond and CDS markets, and the CDS-bond basis. The model can also be used to assess policy interventions. For example, a ban on naked CDSs may raise the issuer's borrowing costs.

We use credit default swaps (CDS) trading data to demonstrate that the credit risk of reference firms, reflected in rating downgrades and bankruptcies, increases significantly upon the inception of CDS trading, a finding that is robust after controlling for the endogeneity of CDS trading. Additionally, distressed firms are more likely to file for bankruptcy if they are linked to CDS trading. Furthermore, firms with more “no restructuring” contracts than other types of CDS contracts (i.e., contracts that include restructuring) are more adversely affected by CDS trading, and the number of creditors increases after CDS trading begins, exacerbating creditor coordination failure in the resolution of financial distress.

Maintaining a large endowment invested in risky securities requires a university to forego expansion through internal projects. We capture this trade-off by defining a university objective function that balances the demands of altruistic stakeholders to expand against those of self-interested stakeholders to maximize their lifetime payments. We show that a risky and large endowment signals a combination of three university characteristics: low productivity marginal internal projects; self-interested stakeholders resisting productive expansion; or binding constraints on maximum endowment payouts. Our model demonstrates that endowments offer a window into university fundamentals, and it helps explain the empirical heterogeneity in asset allocations and sizes.

Does information asymmetry among traders of a firm's stock increase its cost of capital? We first show that institutional traders in the Shanghai Stock Exchange have a strong information advantage. We then show that past aggressiveness of institutional trading in a stock is a good predictor of institutions' current and future information advantage in this stock. Sorting stocks on this predictor and controlling for other known correlates of expected returns, we find that the top quintile's average annualized return in the next month is 10.8% higher than the bottom quintile's, indicating that information asymmetry raises the cost of capital.

We show that the optimal portfolio can be derived explicitly in a large class of models with transitory and persistent transaction costs, multiple signals predicting returns, multiple assets, general correlation structure, time- varying volatility, and general dynamics. Our tractable continuous-time model is shown to be the limit of discrete-time models with endogenous transaction costs due to optimal dealer behavior. Depending on the dealers' inventory dynamics, we show that transitory transaction costs survive, respectively vanish, in the limit, corresponding to an optimal portfolio with bounded, respectively quadratic, variation. Finally, we provide equilibrium implications and illustrate the model's broader applicability to economics.

Deleveraging risk is the risk attributable to the existence of levered positions. When funding liquidity evaporates securities with a greater presence of levered investors experience extreme return realizations as investors unwind their positions. Using unique data from equity lending markets as a proxy for the degree of leverage in a stock, we find large positive returns and reductions in short selling quantities around periods of funding illiquidity. For example, during the Quant crisis, the daily abnormal returns to a portfolio that sells highly-shorted stocks and buys lowly-shorted ones is -166 basis points, in contrast with +11 basis points during “normal” days.

We decompose the term structure of expected equity returns into (1) the real short rate, (2) a premium for holding real long-term bonds, or the real duration premium, the excess returns of nominal long-term bonds over real bonds which reflects (3) expected inflation and (4) inflation risk, and (5) a real cashflow risk premium, which is the excess return of equity over nominal bonds. All of these risk premiums vary over time. The shape of the unconditional nominal and real bond yield curves are upward sloping due to increasing duration and inflation risk premiums. The average term structures of expected equity returns and equity risk premiums, in contrast, are downward sloping due to the decreasing effect of short-term expected inflation, or trend inflation, across horizons. Around 70% of the variation of expected equity returns at the 10-year horizon is due to variation in the output gap and trend inflation.

Real-time macroeconomic data reflect the information available to market participants, whereas final data ? containing revisions and released with a delay ? overstate the information set available to them. We document that the in-sample and out-of-sample Treasury return predictability is significantly diminished when real-time as opposed to revised macroeconomic data are used. In fact, much of the predictive information in macroeconomic time series is due to the data revision and publication lag components.

Why do value stocks have higher expected returns than growth stocks, in spite of having lower risk? Why do these stocks exhibit positive abnormal performance while growth stocks exhibit negative abnormal performance? This paper offers a rare- events based explanation, that can also account for facts about the aggregate market. Patterns in time-series predictability offer independent evidence for the model?s conclusions.

We study the nature of deflation risk by extracting the objective distribution of inflation from the market prices of inflation swaps and options. We find that the market expects inflation to average about 2.5 percent over the next 30 years. Despite this, the market places substantial probability weight on deflation scenarios in which prices decline by more than 10 to 20 percent over extended horizons. We find that the market prices the economic tail risk of deflation very similarly to other types of tail risks such as catastrophic insurance losses. In contrast, inflation tail risk has only a relatively small premium. Deflation risk is also significantly linked to measures of financial tail risk such as swap spreads, corporate credit spreads, and the pricing of super senior tranches. These results indicate that systemic financial risk and deflation risk are closely related.

We show that banks' cash flow exposure to interest rate risk, or income gap, plays a crucial role in their lending behavior following monetary policy shocks. In a first step, we show that the sensitivity of bank profits to interest rates increases significantly with their income gap, even when banks use interest rate derivatives. In a second step, we show that the income gap also predicts the sensitivity of bank lending to interest rates, both for commercial & industrial loans and for mortgages. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile. We conclude that banks' exposure to interest rate risk is an important determinant of the bank-level intensity of the lending channel.

I explore the role of the Just-in-Time (JIT) inventory system in the increase of cash holdings among U.S. manufacturing firms. I first demonstrate the empirical importance of JIT in shaping cash policy. I then develop a model to analyze the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for over half of the observed increase in cash.

Intermediaries should transmit funding shocks to the cross-section of returns. Stocks that experience low returns when funding becomes scarce should exhibit higher illiquidity, higher volatility and ultimately higher risk premium. This paper documents this mechanism empirically. We show that the illiquidity and volatility of individual portfolios are positively associated with the value of funding liquidity, a measure of funding scarcity, while the portfolio returns are negatively correlated. In addition, the cross-section dispersion of illiquidity, volatility, and returns widens when funding conditions deteriorate. We find that this risk is priced. The funding liquidity risk premium explains the cross-section of returns across liquidity-, volatility-, and size-sorted portfolios. Overall, our results provide strong support for the prediction that funding liquidity plays a significant role in the determination of equity liquidity, volatility, and risk premium.

The empirical corporate finance literature claims that information asymmetries would induce market frictions, which reduce the liquidity of the firm’s securities. However, real activities manipulation may reduce the concern given its cash flow consequences. Using REITs as a unique laboratory, we show that managers engage in real earnings management to attract more uninformed trading in order to provide the liquidity services at lower cost during seasoned equity offerings. We find less liquid firms are more likely to manipulate earnings prior equity offerings and uninformed trading is higher following the real earnings management. Firms set the offer price at a smaller discount after engaging in real earnings management and stock returns decline in the long run. The findings are consistent with real option and liquidity explanations for equity offerings.

We propose a technique to infer cash flow yields for investment assets whose trades are infrequent, but for which cash flow data is available. We construct a Self-Propagating Rolling-Window Panel VAR framework, adapted from a Dynamic Gordon Growth Model setup. We use this framework to estimate yields and volatility in yields for untraded commercial properties as out-of-sample predictions from our VAR based on these properties’ cash flow data. We find that our predicted cash flow yields closely resemble ex-post realized transaction yields, and that these predicted yields even outperform appraisals in this respect. We find that this paradigm provides a good representation of commercial real estate yields, and propose that investors can readily apply this algorithm to infer values of untraded investment assets.

In this paper we examine the drivers of office building-level returns utilizing a large proprietary database of building-level investment returns for office properties from NCREIF. We utilize two stages: first, we start by utilizing panel data regression-based attribution analysis to apportion the relative contribution of building-level investment performance between fixed unique building characteristics, fixed submarket characteristics, dynamically changing local characteristics, market-level rental trends, and national property market as well as economic trends. We find that fixed property characteristics explain only 20% of variation in building-level NCREIF total returns, market level rental trends account for 13% of variation, while national economic and property market trends explain over 32% of variation. Most significantly, dynamic property and neighborhood effects account for 53% of variation in total property performance. Results are similar for appreciation and income returns. In the second stage, we attempt to explain the variation in property-specific fixed effects from the first stage by modeling these coefficients as a function of a set of set of market, submarket, and property variables. We find that these variables explain a very small share of variation in investment performance due to fixed effects, suggesting that fixed effects capture much more information than our set of characteristics. Our findings add further insight to the drivers of investment performance in CRE and have a number of implications for devising investment strategies in the sector. One key implication is the inefficiency of a simplistic "theme" investment strategy, as it relies on fixed unique market of building characteristics that account for a small share of performance differences and, hence, provide little utility in identifying above-market return opportunities.

This paper examines the contrasting influence of portfolio lending and securitization in the resolution of distressed commercial real estate. The empirical analysis utilizes a large and unique data set of distressed commercial mortgages for securitized and portfolio loans. The data set is constructed based on the recent financial crisis and includes U.S. and International agents. The main hypotheses address the marginal impact of portfolio versus securitized loans on resolution outcome, time to resolution and capital recovery rates. Conditional on a loan becoming troubled, we find a significantly higher foreclosure rate associated with loans held in a portfolio, compared to those that are securitized. Furthermore, portfolio loans experience shorter time to resolution and higher recover rates in the foreclosure process. Our study is intended to contribute to the growing literature on distressed asset resolution and to provide new perspectives on agents at the nexus of real estate and capital market decisions.

Congestion pricing has long been held up by economists as a panacea for the problems associated with ever increasing traffic congestion in urban areas. In addition, the concept has gained traction as a viable solution among planners, policy makers, and the general public. While congestion costs in urban areas are significant and clearly represent a negative externality, economists also recognize the advantages of density in the form of positive agglomeration externalities. The long-run equilibrium outcomes in economies with multiple correlated, but offsetting, externalities have yet to be fully explored in the literature. To this end, I develop a spatial equilibrium model of urban structure that includes both congestion costs and agglomeration externalities. I then estimate the structural parameters of the model by using a computational solution algorithm and match the spatial distribution of employment, population, land use, land rents, and commute times in the data. Policy simulations based on the estimates suggest that naive optimal congestion pricing can lead to net negative economic outcomes.

The purpose of this paper is to study the causes, welfare effects, and policy implications of the decline of the Rust Belt. I develop a dynamic spatial equilibrium model which consists of a multi-region, multi-sector economy comprised of overlapping generations of heterogeneous individuals. Using several data sets that cover the time period from 1960--2010, I estimate the structural parameters of the model based on a simulated method of moments estimator. The empirical findings suggest that goods-producing firms located in the Rust Belt had a 13 percent relative productivity advantage in 1960 compared to the rest of the U.S., which shrank to approximately 3 percent by the end of the sample period in 2010. As a consequence, a large fraction of the decline of the Rust Belt can be attributed to the reduction in its location-specific advantage in the goods-producing sector. The transition of the U.S. economy to a service sector economy is a less significant factor. The decline of the Rust Belt generated significant differences in welfare between individuals residing in the Rust Belt and those residing in other areas, particularly for the less educated. Policy experiments show that the inequality in welfare can be significantly reduced by subsidizing labor costs in the Rust Belt or reducing mobility costs.

Gibrat's law, the orthogonality of growth to initial levels, is considered a stylized fact of local population growth. But throughout U.S. history, local population growth has significantly deviated from orthogonality. In earlier periods smaller counties strongly converged whereas larger counties moderately diverged. Over time, due to changes in the age composition of locations and net congestion, convergence dissipated and divergence weakened. Gibrat's law gradually emerged without fully attaining it. A simple one-sector model, with entry of new locations, a growth friction, and decreasing net congestion closely matches these and many other observed relationships. Our findings suggest that orthogonal growth is a consequence of reaching a steady state population distribution, rather than an explanation of that distribution.

In an equilibrium model of residential and workplace choice, we develop a measure of quality of life, incorporating commuting costs and wages based on place of work, to account for residential sorting on unobserved skills within metropolitan areas. Quality-of-life measures estimated for 2071 areas in the United States reveal that quality of life varies as much within metropolitan areas as between them and is highest in denser areas. Households bear significant commuting costs to enjoy the amenities of suburban areas, and are willing to pay significant amounts to live in areas with low crime and well-funded schools.

The quality of China's official statistics is frequently being questioned. From the 1998 'wind of falsification' to China's output performance during the U.S. financial crisis, researchers and the media alike rarely trust Chinese official statistics. This paper reviews past and ongoing suspicions of Chinese GDP data and concludes that there is little (if any) evidence for falsification of Chinese GDP data or for systematic biases in the data. The paper furthermore asks the question of which specific national income accounts data China's National Bureau could possibly falsify without being detected, and provides two significant checks of such potential data falsification.

Since 1985, the foreign debt of the Peoples' Republic of China has increased at a greater rate then would be explained by changes in the country's current account, foreign direct investment and reserve holdings. This pattern is consistent with the large-scale outflow of financial capital, commonly referred to as capital flight. This study provides a range of estimates for capital flight from the PRC for the period 1984 through 2010 using both Cuddington's balance of payments and the more inclusive residual measures. These measures are adjusted to reflect the legitimate assets of the PRC banking industry, mis-invoicing of PRC trade with its major trading partners (especially Hong Kong), and the failure of official debt data to capture certain bank transactions. Based on these estimates, 2010 capital flight was about $201 billion while accumulated PRC capital flight since 1984 is approximately $2.1 trillion with over 50% of this total occurring in the most recent six years. Since this capital flight has occurred during a period of rapid economic growth, appreciating currency, and improved perception of political stability, the most likely cause is high transaction costs in China’s financial markets.

Many authors have attempted to estimate China's aggregate and provincial capital stock statistics. Some authors have also reported capital stock estimates for industrial sub-sectors at the national level. This paper adds to the existing literature by estimating provincial capital stock at the sub-sector level. It extends the author's own work of the estimates of capital stock for the three sectors (agriculture, industry and services) in Chinese provinces. The raw data are drawn from various statistics yearbooks and reports. These statistics are checked, corrected and reconciled for the final estimation of a capital stock series. In particular great efforts are made to ensure that 1) data from different sources are consistent with each other, 2) official data are adjusted or corrected according to the standard accounting practices and 3) conventional methods are adopted so that benchmark comparison is possible. The data series covers subsectors at the two digit level for China's provincial economies. Preliminary analysis using the estimated data will also be reported. The final capital stock data series together with employment and value-added statistics at the same level will be available for public access.

A new panel data set on the estimates of human capital stock in China has been under construction since 2008. The data provide human capital stock estimates at the national level and provincial level from 1985 to 2010. Through 2013, the data have covered 22 provinces in China. The project is the result of cooperation between the China Center for Human Capital and Labor Market Research (CHLR) at the Central University of Finance and Economics (CUFE) with the participation of a large number of scholars and graduate students from the US, Canada, and China. The updated data are released on annual base with the "China Human Capital Report." The project has been supported by the China NSF, CUFE and other agencies. The estimation of human capital stock is based on the Jorgenson-Fraumeni life-time income approach. The data provide a comprehensive human capital measure in China beyond the traditional partial measurement based on education. The data show the distribution of human capital across Chinese provinces as well as the dynamics of human capital covering most of the reform era in China. This paper provides detailed description of the data, its rich information on human capital, such as total human capital, per capita human capital, labor force human capital, by urban and rural as well as by gender. As an illustration of its utility, we use the data to investigate the economic growth convergence among Chinese provinces using this new human capital measurement and compare the results with traditional education-based human capital measurement.

Long-term Japanese government bonds' nominal yields have stayed remarkably low for the past two decades despite elevated government debt ratios and large and persistent fiscal deficits. During these past two decades the Japanese economy has been mired in subdued growth and deflation which in turn has resulted in large and chronic fiscal deficits that has led to elevated and rising ratios of government debt to national income. However, contrary to conventional wisdom, long-term Japanese government bonds' nominal yields have remained low and declined over time during this period. It is argued here that long-term Japanese government bonds' nominal yields have stayed low due to monetary sovereignty, low short-term interest rates, low inflation and indeed persistent deflationary pressures, and tepid growth. Low short-term interest rates, induced by the monetary authorities, have been a key driver of JGBs' low nominal yields, while monetary sovereignty implies that since the Government of Japan has the ability to always service debt issued in its own currency, namely, yen-denominated government bonds, investors need not be excessively concerned about credit risk of a sovereign default. Japan's experience of long-term government bonds' low nominal yields vindicates Keynes' (1930) view that long-term interest rates primarily respond to monetary policy which generally exerts its direct influence on short-term interest rates.

Credit flow outside of traditional bank lending, or the "shadow banking", has quadrupled since 2008 and reached $3.2 trillion or 40 percent of GDP at the beginning of 2013 in China. The shadowing banking system is acclaimed by some commentators as a welcome supplement to bank lending, which increases access to credit for those that are shunned from the state‐dominated banking system. In addition, shadow banking institutions, such as trusts, and their issuance of wealth management products provide a viable venue for households to place their savings. However, the growth of the shadow banking may pose high risks for China's financial stability due to the lack of regulations and the opaque underlying assets of these wealth management products. Furthermore, a large share of shadow banking credit flows to the property market, leading to the overheating of property price. This paper will investigate the recent surge of shadow banking in China and analyze its impacts on China's financial stability and macroeconomic performance.

This study empirically analyzes the impact of the United States' bank recapitalization program, the centerpiece of the United States' $700 billion Troubled Asset Relief Program (TARP), on bank portfolios. Our findings demonstrate that the program did not achieve the stated policy objective of stimulating bank lending and, particularly, preventing foreclosures. On the contrary, we find evidence that recipient banks shrunk their assets, particularly heavily risk-weighted assets such as loans. This affected loan growth in aggregate as well as to specific sectors: agriculture, real estate, and, most significantly, business loans. The cuts in lending were more significant under TARP 2, the second round of the program. This finding is robust to various empirical specifications, including two-stage least squares estimation using instrumental variables. The empirical results suggest that TARP recipients cut back on lending more than other banks and that the cuts in lending were larger the more capital the banks received.

Sound national accounting has become an important backbone of Post Keynesian macroeconomic thinking. An essential part of this accounting framework is the three sector balance identity that illustrates that not all economic sectors can be in surplus or deficit at the same time. This identity was used successfully in the US to detect clues of unsustainable economic growth. When the domestic private sector became a net borrower it was an important sign that private debt dynamics were not sustainable. This paper extends the same analysis to other countries to see if one can draws similar conclusion. Canada and Australia are examined more carefully.

The literature on social entrepreneurship focuses on changing the dynamic that creates need deprivation by creating value through a variety of ways not exclusively measured through market exchange or government programs. Social entrepreneurial individuals and enterprises close the duality between the profit and non-profit sectors by linking ends and means and exploring novel solutions to social economic problems that go beyond what we have traditionally considered the public and private sectors. Opportunities for problem solving of this sort come about during specific punctuations and waves in history when the prevailing wisdom weakens, revealing the failure of the status quo to solve social economic problems. These punctuations increase opportunities for new ways of thinking and the appetite for accepting new ideas. No one knows for sure how long these punctuations will last, but we do know that these punctuations produce waves of activity that feeds on itself. In the context of the economic turmoil communities have been going through during the current economic crisis, this is an opportunity for social economics to make contributions by exploring innovative ways of alleviating deprivations. Research on innovative social enterprises and on the work of individual social entrepreneurs can thus benefit the development of social economic scholarship. I will examine the relationship between social entrepreneurship/enterprise and social economics by exploring the role of social enterprise and social entrepreneurship in the social economy. Particular emphasis will be accorded to women social entrepreneurs working to bring about change in their communities.

The most common critique of social enterprise is that eventually they must sacrifice their social or environmental objectives under the financial pressure of survival. The objective of this project is to address this critique from a number of perspectives and use spatial analysis of the Greater Kansas City Metropolitan Area to develop an alternative monetary asset structure (AMAS) designed to alleviate the social enterprise sector from the existing financial constraints it currently faces in a monetary production economy. This objective will be pursued through an analysis of money focusing on public banks, complementary currencies, and the Federal Reserves definitions of collateral and a quantitative, qualitative, spatial (SQ2) analysis of the impact on neighborhood vulnerability/stability of social enterprise. In order to develop the SQ2 method of analysis, data will be collected from the neoliberal period (1980-present). The data sets will consist of both attribute and spatial data from the Greater Kansas City area in the social enterprise fields of housing, education, healthcare and the arts as well as socio-economic data from the American Community Survey, Center for Economic Information (UMKC) and the U.S. Census. Using geographic information systems software, these data will be analyzed using a variety of techniques to estimate and identify spatial: autocorrelation, patterns, and diffusion of the variables. This analysis will help to quantify the non-monetary returns of social enterprise. In combination with the findings of the analysis of complementary currencies and the debt instruments of public banks, it will be proposed that the spatial externalities generated by social enterprise can be used as collateral in balance sheet transactions, similar to those conducted by the Federal Reserve in quantitative easing, helping to alleviate the financial constraints on social enterprise and allow economic recovery to drop 'jobless' as its defining adjective.

The history of workers' cooperatives has been one of social entrepreneurship hampered by lack of capital. This history has recently been changed in several innovative ways, and together they create opportunity for more concrete results from workers' co-ops. This paper investigates these new opportunities. The most obvious barrier to worker-initiated entrepreneurship is lack of capital that can be used for equity financing. The growing income and wealth disparities in the United States have only exacerbated this problem. A capitalist economy requires capitalists, or substitutes for them. A related barrier to cooperatives seeking financing is that they don't fit the conventional capitalist norm. The relationship between capital and workers is inverted: worker-owners hire capital, and hire and fire managers. Crowd funding through online social networks may prove to be a way around these barriers, although these networks have not yet become a viable way of raising long-term equity. Several cooperatives of differing scale, however, have recently had notable success by using existing securities laws to raise short- and long-term capital from their networks of supporters, beyond their cooperative membership circle. Companies such as Equal Exchange, Namaste Solar, and Real Pickles have raised millions of dollars in preferred stock offerings to outside investors on terms that enhance employee and farmer ownership, rather than transferring power to the financiers. This paper will look at these innovations in cooperative financing and discuss whether they represent a sustainable solution to the problem of cooperative financing.

As a concept, social entrepreneurship has managed in recent years to capture the imagination of practitioners, policy makers and commentators alike. While this is evidently not the result of it being clearly and rigorously defined (e.g. Bacq and Janssen, 2011), there is a growing recognition that successful social entrepreneurship results from the transformative intersection of social service provision and social activism (Martin and Osberg, 2007). This paper studies the case of a Brighton based Community Interest Company, The Good Life for All, and its piloting of a community reward currency during 2012. While the delivery focus of this pilot as such is non-transformative, the financial context of this delivery, in its trialling of a community currency, is. The case allows us therefore to cast light on the intersection of alternative finance, broadly conceived, and social entrepreneurship. At the heart of this intersection, one finds commitments at various levels among the stakeholders of the pilot to a recasting of market transactions into relational economies that call into question the rhetoric of conventional market exchange, while at the same time being premised on that rhetoric. Put into context, this phenomenon is characteristic of a number of other recent ventures experimenting at the margins of conventional finance, and points to a potential shift in focus of how post-crisis civil society has begun to engages with and transform the financial and monetary sectors as they stands.

As scholarly and practical interest in social entrepreneurship increases, a relevant question is how we can excite future generations of leaders to explore social entrepreneurship while in college or university. This paper details the story of the Rollins Microfinance Fund, the first undergraduate social entrepreneurship-related student organization at Rollins College, Florida. The organization was developed in 2010 by a group of students taking a course titled Globalization and Gender, and since that time the group has become more diverse, now encompassing both graduate and undergraduate students of various disciplines at Rollins. The paper discusses the activities of the group (which focus on loaning money to entrepreneurs in developing countries through Kiva), and lessons the group leaders have learned along the way as they have worked to increase awareness of microfinance throughout the campus community.

Behavioral finance has focused primarily on cognitive biases and unconventional preferences over gambles, but financial judgments and decision-making are heavily influenced by moral attitudes about what is appropriate behavior with regard to saving for the future, taking risks, and taking advantage of other individuals. We review here the basic psychology of moral attitudes, including the six fundamental moral foundations that underlie much of human moral attitudes, and distinguish between basic financial norms that align fairly closely to the moral foundations, and financial ideologies that elaborate more adventurously from the foundations. We then critically review existing theory and evidence regarding how moral attitudes affect the behaviors of investors, advisors, managers, firms, and market prices. We also discuss some important financial ideologies that are infused with moral attitudes, such as the anti-greed ethic, growth versus value ethics, the anti-speculation ethic, the entrepreneurial ethic, pro-thrift/anti-lender ethics, anti-short-termism. We also discuss how moral attitudes affect financial regulation, and suggest directions for future research.

We study the impact of cultural aversion on international economic relations by analyzing market reaction to two major adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure decline disproportionately during each event window; Chinese companies with high Japanese exports similarly suffer relative declines. The effect on Japanese companies is concentrated in industries dominated by Chinese state-owned enterprises, where there is greater incentive and ability to intervene, while the negative impact on Chinese firms is primarily for consumer-focused companies. Our results suggest an important impact of cultural frictions on economic relations, and highlight that institutional context is important for understanding the mechanisms underlying this effect.

We forward and validate using survey data a linguistically derived measure of CEO integrity by documenting a negative association between CEO use of causation words and employee perceptions of the extent to which their CEOs honor their word. Using causation words from annual shareholder letters, we then create CEO integrity scores for a large archival sample. Accounting accruals capture the CEOs word regarding firm cash flows, and we find that high integrity CEOs report accruals that better map into cash flows. Given that poor accruals quality is costly, we also find boards rationally respond by increasing governance over low-integrity CEOs.

Using a large sample of U.S. individuals, we show that trust is an important determinant of an array of household financial decisions and outcomes including debt management. Individuals with a higher level of trust are less likely to be in debt, miss payments, file bankruptcy, or go through foreclosure. Their households have lower financial leverage, higher retirement savings and assets, and greater net worth. We show a causal impact of trust on financial outcomes by extracting the component of trust correlated with an individual's early life experiences, and also by purging out the component of trust correlated with prior economic success. The effect of trust channels through the beliefs formed in response to the trustworthiness of people one deals with, as well as through personal values of trust and trustworthiness rooted in the family and cultural background. Trust has a more pronounced effect among females and those who have lower education or income. Our further evidence suggests that enhancing individuals' trust, and to the right amount, can improve household financial well-being.

Most papers on high-dimensional statistics are based on the assumption that none of the regressors are correlated with the regression error, namely, they are exogenous. Yet, incidental endogeneity arises easily in a large pool of regressors in a high-dimensional regression. This causes the inconsistency of the penalized least-squares method and possible false scientific discoveries. A necessary condition for model selection consistency of a very general class of penalized regression methods is given, which allows us to prove formally the inconsistency claim. To cope with the possible incidental endogeneity, we construct a novel penalized focused generalized method of moments (FGMM) criterion function and offer a new optimization algorithm. The FGMM is an extra filter that excludes all incidental endogenous predictors. To establish its asymptotic properties, we first study the variable selection consistency for a general class of penalized regression methods. These results are then used to show that the FGMM possesses the oracle property even in the presence of incidental endogenous predictors, and that the solution is also near globalminimumunder the over-identification assumption. Finally, we also show how the semi-parametric efficiency of estimation can be achieved via a two-step approach.

In the first part of the paper, we consider estimation and inference on policy relevant treatment effects, such as local average and local quantile treatment effects, in a data-rich environment where there may be many more control variables available than there are observations. In addition to allowing many control variables, the setting we consider allows endogenous receipt of treatment, heterogeneous treatment effects, and function-valued outcomes. To make informative inference possible, we assume that some reduced form predictive relationships are approximately sparse. That is, we require that the relationship between the control variables and the outcome, treatment status, and instrument status can be captured up to a small approximation error using a small number of the control variables whose identities are unknown to the researcher. This condition allows estimation and inference for a wide variety of treatment parameters to proceed after selection of an appropriate set of controls formed by selecting control variables separately for each reduced form relationship and then appropriately combining these reduced form relationships. We provide conditions under which post-selection inference is uniformly valid across a wide-range of models and show that a key condition underlying the uniform validity of post-selection inference allowing for imperfect model selection is the use of approximately unbiased estimating equations. We illustrate the use of the proposed methods with an application to estimating the effect of 401(k) participation on accumulated assets. In the second part of the paper, we present a generalization of the treatment effect framework to a much richer setting, where possibly a continuum of target parameters is of interest and the Lasso-type or post-Lasso type methods are used to estimate a continuum of high-dimensional nuisance functions. This framework encompasses the analysis of local treatment effects as a leading special case and also covers a wide variety of classical and modern moment-condition problems in econometrics. We establish a functional central limit theorem for the continuum of the target parameters, and also show that it holds uniformly in a wide range of data-generating processes $P$, with continua of approximately sparse nuisance functions. We also establish validity of the multiplier bootstrap for resampling the first order approximations to the standardized continuum of the estimators, and also establish uniform validity in $P$. We propose a notion of the functional delta method for finding limit distribution and multiplier bootstrap of the smooth functionals of the target parameters that is valid uniformly in $P$. Finally, we establish rate and consistency results for continua of Lasso or post-Lasso type methods for estimating continua of the (nuisance) regression functions, also providing practical, theoretically justified penalty choices. Each of these results is new and could be of independent interest.

In this paper, we obtain asymptotic approximations to the squared error of the least squares estimator of the common component in large approximate factor models with possibly misspeci…ed number of factors. The approxima- tions are derived under both strong and weak factors asymptotics assuming that the cross-sectional and temporal dimensions of the data are comparable. We develop consistent estimators of these approximations and propose to use them for model comparison and for selection of the number of factors. We show that the estimators of the number of factors that minimize these loss estimators are asymptotically loss e¢ cient in the sense of Shibata (1980), Li (1987), and Shao (1997).

In high-dimensional factor models, both the factor loadings and the number of factors may change over time. This paper proposes a shrinkage estimator that detects and disentangles these instabilities. The new method simultaneously and consistently estimates the number of pre- and post-break factors, which liberates researchers from sequential testing and achieves uniform control of the family-wise model selection errors over an increasing number of variables. The shrinkage estimator only requires the calculation of principal components and the solution of a convex optimization problem, which makes its computation efficient and accurate. The finite sample performance of the new method is investigated in Monte Carlo simulations. In an empirical application, we study the change in factor loadings and emergence of new factors during the Great Recession.

We demonstrate how commodity producers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete in supply functions. In equilibrium firms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

We investigate the estimation of models of dynamic discrete-choice games of incomplete information, formulating the maximum-likelihood estimation exercise as a constrained optimization problem which can be solved using state-of-the-art constrained optimization solvers. Under the assumption that only one equilibrium is played in the data, our approach avoids repeatedly solving the dynamic game or finding all equilibria for each candidate vector of the structural parameters. We conduct Monte Carlo experiments to investigate the numerical performance and finite-sample properties of the constrained optimization approach for computing the maximum-likelihood estimator, the two-step pseudo maximum-likelihood estimator and the nested pseudo-likelihood estimator, implemented by both the nested pseudo-likelihood algorithm and a modified nested pseudo-likelihood algorithm.

There is an extensive literature on the estimation of production functions. A common feature in these studies is that, within an industry, all firms are assumed to have the same production technology but face idiosyncratic (Hicks neutral) productivity shocks. Different industries are allowed to have different technologies. In reality, firms within an industry may have different production technologies depending, for example, on their age, size, history of skill-biased technological changes, or whether they produce for the local market or are engaged in international trade. In fact, the new wave of international trade studies has documented substantial heterogeneity in production technologies at the firm level (see, for example, Bernard and Jensen (1995, 1999) or Melitz (2008)). In this light, we allow for random coefficients for inputs in the production function without specifying their distribution, and show that the coefficients are non-parametrically identified for each firm using short panel data. Sample counterparts of the explicit identifying formulas yield closed-form estimators of the heterogeneous coefficients. We perform Monte Carlo experiments to show how the estimators perform in small samples. Theoretical large sample properties are also discussed. Our identification strategy relies on the structural restrictions similar to those commonly used in the literature on production functions. In other words, we can deal with more general heterogeneous models without materially strengthening existing identifying assumptions. First, the invertibility of the intermediate input choice function is used to proxy the unknown heterogeneous coefficients. Second, the frictions in labor and investment choices are in turn used to disentangle the correlated proxy from endogenous inputs. Third, the assumption that the Hicks neutral technology follows a first-order Markov process disentangles the correlated technology from endogenous capital growths. These three main identifying assumptions together with an empirically testable rank condition establish that all the heterogeneous coefficients are explicitly identified for each firm.

In this paper we develop a structural model in which exporters are competing in supply functions and study the nonparametric identification and estimation of productivity distributions and marginal costs in this framework. Our model is able to reconcile the existence of multiple sellers, multiple prices, and variable markups that we observe in disaggregated bilateral trade data while also incorporating features such as strategic pricing and incomplete information, which are usually missing in models of exporter behavior. Our identification and estimation methodology makes an important contribution to the empirical share auction literature by showing that the underlying structure is identified nonparametrically even if we do not observe the entire schedules, but only the transaction points instead; whereas the methodology in the literature of empirical share auctions depends heavily on the fact that the entire bid/supply schedule is observed. Moreover, in view of the recent studies in international trade that have shown the sensitivity of the gains from trade estimates to the parametrization of productivity distributions it is important to maintain a flexible structure for productivity distributions and also marginal costs. We apply our model to the German market for manufacturing imports for 1990 using disaggregated bilateral trade data, which consists only of trade values and traded quantities. We recover the destination-source specific productivity distributions and destination-source specific marginal cost functions nonparametrically. Our empirical results do not support the distributional assumptions that are commonly made in the international trade literature such as Fréchet and Pareto. In particular, we find that the productivity distributions are not unimodal; low productivities are more likely to occur as expected, but there is not a single mode. Our results provide important insights about cross country and cross destination differences in productivity distributions, trade costs and markups.

This paper studies the design of US Treasury auctions focusing on the role of primary dealers that bids on behalf of indirect bidders when making the market. We develop a framework of continuous-time uniform price auctions in general economic environments that allow players short positions, interdependent values, and information asymmetries among primary dealers and indirect bidders and derive a linear equilibrium in closed forms. Primary dealers use information contained in bids to update their estimates and can reduce volatility of auction prices that are important for public debt management. Direct bidding can enhance competition and participation but also can affect the market risk premium.

The Chilean economy experienced a decade of sustained growth in aggregate output and productivity after the 1982 financial crisis. This paper analyzes the role of resource allocative efficiency on total factor productivity (TFP) in the manufacturing sector by applying the methodology of Hsieh and Klenow (2009) to the establishment data from the Chilean manufacturing census. We find that a reduction in resource misallocation accounts for about 46 percent of the growth in manufacturing TFP between 1983 and 1996. The improvement in allocative efficiency, moreover, is essentially driven by a reduction in the cross-sectional dispersion of output distortion. In particular, a reduction in the least productive plants' output subsidies is the most important reason for the reduction in resource misallocation during this period. Our evidence suggests that Chile's banking reform during the early and mid-1980s is likely to have played an important role in the observed improvement in allocation.

We develop a dynamic lifecycle model to study the increases in college completion and average IQ of college students in cohorts born from 1900 to 1972. We discipline the model by constructing historical data on real college costs from printed government reports covering this time period. We find that increases in college completion of 1900 to 1950 birth cohorts are due primarily to changes in college costs, which generate a large endogenous increase in college enrollment. Additionally, we find strong evidence that cohorts born after 1950 under-predicted sharp increases in the college earnings premium they eventually received. Combined with increasing college costs during this time period, this generates a slowdown in college completion, consistent with empirical evidence for cohorts born after 1950. Lastly, we claim that the rise in average college student IQ cannot be accounted for without a decrease in the variance of ability signals. We attribute the increased precision of ability signals primarily to the rise of standardized testing.

Employment protection (EPL) has a well known negative impact on labor flows as well as an ambiguous but often negative effect on employment. In contrast, its impact on capital accumulation and capital-labor ratio is less well understood. The available empirical evidence would suggest a non-monotonic relation between capital-labor ratios and EPL: positive at very low levels of EPL, and then negative. We explore the theoretical effects of EPL on physical capital in a model of a firm facing labor frictions. Under standard assumptions, theory always implies a motononic negative link between capital-labor ratios and EPL. For a positive link to arise, a very specific pattern of complementarity between capital and workers protected by EPL (senior workers, as opposed to unprotected new entrants, or junior workers) has to be assumed. Further, no standard production technology is able to reproduce the inverted U-shape pattern of the data. An extension of the model with specific skills investment is instead able to reproduce the inverted U-shape pattern. EPL protects and therefore induces investments in specific skills. We calibrate the returns to seniority by using estimates from the empirical literature. Under complementarity between capital and specific human capital, physical capital and senior workers having accumulated specific human capital are de facto complement production factors and EPL may increase capital demand at the firm level. The paper concludes that labor market institutions sometimes have a positive role in a second-best environment.

This paper presents a theory of how factor shares are determined. I first develop microfoundations for a unified aggregate production function that incorporates a frictional process of matching workers and firms. Firms with productivities drawn from a Pareto distribution hire capital and compete for workers. Wages are determined by Bertrand competition. In contrast with Houthakker's classic result, the aggregate production function derived here is Cobb-Douglas only in the limit as unemployment goes to zero. In general, the elasticity of substitution between capital and labor is less than one. Factor shares are asymptotically constant when unemployment disappears and also when workers' reservation wage exceeds the minimum firm productivity. In general, factor shares are variable and depend on unemployment and workers' reservation wage, as well as the firm productivity distribution. Using annual data on unemployment and eligibility for unemployment insurance, I calibrate the model and test its quantitative predictions. The theory can explain much of the behavior of factor shares in the U.S. from 1951-2003. The correlation between the data and the model's predictions during this period of over fifty years is 0.69 for the perfect foresight equilibrium and 0.73 when workers are myopic.

We study a model to explore the (dis)connect between market efficiency and real efficiency when firms learn information from the market to guide their investment decisions. Whether the two efficiency concepts are aligned depends crucially on what information is contained in the market. Market efficiency concerns how much information the market reveals about the overall firm value. However, improving real efficiency needs the market to reveal much information that is relevant for investment decisions. As a result, an informationally efficient economy may not operate efficiently from the perspective of real investment. We characterize conditions for this disconnection to happen. Our analysis highlights the delicate link between market efficiency and real efficiency, and it has important implications for financial regulations.

This paper develops a model to analyze information aggregation in commodity markets. Through centralized trading, commodity prices aggregate dispersed information about the strength of the global economy among goods producers whose production has complementarity, and serve as price signals to guide producers' production decisions and commodity demand. Our analysis highlights important feedback effects of informational noise originating from supply shocks and futures market trading on commodity demand and spot prices, which are ignored by existing empirical studies and policy discussions.

We show that the stock market valuation of peers matters for Â…firms' Â’investment decisions. In a large sample of fiÂ…rms, corporate investment is positively related to the market valuation of peer Â…firms selling related products. Consistent with a model where managers use the stock prices of peers as a source of information, this relation is stronger when the level of informed trading in a Â…firm'Â’s stock is weak. Also, the link between the investment of a Â…firm and its own stock price is weaker when the level of informed trading in its peersÂ’' stocks is high, or when the demand for its products is more correlated with that of its peersÂ’' products. Furthermore the investment of private Â…firms depends on their peersÂ’' stock prices, but much less so after they go public. Overall, our results provide new insights on how fiÂ…nancial markets affect the real economy.

Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting where stock prices are affected by fundamental information, observed by some investors, as well as by unobserved shocks to stock market participation. The model is consistent with a number of regularities documented in the macro finance literature and generates new, potentially testable, implications.

We study the effects of competition on loan rates in microcredit markets using a new database from rating agencies, covering 379 for-profit and nonprofit micro finance institutions (MFIs) in 67 countries over 2002-2008. First, we find competitive pressures from increased market share of for-profits. Second, we find that nonprofits are relatively insensitive to concentration changes, while they appear to sustain their competitive advantage stemming from proprietary information on borrowers. In contrast, for-profits charge significantly lower rates in less concentrated markets. We show that this effect is consistent with an information dispersion mechanism.

Banks promote economic growth by facilitating relationship-specific investment between suppliers and buyers. We motivate this novel channel from banking to real economy by interlinking arguments from both research on relationship-specific assets and signalling role of banks. A supplier would be reluctant to undertake relationship-specific investment if she cannot observe financial stability and planning horizon of buyer. A strong banking sector is well-suited to address these information asymmetries. Empirical results from 28 industries in 90 countries confirm that industries dependent on relationship-specific investment from their suppliers grow disproportionately faster in countries with a strong banking sector.

This paper re-examines the empirical relationship between financial and economic development while (i) taking into account their dynamics and (ii) differentiating between stock market and banking sector development. We study the cointegration and causality between finance and growth for 26 countries. Our time series analysis suggests that the evidence in support of a finance-led growth is weak once we take into account the dynamics of financial development and growth. We show that causality patterns depend on whether countries' financial development stems from the stock market or the banking sector. Stock market development tends to cause growth, while a reverse or bi-directional causality is present between banking sector development and output growth. We also bring evidence that causality patterns differ between market-based and bank-based economies suggesting that financial structure influences the causal direction between financial and economic development. Our findings indicate that the relation between financial and economic development is likely to be more complex than suggested in earlier studies.

This paper uses the simple geometry of the classic, open-economy trilemma to introduce a new gauge of the stability of international macroeconomic arrangements. The new stability gauge reflects the simultaneity of a country's choices of exchange rate fixity, financial openness, and monetary sovereignty. So, the new gauge is bounded and correspondingly non-Gaussian. We use the new stability gauge in nonlinear panel estimates to examine the post-Bretton Woods period, and we find that trilemma policy stability is linked to official holdings of foreign exchange reserves in low income countries. We also find that the combination of fixed exchange rates and financial market openness is the most stable arrangement within the trilemma; and middle-income countries have less stable trilemma arrangements than either low or high-income countries. The paper also characterizes international macroeconomic arrangements i

We examine how firms with employee ownership programs weathered the recessions of 2001 and 2008 in terms of employment stability relative to firms without employee ownership programs, and also whether such firms were less likely to lay off workers when faced with negative shocks more broadly. The firm data we use to examine the relationship between employee ownership and employment stability come from two sources: 1) Standard and Poor s Industrial CompuStat database on publicly traded companies, which contains information on firm characteristics including total employment, and 2) Form 5500 pension data collected by the U.S. Department of Labor, which contains detailed information on employee ownership in defined contribution pension plans and Employee Stock Ownership Plans (ESOPs). These data represent a comprehensive sample of publicly-traded firms, which is an improvement over datasets drawn from special surveys suffering from small sample sizes and bias from self-selection of respondents. A further advantage is that we are able to follow firms over time, allowing use of panel methods in our econometric analyses to help control for unobserved firm-specific effects. The findings show strong evidence that employee ownership firms are less likely to reduce employment in the face of economy-wide and firm-specific negative shocks.

Over the last several decades, contemporary studies of broad-based employee stock ownership and profit sharing have focused on the impact of these practices on company performance and employee attitudes and compensation in the firm. This presentation will discuss insights from our new book (Blassi, Freeman, and Kruse, The Citizen s Share: Putting Ownership Back into Democracy, Yale University Press, 2013) to show that the idea that citizens need to own a meaningful share of the economy has a long and storied heritage in American history. Many of the Founders of the American republic  who disagreed on other issues of political theory and practice  agreed that broad-based ownership is essential for liberty and the functioning of a democratic republic. We will review the theories behind this viewpoint as they have evolved from the American Revolution to the present, and will provide a history of public policies, including George Washington s first labor policy (on the American cod fishery), Homestead Act, and policies on employee stock ownership and profit sharing from 1900 to present. We will show that these concepts are as much about significant political ideas of accomplishing a  property-owning democracy (the term used by John Rawls) as about HR or labor practices within firms. We will ask the question: could the entire economy be updated in order to apply the traditional 18th and 19th century  republican ideas of wide property ownership to corporations? We will answer this question by recommending policies that would move the U.S. toward broader ownership and consider whether the social science evidence supports or conflicts with applying broader ownership economy-wide.

The conditions under which profit sharing affects workplace productivity have never been fully understood. This paper uses a three-year panel and a five-year panel of Canadian establishments to examine (1) the link between adoption of an employee profit sharing plan and subsequent productivity growth, and (2) whether this link is affected by various contextual factors, particularly use of work teams. Overall, we find a significant link between adoption of a profit sharing program and subsequent productivity growth in both panels, but only among establishments that utilize employee work teams.

Past research has found employee ownership to be linked to better attitudes and behaviors. This paper explores why that should be the case. We investigate three possible mechanisms: (a) employees who buy stock in their own company may have better attitudes to begin with, which would suggest a selection effect—better attitudes lead to increased ownership; (b) employees who have any amount of employee ownership may have better attitudes, irrespective of how much stock they are granted, which would suggest a status effect—ownership leads to better attitudes—and we explore the existence of thresholds of ownership; and (c) employee attitudes and behaviors may be influenced by the size of their employee ownership stake. We explore these mechanisms in work environments that either have or don’t have high performance work systems. We used a rich database of 40,000 employees from one large multinational company and thirteen other companies. We found evidence for the first two mechanisms, selection and status, and mixed evidence for the third one—size of stake.

In January 2012, Connecticut's paid sick leave law - the first statewide measure of this kind in the United States - went into effect, requiring many of the state's employers to provide employees with one hour of paid sick leave for every forty hours worked. Based on a survey of 250 covered employers along with site visits and in-depth interviews with managers conducted in 2013, this paper assesses the impact of the law on employers in such areas as productivity, profitability, turnover, absenteeism and worker morale. It also explores the ways in which the work of absent employees is covered and how employers cover the cost of compliance with the new law. The results are analyzed against the background of previous literature on the impact of paid family leave and paid sick leave on employers elsewhere in the United States.

Over the past 30 years, female labor force participation has increased rapidly while both federal and state legislation has been passed to encourage work as well as to improve affordability, availability and quality of child care. The combination of these policies (as well as gains in female wages) has made it much more financially beneficial for low-income mothers to enter the labor force. This paper takes advantage of state variations in public childcare spending to examine the effect of these policies on maternal employment and annual hours worked. Utilizing a difference-in-difference approach, this paper examines the likelihood of employment for mothers of young children compared with mothers of school-age and older children. We find that child care subsidies and Head Start have had positive effects on the employment rates of low-educated mothers of young children, with a 3 percentage point increase in subsidy funding leading to a 1 percentage point increase in employment. We find little evidence of impacts of either of these policies on hours worked, conditional on employment. We find no evidence of impacts on paternal employment.

The United States remains the only advanced economy that does not guarantee workers the right to paid leave from work, in addition to not providing a legal framework through which to request flexible working arrangements. Despite the public attention to paid leave and workplace flexibility, relatively little academic research has systematically explored which workers are more likely to have access to this benefit, in part due to insufficient data on the subject. An efficiency wage or power-oriented theory of the labor market would suggest that the most highly skilled, and thus highly valued, workers would be the most likely to have access to a whole host of paid leave and flexibility benefits. Alternatively, compensating wage differentials theory would argue that workers with the greatest need for paid leave and flexibility, such as those with poorer health or caregiving responsibilities, will be more likely to self-select into jobs where these benefits are offered. Utilizing data released in 2012 as part of the Bureau of Labor Statistics 2011 American Time Use Survey, we use probit modeling to predict which workers are the most likely to have access to paid leave and workplace flexibility offered through their employer.

"Home care workers constitute a large, geographically dispersed, low-wage workforce. Home care workers and their clients are among the poorest and most vulnerable members of society. This research examines the process by which the Service Employees International Union (SEIU) Local 775, along with home care workers, and community groups successfully pressed for social and political changes in the state of Washington. Their victories include establishing a quasi-public employer of record for collective bargaining purposes, organizing 26000 home care workers, achieving substantial improvements in compensation, and giving home care workers and clients a voice in the process through which their services are delivered. Specifically, this research draws on interviews with leaders of SEIU Local 775 in Washington. They discuss issues such as the challenges that they faced, the lessons that the labor movement can learn from their successes, and the impact of unionization on home care attendants. In addition, this research analyzes Local 775 s archival data including publicity materials and the campaign strategy employed to establish a statewide public authority and negotiate a first contract. In organizing home care workers, the SEIU and its partners used a variety of tactics including policy borrowing and tinkering, a ballot initiative, lobbying, and legislative politics. The keys to success in this case include an emphasis on providing civic education to coalition members, engaging coalition members in political action, and managing perceptions of legitimacy by forming alliances with other social groups. Specifically, the SEIU engaged in symbolic management by framing home care workers demands as public needs, portraying home care workers interests and goals as congruent with those of the community, and assembling broad-based coalitions around shared goals for the community. "

Over three dozen countries including the United States now implement large scale cash transfer programs to alleviate poverty. Early programs in Mexico, Brazil, Columbia, Honduras, Turkey, Cambodia, and Nicaragua provided money to poor families conditional on their sending children to school or bringing them to health centers on a regular basis. In more recent years, countries have begun to implement unconditional cash transfer programs. There is an ongoing debate about the impact of conditionality with mixed evidence of their benefit. We take a new approach to this debate by investigating the impact of perceived conditions in an unconditional program. Beliefs vary with respect to the conditions required to receive cash in Zambia's unconditional cash transfer program with 39 percent believing they need to feed their children, 34 percent believing that they need to keep their children clothed, 17 percent believing that they need to attend the health clinic, and 9 percent believing their children need to attend school. We exploit this variation in perceived conditionality to study heterogeneous program impacts over a two year period on several topics such as food security, early childhood development, and material needs, using a large randomized controlled trial of Zambia's cash transfer program. Our sample includes 2,500 households randomly assigned to the treatment or control condition, making it one of the largest cash transfer RCTs in Africa. This paper will contribute to the debate on conditionality and help policymakers better understand how to design cash transfer programs to target desired outcomes. It investigates how people respond when they believe there are conditions, even if these conditions do not really exist. The research will shed light on the debate about the effectiveness of conditions in a cash transfer program.

Time preference is a provocative topic which is thought to influence behavioral choices not just for savings and investment but in a range of other domains as well. Several studies by economists have established a link between wealth and low discount rates. We use a social experiment to test whether the Government of Zambia's cash transfer program affects inter-temporal choice. In the face of credit constraints, a steady and predictable source of income such as what this program and others like it provide can alter individual time discounting by making recipients less myopic and more forward looking, and thus more willing to delay current for future consumption. A cash transfer program may also alter a person's expectations about her future quality of life and make her happier, two conditions that can affect inter-temporal decision-making and the desire to invest in the future. We find that the program impacts time discounting, happiness and future expectations but that the latter do not mediate the effect of the former. This is the first study to investigate the impact of a cash transfer program on inter-temporal choice behavior.

The Zambia Child Grant Program's (CGP) goal is to "reduce extreme poverty and the intergenerational transfer of poverty" in program households (AIR 2011). The CGP is an unconditional cash transfer that targets all households with a child under the age of 5; this is one of several targeting schemes for cash transfer programs currently being piloted in Zambia. We use a local economy-wide impact evaluation (LEWIE) model to simulate local spillovers from the CGP program. By stimulating demand for locally supplied goods and services, cash transfers have productive impacts. These effects are found primarily in households ineligible for the transfers. This finding is not surprising, given that the eligibility criteria for the CGP favor asset and labor-poor households. Beneficiary households receive the direct benefit of the transfer plus a spillover effect of 0.17 Kwacha per Kwacha transferred, while non-beneficiary households earn 0.62 Kw per Kw transferred. The productive impacts vary by sector. The cash transfers stimulate the production of crops by 0.47 transferred. The largest positive effect is on retail, which has a multiplier of 1.91. Increasing demand stimulates these four sectors by putting some upward pressure on prices. The higher the local supply response, the larger the real expansion in the local economy and the smaller the resulting inflation level will be. Normally impact evolution of cash transfer programs only considers impacts on beneficiary households. Our Zambia CGP simulation uncovers large income and production multipliers in both beneficiary and non-beneficiary households. These results are important to policy-makers who often must choose between supporting a variety of social programs. The tradeoff between local supply response and inflation documented in this study suggests that complementary policies, focusing on production in ineligible as well as eligible households, may increase real income spillovers.

This paper examines the effect of immigration directly on the overall utility of natives. To the best of our knowledge, this is the first paper to explore such nexus. Combining information from the German Socio-Economic Panel dataset with detailed local labor market characteristics for the period 1997 to 2007, we investigate how changes in the spatial concentration of immigrants affect the subjective well-being of the German-born population. Our results suggest the existence of a robust, positive effect of immigration on natives' well-being. The presence of confounding local labor market characteristics has a negligible impact on the estimates. Furthermore, we find substantial evidence that the effect of immigration on well-being is a function of the assimilation of immigrants in the region. The effect of immigration is higher in regions with an intermediate level of economic assimilation and is essentially zero in areas where immigrants are either least or fully economically integrated. We conduct robustness checks to address the potential endogeneity between subjective well-being and immigration. Our tests indicate that natives are not crowded out by immigrants, and that the sorting of immigrants to regions with higher SWB is weak. This suggests that our main findings are not driven or strongly influenced by reverse causality or selectivity.

Today, more than ever in the Information and Communications Technology (ICT) sector, we have a variety of self‐selecting packages of plans from which to choose. One must select among the various plans of cellular phone packages, broadband services, and mobile wireless devices "hot spot." What broadband plans for DSL service, how many minutes for cellular service, what level of use for wireless data, etc.3 However, with the push for "competition" and deregulation, the ICT oligopolies have not been subject to price controls. Indeed, pricing regulation of these firms has been neglected. We estimate the loss in consumers' surplus based on existing tariffs versus efficient prices. Given the significant negative welfare effects, we propose that ICT firms should be required to bill their consumers the "best" price structure for their usage ex post, and not require consumers to select a package ex ante. This pricing policy would allow the society to reap the saving and welfare benefits of nonlinear pricing.

The purpose of this paper is to study the economic effects of different pricing mechanisms in the UK, France, the Netherlands and Finland. Based on game theory and bargaining theory, this paper attempts to analyze the equilibrium of the retail prices for fixed-to-mobile calls, call origination charges, call termination charges and the division ratio of the retail revenue between fixed and mobile operators, and then compare their levels and the welfare effects under different regimes.

Over the last 20 years, cell phones have come to dominate the telephone markets. In 1983, the first commercially available cell phone was introduced, and from 1990 through 2011, the world wide market grew from 12.4 million to over 6.4 billion, and now have an 87 percent penetration rate. In this analysis, I examine household telecommunication decisions from 1994 through 2011 In the model, individuals can choose: 1. To not have any telephone service; 2. Landline only; 3. Cell phone only; or 4. Both a cell phone and a landline telephone. I estimate the model with a standard logit model, but also with a mixed logit model that allows for the evolution of product quality over time. I estimate the model for each year of the data, and present estimates of parameters over time. I find significant changes. First, the adoption rates of cell phone only vary dramatically over consumer characteristics e.g., income, age, gender. This gives a litany of results e.g., early in the data, middle age higher income people tended to own cell phones in conjunction with landline phones. However, by the end of the data, the primary cell phone only consumers are young, males, while middle age higher income tend to own both cell and land line phones, while the elderly have a clear preference for land line phones.

The study examines the relevant economic concepts of surplus and externalities, paying particular attention to the difference between marginal and inframarginal externalities which have sometimes been confused in the network neutrality debate. I address the three main sources of spillovers that are relevant here: general purpose technology, network effects, and innovation. Examination of these sources establishes three main points about the spillovers: that they are relevant to the Internet, that they are likely to be large, and most important, that there is an inverse relationship between privately appropriable surplus and public benefits through spillovers.

This article makes die case that the global economy has gone through five crises since the 1970s to the present. This implies not only that the world economy is a real entity, but also that the usual view that poses national economies as units of economic analysis is an approach with major limitations. The paper discusses the concept of "economic crisis" and provides data indicating that the world economy, not national economies, is the major unit to be analysed when trying to understand the economic reality of our time, and particularly the reality of crises. These crises are discrete, countable phenomena, distinctive states of an entity that can be properly called world economy, or world capitalism. Data on capital formation, on growth of the world output, of monetary aggregates, of unemployment rates and on industrial activity indicate five major "dips" of the global economy, i.e., world recessions, in (i) the mid 1970s, (ii) the early 19SOs, (iii) the early 1990s, (iv) the early 2000s, and (v) the Great Recession that provisionally can be dated 2007-2009. To a large extent business cycle chronologies of national economies such as those produced by the NBER, the OECD, or other institutions are largely consistent with these five crises of the world economy which, obviously, had different manifestations in different nations and economic regions.

The post-1980 era witnessed an increase in the frequency and severity of financial crises around the globe, a majority of which took place in low- and middle-income countries. Studies of the impacts of these crises have identified three broad sets of consequences. First, the burden of crises falls disproportionately on labor in general and low-income segments of society in particular. In the years following financial crises, wages and labor share of income fall, the rate of unemployment increases, the power of labor and labor unions is eroded, and income inequality and rates of poverty increase. Capital as a whole, on the other hand, usually recovers quickly and most of the time gains more ground. Second, the consequences of crises are visible not only through asset and income distribution, but also in government policies. Government policies in most cases favor capital, especially financial capital, at the expense of large masses. In addition, many crises have presented opportunities for further deregulation and liberalization, not only in financial markets but in the rest of the economy as well. Third, in the aftermath of financial crises in low- and middle-income economies, capital inflows may increase as international capital seeks to take advantage of the crisis and acquire domestic financial and nonfinancial assets. The 2007-08 financial crisis in the US provides an opportunity to extend this analysis to a leading high-income country and see if the patterns visible in other crises are also visible in this case. Using the questions and issues typically raised in examinations of low- and middle- income countries, we study the consequences of the 2007-08 US financial crisis and complement the budding literature on the “Great Recession”. In particular, we examine the impacts of the crisis on labor and capital, with a focus on distributional effects of the crisis such as changes in income shares of labor and capital and the evolution of inequality and poverty. We also analyze the role of government policies through a study of government taxation and spending policies and examine capital flows patterns.

Marxist discussions of the relationship between financial and real cycles suffer from three major weaknesses: (a) financial developments are almost always reactions to real sector developments; (b) financial crises can trigger but not cause real sector crises; and (c) the 2008 financial crash played only a triggering, not causal, role in the ensuing Great Recession. I would argue, by contrast, that (a) in the era big finance, finance capital does not necessarily shadow or merely react to industrial capital, it also behaves independently; (b) financial sector crises can be transmitted (through debt deflation) to the real sector; and (c) the 2008 financial crash played not only a triggering but also a causal role in the ensuing Great Crisis.

In the Appalachian region, median household income is below the United States (US) average, poverty rates are higher, and labor force participation is lower. The most recent economic downturn had, and continues to have, an adverse impact on the incomes of a number of the US households. Using data from the American Community Survey (ACS), this paper investigates the impact of the most recent recession on Appalachian household incomes, relative to the US income distribution.

The 2007 economic crisis demonstrated clearly that something had gone terribly wrong in the economics profession. With the legitimacy of professional economic knowledge and professional economists in question, what did other forms of economics knowledge and practitioners have to offer in that moment? In this paper, I investigate the evolution of non-professional economic knowledges before and after the economic crisis by examining internet memes as a form of informal economic discourse, and an important vehicle for conveying and transforming popular understandings of economics. Such "economics of the everyman", I argue, exceeded the professional in relevance during this crucial time.

This paper discusses the nature of state capitalism in emergent markets. It argues that in its present form, a primarily non-democratic and non-transparent state capitalism does not challenge the logic of capital accumulation nor adequately address issues of steadily high income inequality and the alienation of labour. Thus it cannot be viewed as a heterodox alternative to a neoliberal state. The regime of state capitalism could, however, restructure national economies along more progressive lines if the authoritative state, especially when pressed from below, uses its power to promote economic and political democracy. Experiences of BRIC countries are discussed as cases in point.

In the wake of the global financial crisis, the combination of low interest rates and slow growth in advanced economies has led to massive capital inflows to emerging markets, including Turkey, where interest rates and growth have been relatively higher. Among countries that adopted various regulations on these capital inflows, Turkey has been cited with its unusual policy mix of low interest rates combined with active reserve requirement management policies. This study provides a quantitative assessment of the effectiveness of these macroprudential regulations. In particular, by utilizing regression and VAR analyses, we test the impact of changes in reserve requirements and interest rates on the composition and maturity of capital flows. Our results show that the active use of macroprudential policies in Turkey increased the monetary policy space significantly and improved the maturity structure of net capital flows, which helped reduce the vulnerabilities associated with financing the large current account deficit.

Since remittance has been a critical factor for poverty reduction as well as to maintain external sector balance in Nepal over the past decade, it is crucial to examine its role in the Nepalese economy in detail. For this purpose the paper will first examine the recent trends in global remittance flow as well as remittance flow to Nepal. Second, it will contextualize the present migratory phenomenon and its impact on the social and economic situation of rural Nepalese women. Third, it will question the sustainability of remittance flow and recommend alternative employment generation policies for Nepal.

The Decent Work agenda by the International Labour Organization provides a basis by which to monitor and compare countries as they work toward improving the overall quality of employment. It is common for research on decent work to involve country level averages while it is less common to employ the framework to understand industry level challenges and sex disaggregated criteria for decent work. Factors that affect the probability of finding decent for women and men are different, primarily though not exclusively due to gender based occupational segregation. Also, the consequences of failing to make progress on quality employment outcomes are different for men and women. This paper explores these questions from the perspective of industrial level characteristics with an eye toward discovering the links related to FDI, sources of FDI, export orientation, concentration, levels of R&D, and inventory management schemes.

This study evaluates the competitiveness of African countries. In contrast to the macroeconomic perspective which focuses on the behavior of the real exchange rate, the framework adopted in this study emphasizes the fundamental determinants of a country’s ability to maintain competitive advantage in international markets through high-value production and economies of scale while at the same time raising the standard of living of its citizens. The study reviews existing measures of competitiveness and in the empirical section analyzes the proposed measure – trade weighted relative GDP per capita. The empirical approach estimates OLS, fixed and random effects models explaining the dependent variable by a set of price and non-price factors using a panel dataset of 40 African countries during 1980-2011. The results suggests that CFA franc zone countries aren’t necessarily less competitive than their sub-Saharan African peers and the factors that undermine competitiveness in the franc zone are poor infrastructure, heavy external debt burden, high domestic demand pressures and greater trade openness. Thus, to improve competitiveness, franc zone states must maintain a stable macroeconomic framework, vigorously curb informal cross-border trade with its neighbors while striving to upgrade the quality of its infrastructure and institutions.

Using a sample of twenty nine African countries for which adequate time series data are available this paper explores the nexus between financial development and manufactured exports. This particular relationship is especially important in the context of Africa since export diversification away from resources and agriculture is an important part of Africa’s growth strategy. Our results show that in eleven countries financial development causes manufactured exports and manufactured exports causes financial development in seven countries. We then explore reasons for these findings and find that a rich and surprising set of factors explain our findings.

National development required significant outlays of increasingly scarce financial resources. Yet, there exists limited understanding of how the success of development Strategies and the contributory roles of various stakeholders can be measured. Within the development literature, much attention has been devoted to developing methodologies for carrying out developmental initiatives. In Nigeria, these methods are designed to aid master strategists and policy makers align their strategies with those of developed economies of the west. Within this context, the fundamental questions are, how has financial reporting systems adapted to changing developmental circumstances in Nigeria, and how has the auditing and allied professionals influenced the process of adaptation? This paper identifies some of the current development challenges facing Nigeria and spells out the areas in which the auditor can enhance the process of socio-economic development. This is against the background that the auditors and allied professionals play their traditional technical role of financial reporting, as measured by its contribution to national economic and social advancement. It is also aimed at building a rationale and theoretical basis for defining success with respect to development initiatives. Specifically, this paper theoretically develops the pathways through which auditors can complement governments' efforts at meeting the needs of Nigeria's changing development circumstances. This paper which is presented in four parts develops a general framework for understanding the dynamic nature of development initiatives and some associated challenges, besides examining the main development challenges facing Nigeria today.

In the last fifteen (15) years, most countries in the West African sub-region have experimented democratic governance (representative governance); elections have been held more than once, for example, in Ghana, Senegal, Nigeria, Cote d'Ivoire, Togo, Benin, The Gambia, Liberia and Sierra Leone with marginal violence; most of the elections were adjudged by international and national observers to be free and fair. Some scholars have attributed the satisfactory growth rate (about 7%) and macroeconomic stability to the practice of democratic governance in these countries. Using panel data, this paper attempts to ascertain empirically whether democratic governance has translated into growth and development in the selected countries. Has democratic governance impacted positively on the standard of living of citizens in the selected countries? What has happened to the quality of education, provision of health, levels of income, employment, among others during the period of democratic governance? It is expected that the results of the paper would assist policy-makers and other stakeholders in making decisions on how democratic governance can enhance economic development.

The development landscape in ECOWAS is changing, with the emergence of partners from the South or the BRICS as they have become widely known. China has emerged as a salient source of investment in ECOWAS region, but questions remain on the impact and implications of that investment for growth and structural change in ECOWAS countries. This paper discusses trends in Chinese investment in the ECOWAS region, and analyzes its impact on trade, infrastructure, growth and structural change in member countries. It also reviews the investment policies of ECOWAS countries toward Chinese investors, and proposes mechanisms by which member countries can take full advantage of Chinese investment. The growing trade and investments in ECOWAS are often supported by grants or concessional loans from the Chinese government, as part of the country's "Going Global" strategy. This strongly enhanced engagement is partly the outcome of the increased economic role and power of China on the global stage, and partly the result of China's interest in Africa's robust natural resource base to fuel its surging economy The proposed paper is important because there is an ongoing debate on the impact of Chinese investment in Africa in general, and ECOWAS in particular. Some scholars argue that much of Chinese investment in Africa is directed toward energy and minerals. These are sectors with little or no linkages with the rest of the economy. Other analysts contend that Chinese investment in large-scale infrastructural projects such as roads, dams, and power plants helps spur growth and structural change. Chinese investment is also believed to be an important source of technology and skills for Africa. The paper hopes to contribute to the ongoing debate on Chinese investment in ECOWAS by using data-driven evidence, as well as fixed-effects panel regressions. Moreover, China's impact on African economies and indeed ECOWAS has started to reach beyond narrow infrastructure for-resources deals and now touches upon a wide array of sectors and development issues. For example, the creation of Chinese-operated Special Economic Zones in several ECOWAS countries has the potential to provide a remarkable boost to the manufacturing capacity of many ECOWAS countries. In this context, it is timely to take stock of China-ECOWAS relations and discuss in detail the opportunities and challenges for both sides.

Using a novel dataset, I investigate whether education in post-match general partner and portfolio company teams influences clean-tech venture capital and private equity exits in Africa. The evidence suggests that relative to write-offs, the probability of clean-tech initial public offerings increases with an increasing proportion of bachelors degrees but decreases with an increasing proportion of masters degrees and graduates from top-ranked universities. The probability of clean-tech trade sales increases with an increasing proportion of masters or doctoral degrees and graduates from top-ranked universities but decreases with an increasing proportion of bachelors degrees. Finally, the probability of clean-tech secondary sales increases with an increasing proportion of masters degrees and graduates from top-ranked universities but decreases with an increasing proportion of bachelors or doctoral degrees.

Agribusiness firms introduce new products that require agricultural production and then processing. Firms have to decide about processing capacity and assure availability of agricultural feedstock. Some of this is done in-house, and some is secured through contracts. We investigate the allocation of capital between processing capacity and in-house production, while the remainder of agricultural inputs is procured through contracts. Our results show that contract farming will increase with the cost of capital and decline when agribusiness firm has monopsony power over feedstock producers. Moreover, when supply of contracted feedstock is uncertain, expected final output will be less than under certainty and more capital will be allocated to in house production of the feedstock.

This paper examines the effect of heterogeneity in risk preferences and land quality on the extent of vertically integrated production and the share of biomass production under different type of contracts when returns from crops are risky. Our findings suggest that farmers with a lower land quality and a higher degree of risk aversion are willing to lease their land for biomass production. A biorefinery will prefer to be more vertically integrated and grow its own energy crop when biomass yield and price risks are high to avoid paying a high risk premium to risk averse farmers. It will also prefer to be more vertically integrated when the variability in returns to crop production is high and risk averse farmers are more willing to choose leasing land for energy crop production as a safer option. We also found that the biorefinery can earn a higher prot by offering a menu of different types of contracts particularly when risk preferences are highly diversified

This paper discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. Specifically, I will discuss the limitations of current theory, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. The lack of methodological development in contract theory within the agricultural economics community has limited the role of agricultural economists in providing research based guidance on important contemporary policy issues. I argue that what is needed is a new class of applied contracting models that are able to capture the higher ordered features of real world agricultural contracts while delivering robust and generalizable comparative statics predictions. Such models would be useful both for making analytical predictions and for providing a foundation for generating testable hypotheses to guide empirical work.

Recent years have seen considerable interest in the impact of contract farming on farmers in developing countries, motivated out of belief that contract farming spurs the transition to modern agriculture. In this paper, we provide a thorough review of the empirical literature on contract farming in both developed and developing countries, paying careful attention to broad implications of this research for economic development. We first find empirical studies consistently support the positive contribution of contract farming to production and supply chain efficiency. We also find that most empirical studies identify a positive and significant effect of contract farming on farmer welfare, yet are often unable to reach consistent conclusions as to significant correlates of contract participation. We support our review with a meta-analysis of the empirical literature to identify study characteristics that are conditionally correlated with particular empirical outcomes. Our meta-analysis indicates that studies using larger, more recent datasets are more likely to report a priori expected empirical results, but that empirical findings are not statistically different across developmental status or agricultural commodities.

The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a “success" and (iv) the empirical studies lack a common methodology—furthermore these are significantly “over-weighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to “standardize" the results of the close to 40 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies in that the WCCE controls for the differentiated degree of methodological rigor applied in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia, and the more recent controls on outflows in emerging Europe. We find that only under country-specific characteristics capital controls are effective, implying than more often than not, in practice they do not work.

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under plausible calibrations, this type of macro prudential policy is shown to lower the average unemployment rate by 10 percentage points, to reduce average external debt by 10 to 50 percent, and to increase welfare by 2 to 5 percent of consumption per period.

We examine optimal monetary policy under prevailing Chinese policies - including capital controls, nominal exchange rate targets, and costly sterilization of foreign capital inflows. China's combination of capital controls and exchange rate pegs disrupts its monetary policy, precluding adjustments that could maintain macroeconomic stability following a set of shocks that mirror its experience during the global financial crisis. However, comparing different policy regimes in a consistent DSGE framework, we find that the bulk of welfare gains achieved under full liberalization can be obtained by liberalizing either the capital account or the exchange rate.

We examine the desirability of capital controls and macroprudential regulation in a small open economy in which there is excessive borrowing due to pecuniary externalities associated with collateral constraints. We find that there is a specific role for both types of instruments: macroprudential regulation that treats domestic and foreign lenders symmetrically is well suited to address externalities associated with asset price volatility. By contrast, capital controls also correct for externalities associated with exchange rate volatility because borrowing from foreigners creates a transfer problem and an associated exchange rate movement that is absent in domestic lending. More generally, it is useful to view capital controls as a specific version of macroprudential regulation rather than as a different category of policy instruments.

Much of the literature on subjective well-being ("happiness") explores differences across demographic groups and across time, implicitly assuming that the sample of survey respondents analyzed is representative of the population of interest. However, many of the relevant surveys have high nonresponse rates. We show that the results of cross-group comparisons can depend on the difficulty of reaching respondents, calling into question the no-selection-bias assumption.

We analyse the results of experiments on aspects of the design of questionnaire and interview mode in the first four waves (2008-11) of the UK Understanding Society panel survey. The randomised experiments relate to job, health, income, leisure and overall life-satisfaction questions and vary the labeling of response scales, the mode of interviewing and the location of questions within the interview. We find significant evidence of an influence of interview mode and (to a lesser extent) question design on the distribution of reported satisfaction and self-assessed health, particularly for women. Results from the sort of conditional modeling used to address real research questions are also affected to some extent, but appear less vulnerable to design influences than simple summary statistics.

Are gains and losses in economic growth experienced materially differently? We use subjective well-being measures across three complementary data sets to show that economic downturns are associated with losses in individual and societal well-being that are significantly larger than gains in well-being from equivalent upswings. When accounting for periods of negative growth, our analyses reveal a null relationship between GDP growth (measured in absolute, relative, or log terms) and human well-being. To mirror microeconomic research on prospect theory, we also present analyses with varied reference points and incorporate expectations data. We use the Gallup World Poll data to run multi-level analyses of 154 countries, the BRFSS data to run state-based analyses for a representative US sample of 2.5 million respondents, and the Eurobarometer data to run country-level analyses for a time series that covers multiple economic cycles. Taken together, these results imply an important asymmetry in the way negative growth and positive growth are experienced, with recessions imposing a hefty psychological toll while little or no psychological benefits appear to be gained from further economic growth.

This paper finds that self-reported satisfaction data are subject to panel conditioning or a panel effect, that is, that answers depend on whether one has previously participated in the panel. Using refreshment samples in panel datasets, complemented with several strategies to rule out panel attrition biases, the analysis finds international evidence for a negative and substantial panel effect, that cumulates over the different survey rounds. People rate their happiness lower, ceteris paribus, the longer they are in the panel. This result can have important implications, e.g. for the on-going debate on time trends in subjective well-being. Moreover, research on panel conditioning is still very limited compared to research on panel attrition, and the results might therefore stimulate research into the former for other data gathered through household surveys.

Subjective perceptions that teachers form about students' classroom behaviors matter for student academic outcomes. Given this potential impact, it is important to identify any biases in these perceptions that would disadvantage subgroups of students. I use longitudinal data from the Early Childhood Longitudinal Study, Kindergarten Class of 1998-99 in conjunction with longitudinal, student-level data from the North Carolina Education Data Research Center to estimate racial, ethnic, gender and socioeconomic differences in teacher reports of student absenteeism while controlling for administrative records of actual absences. I find consistent evidence that teacher reports of the attendance of low-income students are negatively biased and that math teacher reports of male attendance are positively biased. There is mixed evidence with regard to student race and ethnicity.

The average quality of teachers declined precipitously between 1960 and 2000, coinciding with a decline in the ratio of pay in teaching as compared to pay in alternative professions: relative pay. The effect of relative pay on the quality of teachers is difficult to measure because teacher pay may be correlated with working conditions, such as the school's neighborhood quality, student behaviors, and other challenges associated with the work environment. To address this concern I exploit state-by-cohort variation in whether women had legal access to the birth control pill in young adulthood. Previous work has shown that young adult pill access improved early career investments by enabling better control of childbirth timing, producing landmark improvements in the alternative professional pay available to high-ability women. This lowered the effective relative teacher pay for high-ability women. I therefore use a measure of young adult pill access as an instrument for relative pay. This instrumental variables approach assumes that the pill rollout is random with respect to state-by-cohort variation in working conditions, thus producing unbiased estimates of the effect of relative pay on the propensity to teach among women who entered the labor market between 1960 and 1975. The primary results indicate that a 10 percent increase in relative pay increases the likelihood of choosing to teach by 5 percentage points. In addition, my results show no significant differences in the labor supply elasticity to teaching by ability suggesting that high-ability women are about equally responsive to relative pay as low-ability women. In culmination, the results reveal that the opportunity cost to teaching produces a significant effect on the average quality of U.S. teachers.

In recent years, the connection between housing market activity and monetary policy has received a large amount of attention. For example, how does optimal monetary policy depend on housing market conditions? To address the importance of housing for wealth accumulation, we study a model in which housing is traded across generations of individuals. Incomplete information leads to a transactions role for money so that monetary policy can be effectively studied. Moreover, individuals face liquidity risk which interferes with the ability to accumulate housing wealth. Contrary to the existing literature, we demonstrate that it is important to disaggregate Â…fixed investment between the residential and non-residential sectors. In particular, the effects of monetary policy will have asymmetric effects across the components of the overall capital stock. We conclude with policy experiments studying how optimal monetary policy depends on housing market fundamentals. In response to adverse supply conditions in the housing sector, monetary policy should be more aggressive in order to promote residential investment and the housing stock. However, monetary policy should be conservative in order to limit exposure to risk if fundamentals favor housing demand.

In this paper, we estimate the term structure according to a dynamic Nelson-Siegel (DNS) model with regimes that change according to a hidden Markov-switching component embedded in the parameters of the state-space framework. We estimate the model via the Kalman filter and make inferences about the probabilities of the regime states via the Hamilton filter. Allowing for two distinct regimes, our empirical results indicate that significant switching occurs in the conditional volatilities of the latent factors and in the decay parameter of the factor loadings. We find no evidence of switching in the conditional mean or autoregressive coefficient. The switching in the decay parameter is of special interest because of the possible linkage with monetary policy which we confirm in our analysis.

In a growing economy, investing in safe projects raises intergenerational inequalities. This deteriorates social welfare because of inequality aversion, as expressed by decreasing marginal utility of consumption. The social discount rate can be interpreted as the minimum rate of return that is necessary to compensate for the increased inequality generated by the investment. For an intuitive precautionary argument, this growth effect is reduced if growth is uncertain. To complete the picture, if the investment raises the collective risk, this discount rate should also contain a risk premium. Recent developments (Weitzman (1998, 2001, 2013), Gollier (2008), Arrow et al. (2013)) converge towards recommending using a smaller discount rate for safe assets maturing later. In this paper, we show that this recommendation applied to the risk free rate relies on the assumption that shocks on the growth rate of consumption exhibit some degree of persistence. We also show that this implies in parallel an increasing term structure for the risk premium. Globally, the risk-adjusted discount rate will have a decreasing term structure only if the asset’s beta is small enough.

We ask whether the US government should replace its current discounting practices with a declining discount rate schedule, as the UK and France have done, or continue to discount the future at a constant exponential rate. We present the theoretical basis for a declining discount rate (DDR) schedule, but focus on how, in practice, a DDR could be estimated for use by policy analysts. We discuss the empirical approaches in the literature and review how the UK and France estimated their DDR schedules. We conclude with advice on how the US might proceed to consider modifying its current discounting practices.

At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.

Within the federal government, official decisions are a product of both substantive judgments and institutional constraints. With respect to discounting, current practice is governed by OMB Circular A-4 and the 2010 and 2013 Technical Support Documents of the Interagency Working Group on Social Cost of Carbon. Reconsideration of existing judgments must be subjected to a demanding and time-consuming process of internal review (and potentially to external review as well). Institutional constraints, including the need for consensus, can impose obstacles to efforts to rethink existing practices, especially in an area like discounting, which is at once technical and highly controversial.

We present the first causal estimates of the effect of federal disaster relief on insurance demand using a unique panel dataset of insurance contracts and disaster aid disbursements. We address endogeneity using instrumental variables that exploit political influence over aid amounts. We find that a $1 increase in average aid grants decreases average insurance coverage by about $6, with variation depending on aid amount. This crowding out effect is on the intensive, as opposed to the extensive margin; we find no impact on take-up rates. Government loans, as opposed to grants, have no effect on insurance demand on either margin and might thus be a better policy tool. JEL Codes: D78, D81, G22, Q54

In the highway procurement market, if firms' marginal costs are intertemporally linked, the pace at which the government releases new projects over time will have an effect on the prices it pays. This paper investigates the effects of the American Recovery and Reinvestment Act on equilibrium prices paid by the government for highway construction projects using data from California. I develop a structural dynamic auction model that allows for intertemporal links in firms' marginal costs, project level unobserved heterogeneity, and endogenous participation. I show that the model is nonparametrically identified combining ideas from the control function and measurement error literatures. I find that the accelerated pace of the Recovery Act projects imposed a sizable toll on procurement prices, especially on the procurement cost of projects not funded by the stimulus money.

Diarrheal diseases are among the top causes of child deaths in developing countries. These diseases can be prevented by the simple act of handwashing with soap. However, the current literature shows that only programs with high monitoring are effective in changing behavior and improving health outcomes. These results have sparked interest in understanding the mechanisms through which changes in behavior can occur. In this paper we exploit the spatial variation in the H1N1 influenza (swine flu) outbreak that occurred in Mexico in 2009, and show that areas with higher incidence of the swine flu experienced larger reductions in the number of diarrhea-caused hospital discharges. In particular, we find that for every 1,000 swine flu cases, there was a decrease of approximately 9 percent in the number of hospital discharges of children under five years of age. We validate the robustness of our difference-in-difference estimates using other cause-specific discharges as well as placebo tests before 2009. We present evidence suggesting that handwashing practices are behind these health improvements. Overall, these findings are consistent with the literature of behavioral economics about the role of shocks on changing people risk perceptions.

This paper proposes a novel instrumental variable method for program evaluation that only requires a single cross-section of data on the spatial intensity of programs and outcomes. The instruments are derived from a simple theoretical model of government decision-making in which governments are responsive to the attributes of places and their populations, rather than to the attributes of individuals, in making allocation decision across spaces, and have a social welfare function that is spatially weakly separable, that is, that the budgeting process behaves as if it is multi-stage with respect to administrative districts and sub-districts. The exclusion restrictions based upon multi-stage budgeting are that the sub-district means of individual-level variables and the environmental attributes of sub-districts in competing sub-districts influence program placement in a particular sub-district but not human capital outcomes in that sub-district conditional on program placement. Two sets of competing sub-districts are defined: (1) neighbors, which are means of the variables taken over the sub-districts that are spatially contiguous to sub-district (κ,ℓ), and (2) non-neighbors , which are the means of the variables taken over the sub-districts that are in the same district (district ℓ) as sub-district (κ,ℓ) but are not spatially contiguous to sub-district (κ,ℓ). The spatial instrumental variables model is then estimated and tested by GMM with a single cross-section of Indonesian census data. With spatial decentralization, the Hansen-Sargan J-tests fail to reject the null hypothesis of overidentification for the neighbor set of instrument in every specification (girl's and boy's schooling, recent fertility for at-risk women, and contraceptive use) containing all four government programs investigated (grade school, secondary school, public health clinics, and family planning clinics). Adding the non-neighbor instrument set to the neighbor instrument set permits us to test for the orthogonality of the neighbor instrument set. These tests do not reject the null hypothesis in three out of four cases with the full set of programs. Program effects estimated with the neighbor instruments are very different in magnitude than the OLS estimates.

We survey over 800 CEOs of the largest firms in 22 developing countries and find that family and non-family firms differ not only in their governance and ownership arrangements but also in their management styles, business philosophy, and organizational structure. Firms can be classified into four categories: founder-run firms, family firms with a related CEO, family firms with a professional CEO, and widely held (non-family) firms with a professional CEO. These CEO type classifications have substantial explanatory power that is comparable in magnitude to country and industry fixed effects. Founder CEOs are most likely to maintain high levels of control rights within their firms and adopt a more hierarchical organizational structure and less accountability to shareholders. Instead they display greater accountability to banks, and concern for maintaining firm employment. In contrast, professional CEOs of non-family firms see their role as bringing about organizational change. These CEOs rely on a flatter management structure, empower managers, and feel strong accountability to shareholders. CEOs related to the founder fall between these groups: they profess a similar business philosophy to founders, but still attempt to introduce more "professional" operations. Lastly, family firms run by professional CEOs display a marked tension: while these CEOs have the ambition to bring greater professionalism to the firm, they are often not empowered to do so, since the founding family retains significant decision rights over operations.

The past few years have been the worst of times as well as the best of times for the funding of new high-potential ventures. Traditional sources of entrepreneurial finance in many nations have not fared well. Bank lending to entrepreneurial businesses remains sharply constricted since the financial crisis, due to the hang-over of bad real estate and corporate finance loans, as well as increased regulatory pressures. Venture capital funding remains at levels far below those seen in the late 1990s, which reflects the fact that returns have been very modest since the collapse of the dot.com bubble in 2000. But at the same time, there has been a plethora of innovation in the financing of new ventures. Among the most prominent has been the rise of angel groups and "super-angel" funds. Policymakers in many nations, including the United States, the United Kingdom, France, and Israel have embraced these alternative ways of funding entrepreneurial firms. But these new developments remain relatively poorly understood. In this paper, we look at the question of whether angel investments affect the success and growth of new ventures. We focus on angel groups: these investors are increasingly structured as semi-formal networks of high net worth individuals, often former entrepreneurs, who meet in regular intervals to hear aspiring entrepreneurs pitch their business plans. The angels then decide whether to conduct further due diligence and ultimately whether to invest in some of these deals. Using data from twelve angel groups around the globe, we examine the impact of angel regressions using a regression discontinuity approach, comparing firms just above and just below these firms cut-offs for funding. We examine whether the marginal impact of angel financing differs with the degree of development of the venture market, the legal regime of the nation, and the barriers to establishing entrepreneurial ventures for entrepreneurship.

The Census Bureau recently conducted a survey of management practices in over 30,000 plants across the US, the first large-scale survey of management in America. Analyzing these data reveals several striking results. First, more structured management practices are tightly linked to higher levels of IT intensity in terms of a higher expenditure on IT and more on-line sales. Likewise, more structured management is strongly linked with superior performance: establishments adopting more structured practices for performance monitoring, target setting and incentives enjoy greater productivity and profitability, higher rates of innovation and faster employment growth. Second, there is a substantial dispersion of management practices across the establishments. We find that 18% of establishments have adopted at least 75% of these more structured management practices, while 27% of establishments adopted less than 50% of these. Third, more structured management practices are more likely to be found in establishments that export, who are larger (or are part of bigger firms), and have more educated employees. Establishments in the South and Midwest have more structured practices on average than those in the Northeast and West. Finally, we find adoption of structured management practices has increased between 2005 and 2010 for surviving establishments, particularly for those practices involving data collection and analysis.

There is accumulating evidence that the pace of business dynamism (measured by indices of firm volatility or the pace of creative destruction) in the U.S. has fallen over recent decades One key factor underlying this trend is that the share of activity from young businesses has declined over this period. The declining share of young firms stems from decline in the business startup rate. The average annual job creation from business startups has declined from 3.5 percent of employment in the 1980s to 3 percent in the 1990s and 2.6 percent in the post-2000 period. This represents more than a 25 percent decline in the pace of job creation from business startups over a 30-year period. This paper documents these trends and explores potential explanations. We find that although changes in the firm age distribution are an important contributing factor, there are other compositional effects (e.g., the shift away from goods to service industries) that work in the opposite direction. In this paper, we discuss and explore potential explanations of the decline in dynamism and entrepreneurship arising from changes in demographics, technology and the business climate.

This paper develops a simple model in which adaptive learning by investors leads to recurrent booms and busts in asset prices. The model captures aspects of Minsky's "financial instability hypothesis" in which periods of tranquility lead investors to increase their estimates of expected returns and reduce their estimates of return volatility. The changes of beliefs drive up asset prices and hence realized returns. However once agents invest a significant fraction of their wealth in stocks, the economy becomes fragile and so small negative shocks can lead to large declines in prices. I show how this process recurs over time, and discuss the features of the model which drive the boom-bust cycles in asset prices.

We provide a disaster-based explanation for the failure of the CAPM in the post-Compustat sample as well as its success to explain the value premium in the long sample that includes the Great Depression. In an investment-based asset pricing model embedded with rare disasters, value stocks are more sensitive to disaster shocks than growth stocks. More important, disasters introduce strong nonlinearities in the relation between the pricing kernel and the return on wealth. The nonlinearities allow the model to explain the failure of the CAPM in samples in which disasters are not materialized. However, the CAPM explains the value premium in samples with disasters in the model, consistent with the data.

We estimate a standard dynamic stochastic general equilibrium model under three different information structures to assess the importance of these informational assumptions. In the first information structure, agents receive news about future structural shocks, as in Beaudry and Portier (2006) and Schmitt-Grohé and Uribe (2012); in the second structure, agents observe noisy signals about current structural shocks; in the third structure, agents do not observe either news or noise. Data overwhelming support the noise-shock information structure. News (noise) shocks shift spectral power from the lower (higher) end to the higher (lower) end of the spectrum, which forces internal propagation mechanisms to work harder (less hard) in models with news (noise) shocks. That data prefer noise shocks and the reallocation of spectral power to the lower end connects to Granger's (1969) "typical spectral shape" of macroeconomic variables. As a byproduct, the paper develops a novel estimation methodology for models with incomplete information.

To control counterparty risk, financial regulations such as the Dodd Frank Act are increasingly requiring standardized derivatives trades to be cleared by central counterparties (CCPs). It is anticipated that in the near term future, CCPs across the world will be linked through interoperability agreements that facilitate risk sharing but also serve as a conduit for transmitting shocks. This paper theoretically and through simulations studies a network with CCPs that are linked through interoperability arrangements, and studies the properties of the network that contribute to cascading failures.

This paper examines the effect of a social network on prediction markets using a controlled laboratory experiment that allows us to identify causal relationships between a social network and the performance of an individual participant, as well as the performance of the prediction market as a whole. Through a randomized experiment, we first confirm the theoretical predictions that participants with more social connections are less likely to invest in information acquisition from outside information sources but perform significantly better than other participants in prediction markets. We further show that when the cost of information acquisition is low, a social-network-embedded prediction market outperforms a non-networked prediction market. We also find strong support for peer effects in prediction accuracy among participants. These results have direct managerial implications for the business practice of prediction markets and are critical to understanding how to use social networks to improve the performance of prediction markets.

A growing macroeconomic literature has documented that uncertainty at the firm level moves countercyclically. It has been common practice that all firms are assumed to have the same sensitivity to aggregate fluctuations, and firm-specific shocks are measured as the difference between the firm-level TFP or output and the common aggregate component such as cross-sectional mean. This paper explores the possibility that firms differ in their cyclical sensitivities, and shows the countercyclicality of idiosyncratic volatility is not empirically robust. The paper then discusses a number of extensions to further investigate the cyclicality of aggregate idiosyncratic volatility.

Do firm entry and exit play a major role in shaping aggregate dynamics? Our answer is yes. Entry and exit propagate the effects of aggregate shocks. In turn, this results in greater persistence and unconditional variation of aggregate time-series. These are features of the equilibrium allocation in Hopenhayn (1992)'s model of equilibrium industry dynamics, amended to allow for investment in physical capital and aggregate fluctuations. In the aftermath of a positive productivity shock, the number of entrants increases. The new firms are smaller and less productive than the incumbents, as in the data. As the common productivity component reverts to its unconditional mean, the new entrants that survive become more productive over time, keeping aggregate efficiency higher than in a scenario without entry or exit.

How do firms adjust their balance sheets and reallocate capital stock in response to recurrent productivity or profitability shocks? Why does capital reallocation fluctuate procyclically, while the potential benefits to reallocate appear to be countercyclical? To answer these questions, this paper develops a tractable dynamic general equilibrium model. In the model, firms face idiosyncratic productivity shocks while at the same time are restricted by the illiquidity of capital stock and financing constraints. The model shows that asset illiquidity and financing constraints interact and generate capital reallocation delays. These delays result in cross-sectional productivity dispersion and losses of total factor productivity (TFP), which become more severe during recessions.

We propose a criterion to evaluate the empirical relevance of systemic risk measures based on their ability to predict low quantiles of real macroeconomic aggregates. We also propose and evaluate methodologies for constructing systemic risk indices that capture the joint information content of a large cross-section of systemic risk measures. We construct over 20 measures of systemic risk in the US and Europe extending across several decades. We show that, taken individually, these measures reveal low predictive ability for macroeconomic downturns. However, an index that parsimoniously aggregates individual measures consistently performs well in forecasting downturns both in-sample and out-of-sample.

We study the design of promotions in an organization where agents belong to groups that advance their cause. Examples and applications include political groups, ethnicities, agents motivated by the work in the public sector and corruption. In an overlapping generations model, juniors compete for promotions. Seniors have two kinds of discretion: direct discretion which allows an immediate advancement of their cause and promotion discretion ("patronage") which allows a biasing of the promotion decision in favour of the juniors from their group. We consider two possible goals of the principal, maximizing juniors' efforts and affecting the steady-state composition of the senior level towards the preferred group, and show that patronage may be strictly positive in both of them. We also apply the second setting to the case of corruption.

We show that relaxing the assumption of CES preferences in monopolistic competition has surprising implications when trade is restricted. Integrated and segmented markets behave very differently, the latter typically implying a form of reciprocal dumping. Globalization and lower trade costs have very different effects: the former reduces spending on all existing varieties, the latter switches spending from home to imported varieties; in the plausible case where demands are less convex than CES, globalization raises firm output whereas lower trade costs reduce it. Finally, calibrating gains from trade is harder. Many more parameters need to be calibrated than in the CES case, while import demand elasticities are likely to overestimate the true elasticities, and so underestimate the gains from trade.

We analyze the social optimality of the market equilibrium in a monopolistically competitive model with heterogeneous firms, non-separable utility and constant marginal utility of income. We show that non-separability turns out to be relevant only for product variety, with respect to which stronger non-separability leads to smaller market inefficiency. Relative to the uncostrained optimum, in the market equilibrium firm selection is too weak, average firm size is too small, low cost firms are too small and high cost firms are too large. Moreover, product variety is too rich (poor) when varieties are close (far) substitutes, the entry cost is small (large), market size is large (small) and the difference between the highest and the lowest possible marginal cost realizations is small (large). We also show than the unconstrained optimum can be decentralized through differentiated production subsidies across heterogeneous producers financed through lump-sum taxes shared by entrants and consumers. When production subsidies cannot be differentiated and lump-sum transfers from entrants are not viable, the constrained optimum can be decentralized through a common production subsidy financed by a lump-sum tax on consumers.

To establish their required macro conditions for the Melitz (2003) model, Arkolakis et al. (2012) use the Pareto distribution. We explore the consequences of replacing the assumption of Pareto heterogeneity with Log-normal heterogeneity. This case is interesting because it (a) resembles Pareto in some aspects, (b) fits the data better in many applications, and (c) can be generated under equally plausible processes. The Log-normal is reasonably tractable but its use entails losing certain ``scale-free'' properties conveyed by the Pareto distribution. The consequence is that gains from trade depend on the method of calibration. Under a calibration using macro-data, essentially the same gains from trade can be obtained. However, calibrating based on micro data---namely the size distribution of firm sales in a given market---yields very different gains from trade. In the benchmark case, a symmetric two country model considered by Melitz and Redding (2013), gains from trade can be twice as high under Log-normal.

The theoretical result that there are welfare gains from trade is a central tenet of international economics. In a class of trade models that satisfy a "gravity equation," the welfare gains from trade can be computed using only the open economy domestic trade share and the elasticity of trade with respect to variable trade costs. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity. Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large.

We examine causes and consequences of relative income within households. We establish that gender identity { in particular, an aversion to the wife earning more than the husband - impacts marriage formation, the wife's labor force participation, the wife's income conditional on working, satisfaction with the marriage, divorce, and the division of home production. The distribution of the share of household income earned by the wife exhibits a sharp cliff at 0.5, which suggests that a couple is less willing to match if her income exceeds his. Within marriage markets, when a randomly chosen woman becomes more likely to earn more than a randomly chosen man, marriage rates decline. Within couples, if the wife's potential income (based on her demographics) is likely to exceed the husband's, the wife is less likely to be in the labor force and earns less than her potential if she does work. Couples where the wife earns more than the husband are less satisfied with their marriage and are more likely to divorce. Finally, based on time use surveys, the gender gap in non-market work is larger if the wife earns more than the husband.

Standard observed characteristics explain only part of the differences between men and women in human capital investments and labor market trajectories. Using survey data on labor market expectations, combined with experimentally derived measures of individuals' competitiveness, this paper investigates whether gender differences in competitiveness play a role in gender differences in perceived labor market outcomes. In a sample of high-ability NYU undergraduates, we first find that, even controlling for risk preferences, performance, and beliefs about relative performance, women are significantly less competitive than men. We find that measured competitiveness is systematically related with expectations about future earnings: Over(under)- competitive individuals have significantly higher (lower) earnings expectations. Conditional on college major, gender differences in competitiveness explain 5-10.5 percent of the perceived gender gap in earnings in our sample. Gender differences in competitiveness, however, are not related with choice of college major.

There is a consensus that there is an unexplained gap between male and female wages: even after controlling for a broad range of demographic and industry characteristics, females make less than men. This paper investigates wage discrepancies between males and females through the lens of negotiation behavior. We introduce an experimental bargaining environment — the Demand Ultimatum Game (DUG)—where the receiver makes a demand about how much she would like to receive from the proposer. After viewing the demand, the proposer makes an offer, which the receiver can then accept or reject. The results are stark: females make significantly lower demands than men, resulting in significantly lower earnings. However, this negotiation and earnings gap is mitigated when receivers are given social information about participant decisions from a previous experiment. In one treatment, receivers are informed about the distribution of male demands. In the other treatment, receivers are informed about this distribution as well as the distribution of conditional offers made to these participants. In the social information treatments, females increase their demands relative to the control treatment such that the demands of males and females are not significantly different, eliminating the negotiation gap. This mitigates eventual differences in pay between males and females within the respective treatments, eliminating the earnings gap.

In this paper we estimate the marriage market returns to being admitted to a higher ranked (i.e. more "elite") university by exploiting unique features of the Chilean university admission system. This system centrally allocates applicants based on their university entrance test score, which allows us to identify causal effects by using a regression discontinuity approach. Moreover, the Chilean context provides us with the necessary data on the long run outcome "partner quality". We find that being admitted to a higher ranked university has substantial returns in terms of partner quality for women, while estimates for men are about half the size and not significantly different from zero.

Some booms in housing prices are followed by busts. Others are not. It is generally difficult to find observable fundamentals that are useful for predicting whether a boom will turn into a bust or not. We develop a model consistent with these observations. Agents have heterogeneous expectations about long-run fundamentals but change their views because of "“social dynamics".” Agents with tighter priors are more likely to convert others to their beliefs. Boom-bust episodes typically occur when skeptical agents happen to be correct. The booms that are not followed by busts typically occur when optimistic agents happen to be correct.

We investigate the role that out of town second house buyers ("distant speculators") played in bubble formation in the US residential housing market. Distant speculators are likely to be more reliant on capital gains rather than dividend consumption for financial returns as well as less informed about local market conditions. Using transactions level data that identify the address of both the purchased property and the primary residence of the buyer, we show that an increase in purchases by distant speculators (but not local speculators) is strongly correlated with appreciation in both house price and implied-to-actual rent ratios (IAR)-a proxy for mispricing in the housing market. We develop a simple model that helps us address the issue of reverse causality. Consistent with this model, we show that the size of the MSA that out of town second house buyers come from is positively related to the impact of distant speculators on house price and IAR appreciation rates in the target MSA suggesting that out of town second house buyers are not simply responding to unobserved changes in housing values in the target MSA. We conclude by demonstrating the large impact that distant speculators have on the local economy, with out of town second house purchases equalling as much as 5% of total output in Las Vegas during the boom.

During the recent boom, high prices were often justified through capitalization rate models that used past price growth to predict future price growth. Such extrapolation also seems evident in Case and Shiller's surveys of recent home buyers. In this paper, we ask whether modest amounts of extrapolation can explain some of the most salient and puzzling features of housing markets, including strong momentum of price changes at one year frequencies, mean reversion at lower frequencies and high price change variance. We develop and calibrate a model of housing dynamics based on our previous housing dynamics work that nest both perfect rationality and extrapolative inference. We find that some, but not all, of the puzzling features of housing market dynamics are compatible with extapolative beliefs.

We analyze whether mid-level managers in securitized finance were aware of a large-scale housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. We find that the average person in our sample neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.

The institutions for financing owner-occupied housing have not progressed as they should, and the financial innovation that has followed financial crisis of 2007-9 has not been focused on improving the risk management of individual homeowners. This paper attributes the difficulty in advancing our mortgage institutions to the complexity of the risk management problem (one size mortgage does not fit all) coupled with mistrust of the institutional players, as well as lack of general understanding some relevant principles in behavioral economics

In reviewing the Challenger tragedy, Richard Feynman identified a flawed O-Ring as the proximate cause and NASA's flawed safety culture as a deeper cause. There has been no similar investigation of the mortgage mess, which has been baptized rather than understood. In part, this is due to committed ideological views in the public and press that eliminate the call for expert analysis and reform. Broader and deeper policy problems are identified and illustrated using NASA's past behavior and FHA's ongoing behavior. The problems include PR-based risk assessments and a press that is inexpert and unconcerned with reality. The Columbia tragedy sounds an ominous warning on the future stability of housing finance markets.

In this paper, I evaluate the "crisis consensus," a slate of policies designed to prevent foreclosures and the accompanying losses to investors and homeowners. Many crisis consensus policies were enshrined in law in the Dodd Frank Act, including the requirement that issuers of securities retain risk, regulations on credit rating agencies, a requirement that lenders ensure a borrower's "ability to repay" a mortgage and regulations to protect borrowers during the foreclosure process. Proponents typically justify the crisis consensus by appealing to economic common sense. An example is the requirement that issuers of securities retain "skin-in-the-game"; common sense says that the issuers with skin-in-the-game will devote more care in underwriting leading to smaller losses for investors and fewer foreclosures. A key point of the paper is that economic common sense actually rejects much of the crisis consensus. For example, if skin in the game makes securities more valuable, then won't investors pay more for securities where issuers have more skin-in-the-game? If so, why does the government need to require skin-in-the-game? I then turn to more sophisticated arguments for the crisis consensus, including the role of externalities, general equilibrium effects and behavioral factors, reviewing both theoretical arguments and empirical evidence. For the skin-in-the-game example, investors may not internalize the social costs of poorly underwritten mortgages. Alternatively, trade in mortgage related securities, voluntary on the part of both the buyer and and the issuer, may have deleterious general equilibrium effects on the rest of the population. I conclude by arguing that crisis consensus largely relies on adjusting incentives to prevent people from making bad decisions but policy makers must recognize that bad decisions are inevitable and focus on protecting third-parties from their consequences.

Within narrow geographic areas, housing markets assign movers with different characteristics to indivisible houses that differ by quality. This paper studies housing assignment when a subset of eligible buyers have exclusive access to a subset of houses that form a restricted area. In our leading example, buyers affiliated with Stanford University have exclusive access to houses on campus. Using both a simple comparables approach and nearest neighbor regressions, we document that houses on campus trade at a substantial discount to similar properties off campus. The discount is smaller for higher quality houses. We then interpret the evidence using an assignment model with a continuum of houses in which buyer types differ not only by eligibility but also by the marginal utility of house quality. Houses in the restricted area trade at a discount if the relationship between house quality and buyer type distributions is sufficiently different for the restricted area.

During the Age of Mass Migration (1850-1913), the US maintained an open border and absorbed 30 million European immigrants. Prior cross-sectional work on this era finds that immigrants held lower-paid occupations than natives upon first arrival but experienced rapid convergence. In newly-assembled panel data, we show that, in fact, immigrants did not face a substantial initial earnings penalty and experienced occupational advancement at the same rate as natives. Cross-sectional patterns are driven by biases from declining arrival cohort quality and departures of negatively-selected return migrants. We show that these findings vary substantially across sending countries and persist in the second generation.

Drawing almost entirely on evidence from manufacturing, it has often been argued that technical change was predominantly "de-skilling" in the nineteenth century but that beginning in the late nineteenth century and continuing into the early twentieth century the familiar modern pattern of capital-skill complementarity emerged. In this paper we revisit the issue of the historical evolution of capital-skill complementarity and with it, shifts over time in the relative demand for skilled labor. Our paper makes three points. First, although de-skilling in the conventional sense did occur overall in nineteenth century manufacturing, a more nuanced picture is that the occupation distribution "hollowed out": the share of "middle-skill" jobs - artisans - declined while the shares of "high-skill"- white collar, non-production workers and "low-skill"- operatives and laborers increased. Second, unlike the pattern observed in manufacturing, de-skilling did not occur in the aggregate economy; rather, the aggregate shares of low skill jobs decreased, middle skill jobs remained steady, and high skill jobs expanded from 1850 to the early twentieth century. The pattern of monotonic skill upgrading in the aggregate economy continued through much of the twentieth century until the recent period of hollowing out and "polarization" of labor demand since the late 1980s. Third, new archival evidence on wages suggests that the demand for high skill (white collar) workers grew more rapidly than the supply starting well before the Civil War to the end of the nineteenth century. A task-based framework illuminates an essential continuity to the effects of technical change across the two centuries. In both centuries, the diffusion of new capital goods altered the assignment of workers to tasks. Some of these re-allocations displaced skilled labor, while others did the opposite. On net in both centuries, technical change has tended to increase the relative demand for educated labor.

Workers of the nineteenth and early twentieth century United States were buffeted by shocks derived both from major innovations in manufacturing production technology and large waves of immigration. This paper investigates these phenomena together, in a framework that allows us to study the response of production technology to immigration-induced changes in skill mix. This response reveals the impact technology has on the demand for workers of different skill levels because of the relative complementarity between technology and skills. Using a merge of public-use tabulations of the U.S. Manufacturing Censuses from 1850 and 1940, detailed by industry and county/city, with Census of Population data, we ask how the change in the use of manufacturing technologies in a locality responded to local immigration-induced changes in skill mix. In our study we exploit the fact that the available technologies changed over time and thus look at different period-relevant technologies, from factory production to electrification, taking into account the fact that the adoption and penetration of these technologies responds to the relative availability of workers of different skill levels. Our results show that in urban counties immigration significantly changed the skill ratios, thus modifying the market for workers and firms. We also find that capital stock, output, and average wages responded at the industry and aggregate levels to the immigration induced changes in the skill mix in a manner consistent with the view that technology and skill were substitutes in the nineteenth century. Furthermore, we find initial support for a shift in the production technology around the turn of the century, coincident with the spread of electricity, a result that is in line with the historical view that technology and skill became complements. Finally, we find no evidence that industry mix shifts were an important adjustment mechanism for absorbing immigration-induced skill mix shocks.

Residential segregation by race and ethnicity first emerged in American cities during the urbanization of the late nineteenth and early twentieth centuries. Between 1880 and 1930, the share of the U.S. population living in cities doubled as millions of immigrants from southern and Eastern Europe and black migrants from the rural South arrived in northern urban areas. We present initial results from a newly assembled, fine-resolution spatial dataset on city populations constructed to study the segregation and integration of these groups. At this finer level of detail, we first replicate the findings of previous ward-level analysis regarding the divergent segregation trends of blacks and European ethnic groups in large northern cities. We then provide new evidence on the mechanisms behind this divergence, demonstrating that at the neighborhood level native white population declines accelerated in response to blacks over the period. In contrast, while a similar relationship held for initial waves of immigrant groups such Italians and Russians, the relationship attenuated and disappeared for these groups by 1920 Finally, through a series of cohort analyses, we begin the process of unpacking the process of immigrant assimilation over this important time period.

The paper presents a theory that links time-variation in liquidity premia of "money-like'" assets to monetary operating policies of central banks. The non-financial sector demands liquid assets and regards deposits as the most convenient way of holding liquidity. Financial institutions that create the deposit liabilities in turn demand liquid assets, which they hold in the form of reserves at the central bank or in the form of Treasury bills and other "money-like" short-maturity assets. The opportunity cost of holding liquidity in the form of central bank reserves is given by spread between the interbank interest rate and the interest rate the central bank pays on reserves (IR-IOR). The model predicts that the liquidity premium priced into "money-like" substitutes of central bank reserves is proportional to IR-IOR, and the magnitude depends on the degree to which the asset can serve as a substitute for reserves. The time-variation of liquidity premia priced into short-term Treasury securities during the past thirty years is consistent with this prediction. Data from countries in which IOR policies differ from those of the Federal Reserve are also consistent with these predictions. These results suggest that monetary policy implementation has a major effect on the level and time-variation of liquidity premia. It also highlights that the supply of liquid assets is endogenous. For example, if the central bank follows an interest-rate target, it supplies reserves perfectly elastically to stay at the target. Shocks to liquidity demand therefore have no effect on the price of liquidity and "shortages'" of "money-like" liquid assets cannot arise. However, frictions that impair the liquidity value of bank deposits for the non-financial sector can lead the price of liquidity to decouple from its usual relationship IR-IOR spread. Empirically, two instances of persistent decoupling emerge: The fall of 1998 and the financial crisis in 2007-08.

We investigate the effectiveness of central bank communication when firms have heterogeneous inflation expectations that are updated through social dynamics. The bank's credibility evolves with these dynamics and determines how well its announcements anchor expectations. We show that trying to eliminate high inflation by introducing a low inflation target can lead to short-term overshooting if the introduction is insufficiently gradual. In contrast, combating deflation requires either aggressive announcements that are broadly consistent with price level targeting or QE-type announcements that allow the central bank to stem deflationary expectations without altering its inflation target.

Since 2007 there have been increasing calls to abandon a regime of Inflation Targeting (IT) in favor of Nominal GDP (NGDP) targeting. One argument in favor of NGDP targeting is that it allows inflation to redistribute resources among bond holders efficiently. Here we examine this claim in a large open monetary economy and show that, in contrast to IT, NGDP targeting is in fact (Pareto) efficient in a world with stochastic real uncertainty, and in the absence of complete insurance markets (only nominally risk free bonds are available). However this result is ultimately fragile and breaks down once we attempt to deviate from the simplistic setting necessary for the result to hold.

We study the dynamics linking monetary policy with bank leverage and show that adjustments in leverage act as the linchpin in the monetary transmission mechanism that works through fluctuations in risk-taking. Motivated by the evidence, we formulate a model of the "risk-taking channel" of monetary policy in the international context that rests on the feedback loop between increased leverage of global banks and capital flows amid currency appreciation for capital recipient economies.

We analyse nominal exchange rate and price dynamics after risk premium shocks with short-term interest rates constrained by the zero lower bound (ZLB). In a small open-economy DSGE model, temporary risk premium shocks lead to shifts of the exchange rate and the price level if a central bank targets inflation. These shifts are amplified by the ZLB constraint. Empirical evidence for Switzerland supports the view that the responses of the exchange rate and the price level to a temporary risk premium shock are larger and more persistent if the ZLB is binding. Our theoretical discussion shows that alternative monetary policy rules – such as a price-level target or responding to the exchange rate level – are able to mitigate exchange rate and price fluctuations when the ZLB is binding.

We develop "revealed preference" tests for models of optimal information acquisition. The tests encompass rational inattention theory as well as sequential signal processing and search. We provide limits on the extent to which attention costs can be recovered from choice data. We experimentally elicit "state dependent" stochastic choice data of the form the tests require. We find that subjects adjust the intensity and focus of their attention in response to incentives. Our tests provide quantitative confirmation that such adjustments are well-modeled as rationally responsive to costs.

For the past four decades, tobacco consumption has been falling. We address the question of how much of this fall is due to the rising price in the relative price of tobacco and how much can be attributed to taste changes. This is important for public policy which seeks the best way to change the consumption of particular goods: taxes or information about health effects. We provide a theoretical and empirical framework for characterising taste change. We develop Afriat Revealed Preference conditions to test for whether a given time series of demands and prices can be rationalised if we allow for taste change on a single good. Our theoretical results are used to develop a quadratic programming procedure to recover the minimal intertemporal (and interpersonal) taste heterogeneity required to rationalise observed choices. We show that any time series of quantities and prices can be rationalised if we allow for taste change in one good. We apply our methods to tobacco consumption from the UK Family Expenditure Survey. Statistically signiÂ…ficant differences by education group are uncovered with more highly educated cohorts experienced a greater shift in their effective tastes for tobacco.

This paper relates the axioms of decision theory and the classic tale of Buridan'ass where the availability of options have a paralysing effect.

We propose a method to identify bounds (i.e. set identifica- tion) on the sharing rule for a general collective household consump- tion model. Unlike the effects of distribution factors, it is well known that the level of the sharing rule cannot be uniquely identified without strong assumptions on preferences across households of different com- positions. Our new results show that, though not point identified with- out these assumptions, bounds on the sharing rule can still be obtained. We get these bounds by applying revealed preference restrictions im- plied by the collective model to the household's continuous aggregate demand functions. We obtain informative bounds even if nothing is known about whether each good is public, private, or assignable within the household, though having such information tightens the bounds. An empirical application demonstrates the practical usefulness of our method.

The U.S. hospital sector is one of the largest industries in America representing 5.4% of GDP. We have severely limited information about the prices hospitals charge to private insurers as these prices are commercially sensitive. The paper is the first to use HCCI, a new national database of 6bn private insurance claims covering 50m patients. We document the variation of prices across hospitals and how these have evolved over time to determine to what extent higher aggregate or hospital specific transaction prices reflect improved treatment or other factors such as market power or cost.

This paper uses data from internet browsing to show that abnormal volumes of ticker lookups at major finance sites is predictive of abnormal asset returns. Prior studies of this phenomena used Google Trends data, which does not incorporate lookups at major finance sites and is too aggregate and noisy to provide precise identification of the effects of lookups, especially for medium and low-volume stocks. We examine the impact of lookups on returns over time. We further study the relationship between other types of browsing activities, such as visiting trading websites and financial news websites, and ticker lookups, in order to understand what drives ticker lookups, as well as to disentangle which types of traders seem to have the greatest impact on stock prices. We also look at asymmetries between lookups associated with declining or increasing stock prices to further understand investor motivation.

I examine how machine learning can be used in econometrics and vice versa. I draw on the literatures in both computer science and economics to show how algorithms can be developed that are tuned to the analysis of "Big Data" and consider applications to various kinds of online data.

The Medicare Advantage program now enrolls more than a quarter of Medicare beneficiaries into private insurance plans. The population that enrolls in private plans is healthier, both on risk-adjusted and non-risk-adjusted health measures. However, we find that plans do not have an incentive to distort their bids to improve their risk selection. Instead, the main deterrent to competitive bidding appears to be standard market power considerations. We report preliminary estimates suggesting that plan faces own-bid demand elasticities on the order of -5, implying mark-ups on the order of 20%. In many markets, the biggest source of plan competition appears to be the option to enroll in standard fee-for-service Medicare.

This paper tests the effects of ambiguity aversion on household portfolio choice. We measure ambiguity aversion with custom-designed questions based on Ellsberg urns, using a large representative survey of U.S. households. As theory predicts, ambiguity aversion is negatively associated with stock market participation and with the fraction of wealth allocated to stocks. Moreover, the effect is large: the participation rate is 3.9 percentage points lower among ambiguity averse respondents, compared to ambiguity neutral/seeking respondents. We also find that, conditional on prior stock ownership, ambiguity averse respondents were more likely to sell stocks during the financial crisis.

Ambiguity attitudes have been the focus of many theoretical studies in household financial decision making. More recently, empirical research has started to look at the link between households' ambiguity attitudes and their financial portfolios. Inspired by Ellsberg's classic examples, virtually all of these studies assume universal ambiguity aversion. However, experimental evidence suggests that ambiguity seeking is predominant in situations involving financial losses or unlikely events. Because these situations are common to many household decisions, consideration of domain-specific ambiguity attitudes in descriptive modeling is warranted. The current paper builds on the widely used Anscombe-Aumann framework to provide a descriptive model of ambiguity attitude. We first relax the assumptions of expected utility for risk and backward induction in the Anscombe-Aumann framework. This makes the approach tractable for empirical purposes. We then relax the substantial assumptions of reference independence and universal ambiguity attitude, extending Schmeidler's choquet expected utility model to prospect theory. We give a preference foundation and apply the framework in an experiment.

Measures of Decision-Making Under Ambiguity

Timing of irreversible decisions depends on decision makers' willingness to wait. This paper studies the distinctive effects of risk and ambiguity on this willingness. We analyze a simple optimal stopping problem in which a decision maker observes an uncertain environment and chooses the timing of an irreversible action. We replicate the model in a laboratory experiment that elicits subjects' willingness to wait. Higher risk increases willingness to wait confirming the model's predictions. Higher ambiguity also increases willingness to wait. Because the model predicts that ambiguity decreases willingness to wait if decision makers are ambiguity averse, this finding is inconsistent ambiguity aversion in timing decisions.

Much attention has been given to the large increase in safety net spending, particularly in Unemployment Insurance and Food Stamps, during the Great Recession. In this paper we examine the relationship between poverty, the social and private safety net, and business cycles historically and test whether there has been a significant change in this relationship during the Great Recession. We explore the mediating role played by six core safety net programs-including Food Stamps, cash welfare (AFDC/TANF), the Earned Income Tax Credit, Unemployment Insurance, and disability benefits (Supplemental Security Income and Social Security Disability Income)-in buffering families from negative economic shocks. This analysis yields several important findings. First, the relationship between unemployment and official cash poverty remained remarkably consistent with historical patterns during the Great Recession. However, our more expansive alternative poverty measure shows that, if anything, the cyclicality of poverty has increased in the current period. Second, the safety net programs receiving the most attention through the Great Recession (Food Stamps and UI) exhibit adjustments very consistent with their behavior during previous historical cycles. The most dramatic change in the safety net is the post-welfare reform decline of cash assistance in providing protection for the most disadvantaged. Third, changes in living arrangements are modest and for the most part in line with prior cycles. Thus on balance we find, as our title suggests, that despite the attention to the apparent differences in the responses of the private and social safety nets in the Great Recession, the relationship between cycles and economic well-being are as we would have predicted from the historical patterns.

Employment of older workers has fared markedly different during past recessions. On the one hand, the decline in employment of men near retirement age was occurred to an important degree during the large recessions in 1975 and 1982. In comparison, older workers have fared relatively better in more recent recoveries despite the fact that those recoveries were deemed jobless. This paper uses data from the Current Population Survey to document and contrast the labor supply behavior of workers near retirement age across different recessions from 1966 to 2012. Thereby, it recognizes that older lower educated workers and workers from certain occupations have fared very differently both over the business cycle and during the long-run trend. The paper begins by analyzing differential retirement patterns by education, occupation, and industry. Declines in labor demand reduce employment of older workers if their wages are rigid, possibly because of high replacement rates, habits, or implicit contracts. The paper gives a preliminary assessment of these potential mechanisms by analyzing the response of relative employment of older and younger more and less educated workers to economic shocks.

In 2008, conventional lenders dramatically and suddenly tightened their lending standards. This paper studies whether, as a result, Americans shifted from conventional banking to payday borrowing. Payday loans are short-term, unsecured loans that involve very high interest rates. We test whether the demand for payday loans increased in 2008 and 2009, as it became more difficult for consumers to find credit in the conventional sector. We also examine which types of consumers became more likely to take out a payday loan and look at heterogeneity among multiple dimensions.

Consumption inequality and income inequality tracked each other from 1985-2006. After that, consumption inequality dropped for the first few years and then rose the last year, while income inequality continued to rise. This paper explores why there was this divergence during the Great Recession? We find that the consumption of those at the top of the income distribution has fallen by more than the consumption of those at the bottom of the income distribution, generating the decrease in consumption inequality. Income inequality increased because the income at those of the top of the income distribution has fallen by less than the income of those at the bottom of the income distribution.

We develop a new measure to predict mutual fund performance based on the microstructure evidence on stealth trading. We exploit the intuition that strategic stealth trading induces positive autocorrelation in the portfolios of informed investors. The degree of portfolio return autocorrelation of the funds therefore carries information to gauge their skills. We propose an autocorrelation-based measure of mutual fund portfolio returns, termed the excess autocorrelation – the difference between the autocorrelation of actual fund portfolio return and that of the return on a portfolio that invests in the previously disclosed fund holdings. We test our measure using the US mutual fund industry between October, 1998 and December, 2010. The results show that funds with high excess autocorrelation persistently display a net-of-risk performance that ranges between 2 and 3 percent per year. Such performance is predictable up to 12 months ahead. This suggests that the excess autocorrelation predicts fund performance.

We examine the trading skill of hedge funds using transaction-level data. After accounting for trading commissions, we find no evidence that the trades of the average hedge fund outperform across holding periods ranging from one month to one year. However, bootstrap simulations indicate that the trading skill of the top 10% of hedge funds cannot be explained by luck. Similarly, we find that the performance of top hedge funds persists and much of this persistence stems from intra-quarter trading skill. Skilled hedge funds tend to be short-term contrarians and their profits are largely concentrated in smaller, more illiquid stocks. Our findings suggest that while the average hedge fund is unskilled, there are a small minority of skilled funds who persistently create value through liquidity provision.

We hypothesize that there is a low probability for a fund manager to consistently hold many winner stocks unless he has stock picking abilities. We find that the number of stocks contributing to the overall risk-adjusted performance of an actively-managed mutual fund predicts the fund performance very well. A fund that holds a large number of above-median performing stocks in one year generates approximately 2-4% additional risk-adjusted return in the next.

We explore U.S. mutual fund flows, finding strong evidence of seasonal reallocation across funds based on fund risk exposure. We show that substantial money moves from U.S. equity to U.S. money market and government bond mutual funds in autumn, then back to equity funds in spring, controlling for the influence of past performance, advertising, liquidity needs, capital gains overhang, and year-end influences on fund flows. We find strong correlation between U.S. mutual fund net flows (and within-fund-family exchanges) and a proxy for variation in investor risk aversion across the seasons. We find similar evidence in Canadian flows, and in flows from Australia where the seasons are six months out of phase relative to Canada and the U.S. While prior evidence regarding the influence of seasonally changing risk aversion on financial markets relies on seasonal patterns in asset returns, we provide the first direct trade-related evidence.�

Credit ratings affect firms' access to capital and investment choices. We show that the identity of the credit analysts covering a firm significantly affects the firm's rating, comparing ratings for the same firm at the same time across agencies. Analyst effects account for 30% of the within variation in ratings. Moreover, the rating biases of analysts carry through to credit spreads on the rated firms' outstanding debt and the terms offered on new public debt issues. As a result, firms covered by more pessimistic analysts issue less debt, lean more on cash and equity financing, and experience slower revenue growth than firms covered by optimistic analysts. We also find that the quality of ratings varies with observable analyst traits. Analysts with MBAs provide less optimistic and more accurate ratings; however, optimism increases and accuracy decreases with tenure covering the firm, particularly among information-sensitive firms.

We investigate a prominent allegation in congressional hearings that Moody’s loosened its standards for assigning credit ratings after it went public in the year 2000 in an attempt to chase market share and increase revenue. We exploit a difference-in-difference design by benchmarking Moody’s ratings with those assigned by its rival S&P before and after 2000. Consistent with congressional allegations, we find that Moody’s credit ratings for new and outstanding corporate bonds are significantly more favorable to issuers relative to S&P’s after Moody’s initial public offering (IPO) in 2000. The higher ratings assigned by Moody’s after its IPO are more pronounced for clients that are large issuers of structured finance products and operate in the financial industry, consistent with testimonies that easier rating standards originated in the structured finance products group of Moody’s. Moody’s ratings are also more favorable for clients where Moody’s is likely to face larger conflicts of interest: (i) large issuers; (ii) firms that are more likely to benefit from higher ratings, on the margin; and (iii) in industries with greater competition from Fitch. There is little evidence that Moody’s higher ratings, post IPO, are more informative when accuracy is measured as expected default frequencies (EDFs) or as the likelihood of bond defaults. Our findings have implications for incentives created by a public offering for capital market gatekeepers and professional firms.

We study the effects of rating shopping on the market for MBS. Outside of AAA, realized losses were much higher on single-rated tranches than on those with multiple ratings, and yields predict future losses for single-rated tranches but not for multi-rated ones. These results suggest that single-rated tranches have been "shopped," whereby pessimistic ratings never reach the market. In the AAA market, by contrast, most tranches receive two or three ratings and those ratings almost always agree. The convergence in ratings suggests that rating agencies may have "catered" to investors, who could not purchase a tranche unless it has multiple AAA ratings.

We analyze liquidity effects in the US fixed-income structured product market using new data from the Trade Reporting and Compliance Engine (TRACE) of the Financial Industry Regulatory Authority (FINRA). As of May 16, 2011, virtually all trades in this market have had to be reported, a fact that we use in this study, by including in our dataset transactions up to October 31, 2012. Our main contribution is the analysis of the relation between the measurement of liquidity and the degree of transparency: We compare a wide range of liquidity measures that are based on various information sets using different levels of detail, and provide evidence that transaction cost measures computed at a more aggregate level may still be reasonable proxies for liquidity. This finding is important for all market participants in the context of OTC markets, but particularly for regulators, who need to decide on the level of detail of the transaction data to be disclosed to the market. In addition, we explore the trading activity and transaction costs of the various segments of the structured product market. We find that liquidity is quite diverse, with average costs of a round-trip trade of around 67 bp, and that securities that are mainly institutionally traded, guaranteed by a federal authority, or have low credit risk, tend to be more liquid.

We study the impact of outright (permanent) open market operations (POMOs) by the Federal Reserve Bank of New York (FRBNY) on Treasury market microstructure. POMOs are trades in U.S. Treasury securities aimed at maintaining conditions in the market for bank reserves consistent with the Federal Reserve's target level of the federal funds rate. Using a parsimonious model of speculative trading, we show that so-motivated government intervention improves market liquidity, by an extent depending on the market's information environment. Evidence from a novel sample of all FRBNY's POMOs between 2001 and 2007 indicates that bid-ask spreads of on-the-run Treasury securities decline when POMOs are executed, by an amount increasing in proxies for information heterogeneity among speculators, fundamental volatility, and POMO policy uncertainty, consistent with our model.

This paper employs bond transaction data from 2002 and 2011 to investigate the trading activity and price dynamics of defaulted corporate bonds, aiming to shed light on the impact of financial distress on trading liquidity and market efficiency. We find that when new defaults generate supply shocks in the market for defaulted corporate bonds---an over-the-counter market that is commonly viewed as segmented, these supply shocks result in much more significant losses in liquidity and downward price pressures during the 2008-2009 financial crisis than during other periods, partly reflecting the deterioration of the capacities of financial intermediaries to move capital across markets due to their own financial distress. The initial impacts of financial distress reverse partially within a few weeks after default.

This paper explores the interaction between credit risk and liquidity, in the context of the intervention by the European Central Bank (ECB), during the Euro-zone crisis. The laboratory for our investigation is the Italian sovereign bond market, the largest in the Euro-zone. We use a unique data set obtained from the Mercato dei Titoli di Stato (MTS), which provides tick-by-tick trade and quote data from individual broker-dealers. Our database covers the sovereign bonds of most European-zone countries, for the period June 1, 2011 to December 31, 2012, which includes much of the Euro-zone crisis period. We document a strong and dynamic relationship between changes in Italian sovereign credit risk and liquidity in the secondary bond market, conditional on the level of credit risk, measured by the Italian sovereign credit default swap (CDS) spread. We demonstrate the existence of a threshold of 500 basis points (bp) in the CDS spread, above which there is a structural change in this relationship. Other global systemic factors also affect market liquidity, but the specific credit risk of primary dealers plays only a modest role in affecting market liquidity, especially under conditions of stress. Moreover, the data indicate that there is a clear structural break following the announcement of the implementation of the Long-Term Refinancing Operations (LTRO) by the European Central Bank (ECB) on December 8, 2012. The improvement in liquidity in the Italian government bond market strongly attenuated the dynamic relationship between credit risk and market liquidity. The only variable that continues to have an impact on market liquidity is the global funding liquidity variable: the Euro-US Dollar cross-currency basis swap, a measure of Eurozone-wide macro-liquidity. Thus, the ECB intervention was successful in ameliorating both credit risk and illiquidity.

This paper analyzes the optimal hedging strategy of a firm in the presence of financing constraints, product market competition, and real options. The hedging ratio is determined by a tradeoff between the costs of financial distress and costs of financing real options. Inability to finance options externally discourages hedging because it reduces the natural correlation between the firm's cash flows and options exercises. The model shows that riskier firms can have lower hedging ratios; hedging ratio decreases in the value of firm's growth options, increases with competition and firm's systematic risk. Overall, our results offer an alternative explanation to the observed hedging policies that does not rely on the cost of hedging.

This paper develops a model of real option exercising for a financially constrained firm. We show that costly external financing induces the firm to hoard liquidity, e.g. cash. Importantly, liquidity hoarding has important effects, both conceptually and quantitatively, on the firm's real option exercising decisions and financing decisions. We find that the standard real options results do not hold when financial constraints are incorporated. For example, firm value may no longer increase with volatility due to the firm's precautionary motive to hoard cash. The marginal value of cash is not necessarily decreasing with liquidity due to the fact that the firm has embedded optionality. Importantly, our paper shows that volatility has both a positive and a negative effect on corporate investment and financing decisions. Our results suggest that we need to be cautious in prescribing real option results based on standard complete-markets frictionless models to MBA students and practitioners

We analyze the recovery rates of defaulted bonds in the US corporate bond market over the time period 2002 to 2010. Our data set is obtained from the Trade Reporting and Compliance Engine (TRACE) database maintained by the Financial Regulatory Authority (FINRA) and provides us with a complete set of traded prices and volumes around the default events. The analysis of the microstructure of trading activity allows us to estimate reliable market-based recovery rates. We investigate the relation between these recovery rates and a comprehensive set of bond characteristics, firm fundamentals and macroeconomic variables. An important additional contribution is the estimation of the individual bond liquidity and the analysis of its effect on traded prices after default. Our main regression model explains 64% of the total variance in the recovery rates across bonds. We find that the type of default event, the seniority of the bond, and the industry in which the firm operates are important det

In this paper, we measure currency carry trade funding risk using stock market volatility and crash risk in Japan, the main funding currency country. We show that the measures of funding risk in Japan can explain 42% of the monthly currency carry trade returns during our sample period, 2000-2011. In addition, they explain 46% of the monthly foreign exchange volatility in our sample of ten main currencies, 28% of the speculators' net currency futures positions in Australian dollar versus Japanese yen, skewness in currency returns and currency crashes. We present a theoretical model that is consistent with these findings.

We discover a new currency strategy with highly desirable return and diversification properties, which uses the predictive capability of currency volatility risk premia for currency returns. The volatility risk premium -- the difference between expected realized and model-free implied volatility -- reflects the costs of insuring against currency volatility fluctuations, and the strategy sells high-insurance-cost currencies and buys low-insurance-cost currencies. The returns to the strategy are mainly generated by movements in spot exchange rates rather than interest rate differentials, and the strategy carries a greater weight in the minimum-variance currency strategy portfolio than both carry and momentum. Canonical risk factors cannot price the returns from this strategy, which appear more consistent with time-varying limits to arbitrage.

This paper shows that output fluctuations in nontraded industries are a central risk factor driving asset prices in all countries. This is because nontraded industries entail a growth risk that is mostly non-diversifiable, and constitute the largest component of gross domestic product (GDP) of a country. In interest rate markets, movements in the growth of industries with higher nontradability feed greater risk to the economy, and therefore, stronger downward pressure on the interest rate. Empirically, the effect of an industry's growth volatility on the interest rate increases significantly with its nontradability. In currency markets, this risk factor generates carry trade profits because it induces co-movement of the investor's marginal utility and the exchange rate. Empirically, a carry trade strategy employing currency portfolios sorted on nontraded output growth volatility earns a sizable mean return and Sharpe ratio for US investors. Trade frictions do not alter these mechanisms, although incomplete markets may reverse carry trade profits.

Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. We provide a general equilibrium model of commodity trade and currency pricing that implies such heterogeneity due to specialization in goods production and frictions in the shipping sector. The model predicts that commodity-producing countries are insulated from global productivity shocks by the limited shipping capacity, which forces the final goods producers to absorb the shocks. As a result, a commodity currency is risky as it tends to depreciate in bad times, yet has higher interest rates on average due to lower precautionary demand, compared to the final good producer. The model's predictions are strongly supported in the data. We show that countries that primarily export basic commodities exhibit systematically high real interest rates while countries that specialize in exporting finished consumption goods typically have lower rates. The resulting c

This paper evaluates the effect of payment reduction on mortgage default within the context of the Home Affordable Refinance Program (HARP). We find that mortgage default is sensitive to payment reduction across univariate, duration, and hazard modeling approaches. A relative risk Cox model of default with timevarying covariates estimates that a 10% reduction in mortgage payment is associated with a 12.1% reduction in monthly default hazard. This finding is robust to the inclusion of empirically important mortgage risk drivers (current LTV and FICO score). A theorem is developed that allows for interpreting monthly default hazard estimates from the perspective of cumulative default.

Using a property-level data set of houses in Los Angeles County, I estimate that 30% of the recent surge in mortgage defaults is attributable to early home-buyers who would not have defaulted had they not borrowed against the rising value of their homes during the boom. I develop and estimate a structural model capable of explaining the patterns of both equity extraction and default observed among this group of homeowners. In the model, most of these defaults are attributable to the high loan-to-value ratios generated by this additional borrowing combined with the expectation that house prices would continue to decline. Only 30% are the result of income shocks and liquidity constraints. I use this model to analyze a policy that limits the maximum size of cash-out refinances to 80% of the current house value. I find that this restriction would reduce house prices by 14% and defaults by 28%. Despite the reduced borrowing opportunities, the welfare gain from this policy for new homeowners is equivalent to 3.2% of consumption because of their ability to purchase houses at lower prices.

When homeowners experience financial difficulties, which bills do they pay and which do they skip? Many households have missed mortgage payments and have experienced large declines in housing wealth since the housing market bust beginning in 2006. But little is known about how those households, faced with falling house values and other financial stresses, have juggled other sources of credit. This paper uses unique data derived from credit reports to explore how homeowners manage credit in the midst of financial difficulties. Traditionally, mortgages have been viewed as the last loan on which borrowers stop payments. We investigate, among other questions, how that conventional wisdom held up during the Great Recession. Matching the Federal Reserve Bank of New York's Consumer Credit Panel with loan-level data from oreLogic's LoanPerformance database, we generate a large sample of individuals that is representative of homeowners with securitized non-prime mortgages and follow them from 2002-2011. The matched data allow us to dynamically estimate a homeowner's home equity using local housing price indices. We find that homeowners experiencing negative shocks to their home equity or experiencing measureable mortgage distress draw more heavily on their consumer lines of credit and open more credit accounts but, inverting the historical payment hierarchy, they also give payment priority to those credit accounts over their primary mortgage.

Evaluating the effectiveness of a modification program involves contrasting the modified loan's credit performance with a counterfactual case of what the loan's performance would have been had there been no modification given. Empirical studies usually employ a pooled sample with modified and non-modified loans, control for the observable credit characteristics, and compare their performance. The effect thus estimated is a combination of treatment effect and selection effect. While the former captures the effectiveness of the modification program, the latter reflects the intrinsic difference between borrowers who apply for loan modification and those who don't, typically not captured by observable variables. Omitting the selection effect leads to biased estimate, possibly over-estimation, of the actual treatment effect of the modification programs. Our paper uses a unique dataset that identifies the borrowers who applied for, but was rejected from a modification, in addition to those who obtained loan modification successfully and those who did not apply for loan modifications. We find significant selection effect that seriously delinquent borrowers who applied for loan modifications, even those rejected for negative credit reasons, still were more likely to selfcure than those who did not apply for loan modifications, after controlling for other credit characteristics. The effect is further substantiated by the fact that those who were rejected for modification are less likely to reach serious delinquency or a default event than those who did not apply. In addition, modified loans also show significant performance improvement over the applied-but-rejected loans, indicating the effectiveness of the modification treatment independent from the selection effect.

We examine the canonical influence of global market, currency and inflation risks on the returns from international real estate securities. In addition, we study how mispricing of credit in the local banking systems is related to the returns from these securities. We analyse a global sample of real estate securities over the period 1999 to 2011 to test our hypotheses. We find support for the anticipated relationships between macroeconomic risk factors and the returns from international real estate securities. Our evidence also supports the expected link between local credit market conditions and the performance of international real estate securities.

Guaranteed Financial Institutions can structure portfolios with imbedded options to take on excessive risk without paying for it. This provides an incentive to take on higher risk. This paper proposes variants on Contingent Convertible (CoCo) bonds to be mandatorily included in the management remuneration package as a disincentive to taking higher risk. We show how the conversion ratios of the CoCo bonds can affect managers' appetite towards risk-taking and how incentives can be set up to have management make choices consistent with those made under efficient pricing.

We develop a unified model of mortgage and servicer contracts. We show that renegotiating mortgage contracts following default is strictly Pareto improving, if the lender gathers updated borrower information. To align servicer incentives with investor interests, we demonstrate that servicers must hold risk positions in MBSs that include "vertical" components. However, offering incentive compatible contracts is not possible if foreclosure is highly inefficient and servicers do not sufficiently value investment in MBSs. In this case, forming a nondiversified pool to preserve pool-wide information may increase MBS value.

Indirect real estate (IRE) returns are often shown to lead direct real estate (DRE) returns. Apart from differences in liquidity, transaction costs, and management skills, the DRE market is also less complete - when negative shocks arrive, one can only short IRE (e.g. real estate stocks or REITs) but not DRE. This study investigates whether short sales in the IRE market convey any information to the DRE market. Based on high-frequency (weekly) property price data in Hong Kong during 1999-2011, we found that short sales in the IRE market led DRE returns, even after controlling for the lagged IRE returns in a VAR model. This suggests that short sales contain private information about the real estate market that is not fully reflected in IRE returns. The spillover effect of short sales, however, was weakened after the 2007 global financial crisis because increased uncertainty about the credibility of individual firms made short sales carry more firm specific information than market-wide news.

In this paper, we analyze the implications of macroprudential and monetary policies for business cycles, welfare, and financial stability. We consider a dynamic stochastic general equilibrium (DSGE) model with housing and collateral constraints. A macroprudential rule on the loan-to-value ratio (LTV), which responds to credit growth, interacts with a traditional Taylor rule for monetary policy. We compute the optimal parameters of these rules both when monetary and macroprudential policies act in a coordinated and in a non-coordinated way. We find that both policies acting together unambiguously improves the stability of the system. In both cases, this interaction is welfare improving for the society, especially in the case of the non-coordinated game. However, there is a trade-off between the agents of the model and savers lose with this new policy. We find though that there is room for an improvement in the efficiency following the Kaldor-Hicks criterion, so that borrowers can compensate the saver's welfare loss.

The U.S. house price boom has been linked to an unsustainable easing of mortgage lending standards. However, time series models of U.S. house prices ignore changes in mortgage lending standards and perform poorly in the 2000s. We incorporate data on mortgage standards for first time buyers into a model of US house prices based on the (inverted) demand for housing services. Our first time buyer loan-to-value series is weakly exogenous. It captures shifts in the supply of mortgage credit and not expectations of future house price appreciation. Using this series, we estimate a U.S. house price equation that yields a stable longrun cointegrating relationship, plausible income and price elasticities and an improved fit. Our findings suggest that swings in credit standards played a major, if not the major, role in driving the recent boom and bust in U.S. house prices.

Past studies have argued that housing is an important driver of business cycles. Housing markets, however, are highly localized, while business cycles are often measured at the national level. We model a national housing cycle using a panel of cities while also allowing for idiosyncratic departures from the national cycle. These departures occur for clusters of cities that experience simultaneous idiosyncratic housing recessions. We estimate the clustered Markov-switching model proposed in Hamilton and Owyang (2012) using city-level building permits data, a series commonly used at the national level as a business cycle indicator. We find that cities do not form housing regions in the traditional, geographic sense. Instead, similar demand for housing proxied by population growth rate appears to be a more important eterminant of cyclical comovements.

This paper studies the impact of the preferential tax treatment of housing, including the mortgage interest deduction, on equilibrium house prices, rents, and homeownership using a dynamic stochastic life cycle model of housing tenure choice. To analyze the effects of housing tax expenditures on equilibrium outcomes in the housing market, we build a model with a realistic progressive tax system in which owner-occupied housing services are tax-exempt, and mortgage interest payments, property taxes, and landlord's business costs are tax deductible. We simulate the effect of various tax reform proposals on house prices, rents, homeownership, and tax revenue. Through these simulations, we find that when the supply of housing is relatively inelastic, repealing existing tax deductions causes house prices to decline and also increases the homeownership rate. The mechanism driving this result is that because tax deductions that favor owner occupied housing are capitalized into house prices, eliminating these deductions shifts the relative cost of obtaining housing in favor of ownership. Our results challenge the widely held view that the mortgage interest tax deduction promotes homeownership. Moreover, repealing deductions increases income tax revenue, but simultaneously decreases property tax revenue because house prices decline.

The paper begins by first defining some terms: what in fact is 'technocracy' and is it compatible with 'democracy' at least in its current widely practiced form of 'representative' democracy? A more detailed re-examination of the concept of 'technocratic' policymaking in a democracy follows. The main argument of the paper is that a new way of thinking about economic policymaking is needed. Although my main point of reference is debt and deficit policies, most of the arguments developed in the paper are of a more general nature. The paper reviews briefly the development of the concept of 'technocracy' and examines the philosophical questions raised by the relationship between expert knowledge and political power. It also considers how economists view the policymaking process and this view is contrasted with the prevailing views in political science. Some additional problems with the economists' policymaking paradigm, based on accounts provided by economists that have actively participated in public policymaking as advisors are noted. The paper makes the case for revising the established policymaking paradigm in economics and offers some ideas on how such a revision might be attempted. In conclusion debt and deficit policies are discussed in relation to the preceding discussion of democracy, technocracy and public policymaking. The arguments of the paper relate to recent experience in Europe. The most critical economic policy issue that the 'technocratic' Prime Ministers have had to deal with was then and remains now the problem of debt and deficits which is the central theme of this session.

This contribution deals with fiscal and debt policies in the UK and their prospects. In doing so, though, there are a number of aspects of fiscal and debt policies that need due analysis and critique, as necessary, before we turn our attention to the UK case. These include the meaning and importance of sustainability, the extent of the budget deficit creating unsustainable public debt and whether this could be detrimental to growth; the importance and the extent to which the inter-temporal budget constraint holds and the question of whether it is consistent with household behaviour. 'Functional finance' and the sustainability of budget deficits to secure high levels of employment is another important consideration. Structural budgets, the measurement of potential output, the impossibility of balanced structural budgets are all important further issues, which are discussed before we turn our attention to the UK fiscal policy aspects. The latter discussion emphasises the importance of fiscal policy in achieving high levels of economic activity, which is enhanced when there is serious co-ordination with monetary policy. This contribution begins, the, with a brief discussion of the sustainability of deficits and debt. We continue by looking at the issue of debt and growth, followed by a comprehensive analysis of the Inter-Temporal Budget Constraint Thesis. The sustainability of deficits and 'functional finance', structural budgets and the impossibility of balanced structural budget are then discussed. Finally, the future of UK public expenditure and debt are dealt with before we summarise and conclude.

Opposite to mainstream economics, (Post) Keynesian economics has defended the need of a discretionary fiscal policy that helps to maintain the economic activity at a full employment level, offsetting the cyclical deviations of that level of output. In this sense, it is implicitly assumed that any discretionary management of public finances is, by definition, efficient. The Spanish case shows that public authorities can make an inefficient use of the discretionary room of the fiscal policy, leading to exacerbate the existing macroeconomic and fiscal imbalances, hence the need of rules that constrain the discretionary management of public finances.

In our interpretation, the Great Recession which started in the United States in 2007, and propagated to the rest of the world, was the inevitable outcome of a growth trajectory based on fragile pillars. The concentration of income and wealth, which started rising in the 1980s, along with the stagnation in real wages made it more difficult for the middle class to defend its standard of living, relative to the top decile of the income distribution. This process increased the demand for credit from the household sector, while deregulation of financial markets increased the supply, and the U.S. economy experienced a long period of debt-fueled growth, which broke down first in 2001 with a stock market crash, but at the time fiscal and monetary policy managed to sustain the economy, but without addressing the fundamentals problem, so that private (and foreign) debt kept increasing up to 2006, when a more serious recession started. At present, the long period of low household spending, along with personal bankruptcies, has been effective in reducing private debt relative to income, and, given that the problems we highlight have not been properly addressed yet, growth could start again on the same fragile basis as in the 1990-2006 period. In this paper, adopting the stock-flow consistent approach pioneered by Wynne Godley, we stress the need for fiscal policy to play an active role in (1) modifying the post-tax distribution of income, which along with new regulations of financial markets should reduce the risk of private debt getting out of control again; (2) stimulate environment-friendly investment and technological progress; (3) take action to reduce the U.S. external imbalance, and (4) provide stimulus for sufficient employment growth.

In 2007, Ghana became the first HIPC (Highly Indebted Poor Countries) nation to issue sovereign bonds in international markets. Proponents, at the time, celebrated the success of debt relief initiatives and the flexibility of the global financial markets to accommodate the financial needs of a poor African country. Since then other HIPC countries like Tanzania and Zambia have also been able to float new bond issues on international markets often with very heavy oversubscription. In the case of Zambia, there was $12 billion offered for a $750 million bond issue. A number of questions arise from this development including the terms and preconditions, downside risks and alternative options for financing development. How widespread is this option for other poor African countries? Are markets looking south in the wake of the sovereign debt crisis in Europe or does it reflect a change in the operation of global financial markets and a fundamental alteration in the perception of the continent? Will there be a waning of interest once there is recovery in northern markets? Will this allow African countries to escape the onerous conditionality of the International Financial Institutions or is it a sign that neoliberalism has been so institutionalized in African governments that the new source of finance will have little impact in changing the trajectory of development in African? The paper will explore the implications of this new vehicle of finance for both sub-Saharan African countries and global financial markets.

While nonprofit organizations serve the community in significant ways, their heavy reliance on philanthropic and government funding is increasingly not sustainable, especially in the wake of economic downturns. With over 1.4 million active nonprofits in the United States competing for fewer and fewer dollars, organizations must seek new funding sources. The application of social entrepreneurial principles, including social enterprise activities, can improve the sustainability of the business model of nonprofits while bolstering management capacity and enhancing mission. Increasing numbers of private foundations and funders are aggressively seeking to support social entrepreneurial ideas, yet many nonprofit organizations have been slow to think “outside of the box" to make their organizations sustainable. Confusion exists about the ability and legality of nonprofits to connect social enterprise activities to their overall missions, and there are well-founded fears that embracing new models may be financially risky, provide too many ethical dilemmas, or lead to “mission drift." However, incorporating commercial strategies and activities, such as strategically selling goods and services, embracing a fee-for-service approach, or founding a separate commercial for-profit enterprise or hybrid business, may provide new types of revenue streams that will sustain successful nonprofits in the future. This paper argues that the current funding model of the nonprofit sector should be disrupted in order to achieve a greater level of financial sustainability and mission-driven success.

Progressively there has been an interest in social entrepreneurs’ roles in creating social value, fostering economic development, and advancing environmental sustainability. In institutional economics there is extensive support for entrepreneurship as having a positive impact in economic development and personal well-being. This paper challenges the accepted understanding of social entrepreneurs’ heroic nature and their process of starting a new venture as beginning with passion or recognition a social problem. Through examining the case of Clean the World, a social enterprise, we demonstrate that not all social ventures start with the intention of creating social value, but rather some, as this case, from asking the question: How can I make a profit? We discuss a recently proposed paradigm called effectual entrepreneurship and then illustrate how this paradigm fits the path of Clean the World. They questioned the status quo and focused on the existing or available resources first, rather than identifying opportunities first. Next, we explore how Clean the World fell into social entrepreneurship by ‘accident’ by considering waste a resource. We conclude by offering some suggestions for how to facilitate more of these ‘accidents’ by fostering a culture that questions the status quo.

Social entrepreneurship, along with charitable giving and most types of development assistance, is well-intentioned and it often improves the lives of people in poor communities. Increasingly, since the neoliberal revolution in the US and UK and in the economics profession in general, these types of activities have received greater amounts of resources and more focus as a potential solution to market failures and development problems. However, to date, social entrepreneurship has yet to achieve the type of structural transformation necessary for true economic development. This paper will analyze the impact of social entrepreneurship on economic development, with a special focus on how it has been used in Africa. We will show that social entrepreneurship could play an important role in the development process by facilitating the creation of organic, productive, community-centered organizations that build on local culture and institutions. However, we will also demonstrate the extent to which social entrepreneurship has undermined support for the type of state-led development and democratic reforms that are the pre-conditions necessary for structural transformation and long term, large scale development.

This study examines the question of how defining the domain of action affects the configuration of processes that allow social enterprises to scale their impact. Financial and other resources are needed to ensure that a social enterprise can fulfill its mission. However, the resource-seeking mandate is also a distraction that adds a layer of complexity to the operations of any social enterprise. By analyzing operating scenarios based on the logic of control versus the logic of empowerment; and the logic of power versus the logic of social embeddedness we examine the process trade-offs that enhance or limit social impact. This study used selected cases in South Africa. Our findings place a premium on efficiency in resolving process trade-offs, because for a given domain of action the focus on value creation diminishes the feedback loop for value capture. We also propose that value chain processes must be controlled to the extent that the enterprise acts as a custodian of community empowerment for its target beneficiaries.

Microfinance is one of the most popular examples of social enterprise. In recent decades microfinance activities have proliferated throughout the developing world, and have made some inroads in developed countries as well. Often, microfinance is described as a community-building enterprise given the common group lending and group saving models associated with microfinance operations. While microfinance has helped millions of the 'unbanked' and 'underbanked'-particularly women-gain access to credit and escape dire poverty, this is not the same thing as community-building. This paper investigates the extent to which microfinance is able to build community and sustain individual entrepreneurs' attention to social and solidarity economy given the marginalization of microfinance compared to the formal banking sector, the spread of for-profit microfinance institutions, the inattention paid to the social utility of the entrepreneurs' products, and the lack of built-in mechanisms for 'giving back'. Alternative approaches to microfinance which fundamentally restructure the way it works, specifically considering the issue of community, will be discussed as a possible 'next evolution' of this form of social enterprise.

Contraceptive coverage in The Affordable Care Act is a vitriolic target. The cause is unclear: abortion aside, prevention of unwanted pregnancies seems non-controversial on its face. High contraceptive costs and limited availability cause some 50% of pregnancies to be unwanted and unplanned in the US alone; results include more poverty, less education, and greater incarceration rates. The 13th Amendment to the United States Constitution abolishes slavery including "involuntary servitude," a clause repeatedly upheld for other applications but which regularly occurs with forced motherhood. Opposition to legal contraception among faculty in major research universities in the US, reveals social and economic comparisons: few publications, weak self-image, and low academic salary combine into ego-defense, where opposition to contraception can thin qualified competition. Strategies which nonconsensually relegate women into a reproductive role may well be deeply buried. Those opposed to making contraception widely available may view themselves as egalitarian, enlightened, and be unaware of their subconscious drive to justify this most basic allocation of dis-advantage to women in contemporary society. Does "Everyone get a fair chance today?" Not where contraception access is intentionally limited. Involuntary servitude as forced motherhood thus emerges as a legal constitutional violation driven by a complexity of social economic pressures and (lack of) personal empowerment among persons whose views on this and other issues are forwarded through academia to next generations of high-status youth whose future holds consequential decision making.

Dates of passage of two sets of legislation affecting the property rights of married women in the 19th century are considered from the perspective of state judiciaries. In a content analysis drawing on a dataset of over 200 cases, I find that while most courts did not declare the Married Woman's Property Acts and Earnings Acts unconstitutional, they did qualify the scope of the laws by maintaining the husband's traditional ownership and control rights over the family estate. Additionally, courts maintained the idea of a wife's incompetence as an independent economic agent.

This study examines the nature and extent of time poverty experienced by rural men and women in the subsistence households in Mozambique. The pa- triarchal norms place heavy work obligations on women. They are required to fulfill the needs of the household through a variety of care work and assist the husbands in farming and other cash-generating activities. I use time-use data from a primary household survey conducted in Mozambique. The main findings are that women’s labor allocation to economic activities including subsistence agriculture is comparable to that of men. Moreover, the household chores and care work are women’s responsibility, which they perform with minimal assis- tance from men. I construct a time poverty headcount index separately for men and women; compared to 50% of women who are time poor, only 8% of men face time constraints. The incidence of time poverty among women increases when the burden of simultaneous care work is taken into account. Examination of the determinants of the time poverty show that traditional measures of bar- gaining power like assets and education do not necessarily affect time poverty faced by women.

The incidence of female genital cutting (FGC) varies substantially between countries and communities. This paper suggests that this may be related to the degree of social pressure and otherworldly benefits associated with FGC. Since FGC is only (at most) a recommended practice in Islamic law, social pressure and/or the belief in otherworldly benefits and the decision to undergo FGC are jointly determined. If there is a high (low) degree of participation in FGC in a community, social pressure in favor of FGC and/or belief in otherworldly benefits from the practice are likely to be higher (lower) due in part to that the high (low) degree of participation in FGC. For social pressure or stigma, this is because the more girls undergo FGC, the more easily one can single out and discriminate against girls who do not. In the case of otherworldly benefits, this is because higher participation in FGC makes the belief in such benefits more sustainable independently of whether the belief is warranted or not. After a brief review of the status of FGC in Islamic law and of the evidence on the practice and its determinants, this paper provides a simple model showing that we may have two equilibria: one with high social pressure and/or belief in otherworldly benefits and FGC incidence, and one with low participation rate in FGC and no social pressure and/or belief in otherworldly benefits. The paper then discusses the implications of the model for family law reform in majority Muslim countries.

Consumer vehicle choice models have been estimated and used for a wide variety of policy simulations. Infrequently, though, have predicted responses from these models been tested against actual outcomes. This paper tests a model developed for the U.S. Environmental Protection Agency that is intended to estimate the impacts of changes in vehicle prices and fuel economy. It is a nested logit with a representative consumer and 5 layers: the buy/no buy decision, passenger versus cargo versus ultra-prestige vehicle, vehicle classes, subdivision of those classes into standard and prestige vehicles, and then individual vehicles. It is calibrated to vehicle purchases in model year (MY) 2008. Vehicle changes between MY and 2010 are then used to make predictions, and those predictions are compared to actual outcomes in MY 2010. The research suggests that the model may predict better when its inputs are aggregated than when they are as disaggregated as possible, though further work is needed to assess the model’s predictive abilities.

This paper asks what the optimal choice of instrument is when other agencies are likely to employ complementary policies in an uncoordinated fashion. Equivalence of these policies requires full flexibility in setting standards for feebate rates, which is often not possible. Regulations, like CAFE standards and feebates, are often set for many years at a time by the National Highway Traffic Safety Administration (NHTSA).

Our first empirical question asks how much refiners reduced their wholesale gasoline prices. Similar to some voluntary environmental programs (Khanna and Damon, 1999), the discount of- fered by the refiners was not out of self interests but rather under the pressure of the government. To avoid a harsher regulation on the gasoline market, the refiners participated in the program universally. Although the refiners claimed to offer the same amount of discount, the compliance could differ since there was no enforcement. In addition, refiners used different marketing strate- gies. The market leader SK offered direct cash back to consumers using credit card or membership card. The other refiners lowered their wholesale prices at the same amount. Therefore, we expect that the discount program had a heterogeneous effect on the wholesale gasoline prices because of differing compliance and discount strategies.

This paper is among the first cost-effectiveness evaluations of energy efficiency retrofits with household-level data. I use monthly residential electricity billing data, combined with data on observable characteristics of each residence, to assess nine separate retrofit rebate programs. The study takes place in Gainesville, Florida, and compares changes in energy use within a residence before and after an energy saving retrofit intervention (treatment group) with changes in energy use within a similar residence that did not receive improvements (control group). Results indicate that cost-effectiveness of retrofit rebate programs vary widely across retrofit types, and that engineering estimates of energy savings are resonably accurate.

Along the global trend of economic development, it is often observed rapid industrial trans- formation accompanied by continual rural-urban migration. In many developing countries there are yet abundant supplies of "surplus labor." We construct a small open, dynamic framework to examine how the existence of this large supply of rural, unskilled labor affects trade, urbanization, capital accumulation, factor returns, sectoral and aggregate output and social welfare, as well as to explore why the processes of urbanization and economic development are rather divergent in different economies. We find that in a surplus-labor economy commonly adopted trade policies may reduce capital accumulation, urbanization and aggregate output. Under reasonable factor intensity assumptions, a reduction in migration barriers enhances capital accumulation, inducing urbanization and increasing aggregate output. Our numerical results indicate that import tariffs in the presence of capital barriers can generate strong intertemporal distortions which delay ur- banization and economic development. Trade and capital barriers are crucial for the presence of abundant rural surplus labor, whereas different trade/investment environments and policies may lead to very divergent processes of urbanization and economic development. While a reasonable migration discounting can generate a large urban-rural wage gap, locational no-arbitrage can cause irresponsiveness of the real unskilled wage in urban areas to parameter and policy changes.

China's trade account surplus is perceived to be a major driver of international imbalances and has been identified as the cause of the global financial crisis of 2008 (Council of Economic Advisers, 2009). The often heard proposed remedy of China should adjust its exchange rate policy to alleviate global imbalances does not get uniform support from estimated trade elasticities; specifically, some estimates of China's import elasticities have a sign that is different from the one predicted by the conventional economic theory. The study by Cheung, Chinn and Qian (2012) illustrates China's trade behavior depends on customs classification, product type, and the ownership structure of the trading entities. The current exercise focuses on China-US trade, arguably the most often analyzed trade relationship in the global imbalance debate. In addition to aggregate trade data, we study disaggregate data obtained from China's customs office. These data allow us to examine various structural aspects of the China-US trade surplus. For instance, we confirm that, compared with the customs classification of ordinary trade, processing trade accounts for a smaller share of China's surplus over time. Manufactured goods, compared with primary goods, accounts for a larger share of China's surplus over time. Within the manufactures category, the "machinery, electrical equipment" group constitutes an increasing share of surplus. The share of surplus attributed to trade associated with private enterprises is increasing over time, coming at the expense of that of state owned enterprises. Apparently, the share attributed to foreign invested enterprises is stable.

Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Most small state owned firms were privatized or closed. In contrast, large state owned firms were corporatized and merged into large industrial groups under the control of the Chinese state. Detailed firm level data shows that from 1998 to 2007, labor productivity of state owned firms converged with that of privately owned firms, total factor productivity growth of state owned firms was more than double that of private firms, and capital productivity of state owned firms continue to be lower than that of private firms (and did not change.) Counterfactual experiments suggest that "grasp the large" and "let go of the small" increase Chinese industrial output by about a third.

While in standard housing economics housing is regarded as an asset and a consumption good, we study in this paper the consequences for housing prices if housing is also a status good. More concretely, if a family's housing wealth relative to others is an important marker for relative status in the marriage market, then competition for marriage partners might motivate people to pursue a bigger and more expensive house/apartment beyond its direct consumption (and financial investment) value. To test the empirical validity of the hypothesis, we have to overcome the usual difficulty of not being able to observe the intensity of status competition. Our innovation is to explore regional variations in the sex ratio for the pre-marital age cohort across China, which likely has triggered variations in the intensity of competition in the marriage market. The empirical evidence appears to support this hypothesis. We estimate that due to the status good feature of housing, a rise in the sex ratio accounts for 30-48% of the rise in real urban housing prices in China during 2003-2009

This paper develops methods for inference in structural vector autoregressions in which the structural shocks are identified using external instruments. These external instruments are taken to be correlated with the target shock (e.g., an oil instrument for an oil shock) and to be uncorrelated with other macroeconomic shocks (e.g., the oil instrument is exogenous). We focus on the possibility that the instruments might be weak, in the sense that they have a small correlation with the target shock. We provide weak-instrument asymptotic distributions for various objects of interest in structural VARs, and develop weak-instrument robust methods for inference about structural impulse response functions. In the just-identified case, our proposed confidence intervals for impulse response coefficients are asymptotically weak-instrument UMAU in a sense we make precise. In an empirical application to U.S. data, we find substantial differences between the weak- and strong-instrument confidence intervals.

We consider forecasting where there are several potential weak predictors. The researcher wants to select a model (a set of predictors), estimate the parameters, and use this for forecasting. We investigate the local asymptotic mean square prediction error (MSPE) of different forecasting schemes: in-sample(AIC), out-of-sample, and partitioning the data into subsamples for model selection and parameter estimation. We also investigate the effects of bootstrap aggregation on this local asymptotic MSPE. Without bootstrap aggregation, the in-sample scheme generally gives the best forecasts, followed by out-of-sample, with the partitioned sample doing the worst. Bootstrap aggregation does little to improve the accuracy of the in-sample scheme, but greatly assists the alternatives. With bootstrap aggregation, for many values of the localization parameter, the partitioned sample scheme gives the best forecasts, followed by out-of-sample, with the in-sample method doing the worst. The gains from the partitioned sample scheme with bootstrap aggregation seem to be greatest when the number of potential predictors is large.

We propose a new approach to imposing economic constraints on time-series forecasts of the equity premium. Economic constraints are used to modify the posterior distribu- tion of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We consider two types of constraints: Non-negative equity premia and bounds on the conditional Sharpe ratio, the latter of which incorporates time- varying volatility in the predictive regression framework. Empirically, we Â…find that economic constraints systematically reduce uncertainty about model parameters, reduce the risk of selecting a poor forecasting model, and improve both statistical and economic measures of out-of-sample forecast performance. The Sharpe ratio constraint, in particular, results in considerable economic gains.

Almost 10% of children aged 4-17 had been diagnosed with attention deficit hyperactivity disorder (ADHD) in the U.S. in 2007. While many believe that ADHD drugs are overprescribed, very little is known about the existing prescribing practices, physician learning processes, and the relative efficacies of various ADHD treatment strategies. The evidence suggests that children diagnosed with ADHD face significant uncertainty regarding efficacy and severity of adverse effects of ADHD medications. Almost half of these children switch therapies during the first six months of treatment. This suggests a considerable amount of experimentation by doctors. I extend Crawford and Shum (2005)'s model to explore the effect of treatment interruptions (drug holidays) in addition to the effects of various drug therapies. Using South Carolina Medicaid claims data for 2003-2012, I estimate a dynamic model of demand for ADHD drugs under uncertainty. In the model, highly heterogeneous patients learn about the efficacy of available treatments through experimenting. I will evaluate the effect of interruptions in treatment on the overall treatment cost and disease duration, accounting for patient heterogeneity in response to treatment for ADHD. I will explore the potential to develop better guidelines that can improve the quality of drug-patient matches and patients outcomes.

Public policy towards IVF has focused on mandating insurance coverage of the procedure, which can improve access while also reducing patientsÂ’' incentives to opt for aggressive treatment. We specify a model of individual patients' Â’choices during IVF treatment and exploit a unique dataset of individual patient histories at an IVF clinic, serving a mix of insured and uninsured patients. Using data on treatment choices and outcomes, we estimate the stochastic processes that determine patient success across stages of IVF treatment. These processes, together with specifications of patientsÂ’ preferences over children, delaying treatment, and the disutility of payments, yield a well-specified dynamic optimization problem for choices within and across IVF treatments. We estimate the patientsÂ’' preference parameters via maximum likelihood and then use the estimated model to conduct counterfactual experiments. We explore expansions of insurance coverage and restrictions on patient aggressiveness during treatment. We also simulate the impact of a constitutional personhood amendment and explore the optimality of alternative mandates.

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When markets freeze, not only are gains from trade left unrealized, but the process of information production through prices, or price discovery, is disrupted as well. Though this latter effect has received much less attention than the former, it constitutes an important source of inefficiency during times of crisis. We provide a formal model of price discovery and use it to study a government program designed explicitly to restore the process of information production in frozen markets. This program, which provided buyers with partial insurance against acquiring low-quality assets, reveals a fundamental trade-off for policymakers: while some insurance encourages buyers to bid for assets when they otherwise would not, thus promoting price discovery, too much insurance erodes the informational content of these bids, which hurts price discovery.

We study a model where some investors ("hedgers") are bad at information processing, while others ("speculators") have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators' trades more visible to hedgers. As a consequence, issuers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators and hedgers have low processing costs. But in these circumstances, forbidding hedgers' access to the market may dominate mandatory disclosure.

In the recent financial crisis and the current sovereign debt crisis, there have been large questions surrounding regulators' ability to provide capital to bail out banks. When this ability is private information for the regulator, the regulator's faces a trade-off: depositors will not run if they believe the regulator will keep their funds safe, while capital injections may encourage banks to take excessive risks. By managing information, the regulator can resolve this trade-off. First, a regulator with a low cost of injecting capital may forbear on bad banks rather than choose its preferred option of bailing them out. This signals toughness and minimizes subsequent risk taking by banks, resolving the moral hazard problem without the need to commit to a "no bailout" policy. Second, a regulator with a high cost of injecting capital may bail out bad banks rather than choose its preferred option of forbearing to increase confidence and prevent future runs. Lastly, we show that informative stress tests are more likely to be performed when regulators have capital for bailouts or when market beliefs are negative.

Is taxpayer money best spend on supporting the real or the financial sector? When the aggregate net worth of the financial sector is low, limited funding liquidity in financial markets exacerbates credit rationing and depresses real activity. The government can increase real investment by trading directly either in the market for real assets or in financial markets. However, successful interventions are always costly to the taxpayer because participation constraints of the private sector imply that the government overpays for its claims. I show that directly supporting the real sector is always more expensive than intervening in financial markets. Providing financing to financial institutions because it optimally shares downside risk between the public and the private sector.

TBA

This paper is joint with George Bulman (UCSC) and Jonathan Meer (Texas A&M) Teach for American (TFA) teachers are inexperienced but drawn from highly selective colleges. The latter quality makes them extremely unusual at the schools in which they teach. At these schools, which serve disadvantaged students, fewer than 1 percent of the other teachers attended similarly selective colleges. We estimate the effect of potential exposure to a TFA teacher using within-school (first) differences. These estimates are confirmed by differences-in-differences estimates where control schools are identified using propensity score methods. We find that TFA teachers have statistically significant, positive intent-to-treat effects on students' preparation for the application process (taking the SAT, taking AP exams, etc.), on the selectivity of the colleges to which students apply, and on students' enrolling in four-year colleges. In terms of effect sizes, TFA teachers' largest effects are on students' enrolling in selective colleges. The results suggest that TFA teachers play a unique role in their schools, informing students about and preparing them for America's most resource-rich postsecondary institutions. This is important because other evidence suggests that low-income students fail to appreciate the full range of their college-going opportunities.

TBA

This paper analyzes an explicit protocol of contract negotiation between a principal who has all the bargaining power and an agent with a privately known type, and provides a foundation for renegotiation-proof contracts in such environments. The model extends the framework of theCoase conjecture to situations in which the seller and the buyer must determine the quantity or the quality of the good being sold. All equilibria converge to the same type-specific contracts as renegotiation frictions become negligible. Those contracts are efficient and the principal extractsa strictly positive share of the gain from negotiation.

We analyze the welfare consequences of a monopolist having additional information about consumersÂ’tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination". We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as proÂ…ts under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market.

This paper proposes a way to enrich traditional game theory via an element of bounded rationality. It builds on previous work by the author in the context of one-agent decision problems, but extends it to several players and a defines a "sparse Nash equilibrium", which is a generalization of Nash equilibrium. Each decision maker builds a simplified representation of the world, which includes only a partial understanding of the equilibrium play of the other agents. The agents' desire for simplicity is modeled as "sparsity" in a tractable manner. The paper formulates the model in the concept of one-shot games. It applies the model to a variety of exemplary games: p-beauty contests, matching pennies and traveler's dilemma. The model's predictions are congruent with salient facts of the experimental evidence. Compared to previous successful proposals (e.g., models with different levels of thinking or noisy decision making), the model is particularly tractable and yields simple closed forms where none were available. A sparsity-based approach gives a portable and parsimonious way to inject bounded rationality into models with strategic agents.

Game-theoretic solution concepts rely on strong assumptions regarding players' knowledge of each other's rationality and chosen actions. Evidence suggests that people possess (or believe that others possess) ``limited depths of rationality''. We study the implementation problem under complete information while assuming that players are at least 1-rational and at most k-rational. A k-rational player believes that others are (k-1)-rational, and plays a best response to some ``consistent'' conjecture. For all k≥1, we characterize the set of social choice functions (SCFs) that are implementable under at most k-rationality when there are at least three players. Our results show that implementation is sensitive to the players' depths of rationality. However, the set of implementable SCFs does not vary with the upper bound of k on players' rationality as long as k>1. We show that only trivial SCFs are implementable in some environments if players can exhibit any depth of rationality in addition to 1-rationality. In contrast, a larger class of SCFs is implementable if rationality is at least mutual knowledge (i.e., players are at least 2-rational).

We develop an industry dynamics model with labor market frictions and use it to study the sharp drop in matching efficiency around the Great Recession. We argue that the tightening of financial constraints cut down dramatically recruitment effort in young firms, those most responsible for job creation. We quantify how important this channel is in explaining the shift in the Beveridge curve around 2008-2009. We also show that aggregate TFP shocks have less of an impact on matching efficiency relative to financial shocks because the latter hit disproportionately young firms, while the former are more neutral across firms.

The last three recessions in the United States were followed by jobless recoveries: while labor productivity recovered, unemployment remained high. In this paper we propose and quantitatively confirm a new explanation for this fact, which links the unprecedented generosity of unemployment benefit extensions in the post-1990 recessions to the emergence of jobless recoveries. We construct and calibrate an equilibrium search model that incorporates the observed countercyclical extensions of unemployment benefits enacted in the US. In the model, an extension of unemployment benefits raises the outside option of unemployed workers in wage bargaining, thereby reducing firm profits from hiring and slowing down the recovery of vacancy creation in the aftermath of a recession. We find that the calibrated model incorporating time-varying unemployment benefit extensions is consistent with the observed dynamics of unemployment, in particular the facts that recoveries were not jobless prior to 1990 and became jobless thereafter.

In the US economy most of the structural transformation from manufacturing to services occur in recessions. Typically recessions start with a contraction in manufacturing employment followed by an increase in service employment. This pattern has changed in recent recessions in the US. The correlation of manufacturing employment and services employment has increased particularly so in recessions and in US states where households are highly indebted. We argue that this might indicate the existence of an externality from manufacturing employment to services employment. Manufacturing goods are tradable and their demand is determined internationally, services are typically non tradable and their demand is determined locally. So the destruction of jobs in manufacturing leads to fall in the disposable income of households that, in the presence of a financial constraint, force households to contract their demand for services. This leads to job destruction in manufacturing without job creation of jobs in services. We provide several pieces of evidence consistent with this mechanism.

In the past three recessions, two major features of the business cycle have changed. First, employment now lags output growth, leading to jobless recov- eries. Second, average labor productivity (ALP) has become acyclical or even countercyclical. This paper proposes a joint explanation for both facts. I develop a quantitative model in which …rms streamline and restructure during recessions. The model captures the idea that …rms grow "fat" during booms but then quickly "restructure" during recessions by laying o¤ their unproductive workers. Firms then enter the recovery with a greater ability to meet expanding demand without hiring additional workers. This model explains 55% of the decline in the procycli- cality of ALP observed in the data and generates a 4 quarters long jobless recovery after the Great Recession.

Democracies around the world are making promises to the old at the expense of future generations. I interpret this as reflecting low altruism-a discount rate on children's utility greater than the world interest rate-and I examine the implications in a small open economy with overlapping generations. A focus is on the public sector: The model includes public capital in production and public education as determinant of human capital. I examine to what extent both are crowded out by spending on debt and retiree entitlements. In the model, altruism towards children determines bequests, government debt, and the time-path of consumption. Altruism towards parents influences incentives to default. If altruism is low, voters demand fiscal policies that extract substantial resources from future generations. Public debt rises until debt service requires maximum taxes forever, and an era of austerity ensues: investment in human capital declines to a lower bound, and reduced human capital discourages investment in private and public capital. The threat of default enters as a constraint that may protect future generations.

The paper studies the potential for self-fulfilling crises in which high yields on sovereign bonds lead to faster debt accumulation and thus to a higher probability of default in the future. The focus is on economies with relatively long debt maturity, for which the problem is not a self-fulfilling run a la Cole-Kehoe, but the anticipation of a slow and steady increase in debt-to-GDP. A crisis in our model is an episode in which yields jump but the government is still able to access capital markets for a while. We assume the dynamics of the government primary deficit follows a simple fiscal rule, we characterize the region of multiplicity for initial debt levels and study how the responsiveness of the fiscal rule affects the region of multiplicity.

Infrequent but dramatic episodes of outright default on domestic sovereign debt are an important historical fact that remains unexplained. We propose an incomplete-markets, heterogeneous-agents model in which domestic default can be optimal for a utilitarian government that responds to distributional incentives. The government finances the gap between stochastic expenditures and lump-sum taxes by issuing non–state-contingent debt, but it retains the option to default. The distribution of public debt across private agents is endogenous and interacts with the government's optimal default, debt issuance and tax decisions. Repaying is beneficial because it allows the government to access the debt market and provides a mechanism for households to self insure and smooth consumption, but it also increases the need for future tax revenues. Default is optimal when repaying hurts relatively poor agents more than defaulting hurts relatively rich agents, and this occurs along an equilibrium path when public debt is high enough and its ownership is sufficiently concentrated. Unlike standard models of external sovereign default, the model supports realistic debt-output ratios on average (40%) and before default (60%) at a nontrivial default frequency (8%).

Each year approximately 10 million high school seniors compete for 6 million seats at various universities in China through a centralized admission system. Within the last decade many provinces in China have transitioned from a `sequential' mechanism to various `parallel' mechanisms. We characterize the Chinese system as one rooted in a parametric family of application-rejection assignment mechanisms, which nest the familiar Boston and Deferred Acceptance (DA) mechanisms as special cases, and span the parallel mechanisms for Chinese college admissions and school choice. Moving from one extreme member toward the other results in systematic changes in incentives and stability properties. We show that the parallel mechanisms are more stable and less manipulable than their sequential predecessor. Furthermore, the parallel mechanisms can also alleviate the pressure families face under the sequential mechanism by keeping more desirable options within their reach without jeopardizing priority at their safety colleges. In the laboratory, participants are most likely to reveal their preferences truthfully under the DA mechanism, followed by the parallel and then the sequential mechanisms. Furthermore, while the DA is significantly more stable than the parallel mechanism, which is more stable than sequential, efficiency comparisons vary across environments.

We experimentally investigate how individuals respond to an opportunity to change their actual Massachusetts organ donor registration status. Many unregistered individuals join the registry (29%) while almost all registered individuals remain (99%). How individuals are asked impacts the decision. Contrary to a popular hypothesis, a "mandated choice" frame that forces individuals to choose either yes or no does not increase registration rates over an "opt-in" frame in which people check a box to register and leave it blank not to register. A second experiment suggests that "mandated choice" might also discourage next-of-kin from donating the organs of unregistered deceased relatives.

We explore the performance of multi-round, price-guided combinatorial auctions for a previously untested class of auction profiles; one with synergies resulting from shared fixed costs. These new profiles indicate the importance of prior information (in the form of bidders' "names") in influencing auction efficiency. The experiments also reveal a new and surprising finding about aggressive bidding tactics by local bidders who bid on valueless items driving up their prices, thereby mitigating the "threshold" problem. Comparisons between a combinatorial clock auction (CCA) and a simultaneous ascending auction (SAA) are reported.

Following the successful PCS Auction conducted by the US Federal Communications Commission in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The PCS spectrum was sold via a simultaneous multi-round auction, which forces bidders to compete for licenses individually even though they typically value certain combinations. This exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Recently, a number of countries worldwide have switched to the combinatorial clock auction to sell spectrum. This two-stage auction uses a core-selecting payment rule. The number of possible packages a bidder can submit grows exponentially with the number of licenses, which adds complexity to the auction. For larger auctions with dozens of licenses bidders cannot be expected to reveal all their valuations during such an auction. We analyze the impact of two main design choices on efficiency and revenue: simple ``compact'' bid languages versus complex ``fully expressive'' bid languages and simple ``pay-as-bid'' payment rules versus complex ``core-selecting'' payment rules. We consider these design choices both for ascending and sealed-bid formats. We find that simplicity of the bid language has a substantial positive impact on the auction's efficiency and simplicity of the payment rule has as a substantial positive impact on the auction's revenue. The currently popular combinatorial clock auction, which uses a complex bid language and payment rule, scores worst on both dimensions.

We investigate the role of physician agency and competition in determining health care supply and patient outcomes. A 2005 change to Medicare fees had a large, negative impact on physician profit margins for providing chemotherapy treatment. In response to these cuts, physicians increased their provision of chemotherapy and changed the mix of chemotherapy drugs they administered. The increase in treatment improved patient survival. These changes were larger in states that experienced larger decreases in physician profit margins. Finally while physician response was larger in more competitive markets, survival improvements were larger in less competitive markets.

This paper demonstrates health insurers' incentives to design benefits that differentially appeal to profitable enrollees and deter unprofitable enrollees in Medicare Part D. A system of diagnosis-specific payments was meant to neutralize insurer benefit design incentives by paying insurers more for the sick than for the healthy. These diagnosis-specific payments were held steady even as treatment costs for diagnoses rose or fell with the entry of new drugs or the onset of generic competition. As a result, some diagnoses were clearly profitable for insurers, while others were clearly unprofitable. I show that Part D insurers covered drugs that treat the profitable at higher rates and lower copayments than drugs that treat the unprofitable.

Nearly 15 million Medicare recipients are currently enrolled in private Medicare Advantage (MA) plans. Many previous studies have estimated the impact of MA enrollment - relative to traditional fee-for-service Medicare - on program expenditures, quality of care, and health outcomes. Surprisingly little work has explored how these effects vary with the generosity of plan reimbursement. In this study, we aim to fill this gap by exploiting a substantial policy-induced increase in the reimbursement of MA plans in MSAs with a population of 250 thousand or more relative to MSAs just below this threshold. Our findings demonstrate that the additional reimbursement leads more plans to enter these markets and to an increase in MA enrollment. However, our findings suggest that less than one-third of the additional reimbursement is passed through to consumers in the form of better coverage. Our results further suggest that this incomplete pass-through is not primarily driven by selection and instead suggest that imperfect competition in the market for MA plans plays a key role. Our results have implications for a key feature of the Affordable Care Act that will reimbursement to MA plans by $92 billion from 2014 to 2019.

We analyze Medicare's influence on private payments for physicians' services. Using a large administrative change in payments for surgical procedures relative to other medical services, we find that private payments follow Medicare's lead. On average, a $1 change in Medicare's relative payments results in a $1.30 change in private payments. We find that Medicare similarly moves the level of private payments when it alters fees across the board. Medicare thus strongly influences both relative valuations and aggregate expenditures on physicians' services. We show further that Medicare's price transmission is strongest in markets with large numbers of physicians and low provider consolidation. Transaction and bargaining costs may lead the development of payment systems to suffer from a classic coordination problem. By extension, improvements in Medicare's payment models may have the qualities of public goods.

A.C. Pigou developed the first systematic theory of market failure in the English language. Wealth and Welfare (1912), the basis of welfare economics, was forged in the contentious British tariff reform controversy of 1903-1906. Pigou's role in the controversy is not without irony. The origins of Wealth and Welfare lie in Pigou's vigorous defense of free trade against a campaign designed to show that British free enterprise was vulnerable to perilous failures. Our analysis takes the form of a drama in three acts. The action begins in May 1903, when Joseph Chamberlain challenged the benefits of free trade for the British Empire. Recruited as Chamberlain's chief publicist, W.A.S. Hewins, Director of the LSE, anonymously contributed some sixteen articles to The Times in 1903, extolling the virtues of Chamberlain's tariff reform proposals. A master of sophistry, Hewins deployed an array of seemingly impressive polemics calculated to persuade readers that without Chamberlain's tariffs, the economic structure of the Empire would collapse. Act II begins with the "Economists' Manifesto," a letter to The Times opposing Chamberlain's proposals and Hewins's articles and signed by thirteen eminent economists as well as Pigou, then only twenty-six. The Manifesto was a dismal public failure. Pilloried in a deluge of letters and editorials, many correspondents charged its authors with abusing their status as academic experts for political purposes. In Act III, Pigou intervenes independently, reconfiguring the controversy as a debate over economic policy and its proper mode of analysis. Developing arguments that he regarded as indispensable to understand the controversy, he explored the consequences of tariffs by examining their impact on the size, distribution, and stability of the national dividend-the analytical strategy he generalized in Wealth and Welfare shortly thereafter.

A substantial and diverse literature in economics traces its intellectual roots to Charles Tiebout's 1956 article, "The Pure Theory of Local Expenditure." Its present recognition, frequently attributed to originating the idea of "voting with your feet," however, contrasts sharply with its obscurity during Tiebout's academic career, which was tragically cut short by his passing in 1968. Penned as a qualification to Paul Samuelson's "pure theory," the article failed to influence the stabilization of postwar public good theory, despite Tiebout's engagement with key figures in its construction. Moreover, his death preceded the application of its central mechanism to public, urban, and environmental topics via hedonic, sorting, and computational general equilibrium models. Viewed in this way, the history of Tiebout's article, and thereby the history of public economics, has remarkably little to do with Tiebout himself. Professionally, though, the article reflected Tiebout's lifelong interest in issues of local economies and governance. The social and political context of urban sprawl and political fragmentation that accompanied the rapid growth of metropolitan areas, such as Chicago, Los Angeles, and Seattle, raised novel questions in local public finance for researchers before a knowledge community existed to credit their work. For Tiebout, it stimulated his collaboration with Vincent Ostrom and Robert Warren and later involvement in the burgeoning interdisciplinary field of regional science.

The most significant redirection in modern public economics was the development of Public Choice Analysis. Public choice changed everything because it changed the language and the lineage used to discuss the role of government in the economy. In doing so, Public Choice changed the way public economics - broadly conceived - is taught and practiced. The core of public economics traditionally addresses two situations of market failure: public goods and externalities. The desirability of government action in these cases hinges on decisions made in the revenue-expenditure process. How this process is envisioned can tell us quite a lot about conceptions and understandings of market failure. Reaching back nearly a century to the European continental public finance tradition, Public Choice scholars revived Voluntary Exchange Theory as a response to market failure. This theory suggests that the revenue-expenditure process should be determined by the same fundamental laws and procedures that govern market prices in the private aspects of the economy. Voluntary exchange became an ideological anchor for Public Choice, despite the oddity of suggesting a market-analogous solution for market failure. In this paper, I examine the treatment of Voluntary Exchange Theory in Public Choice, as compared to mainstream public economics. Considered are Voluntary Exchange as a theory versus an analogy, the role beliefs about the nature and role of government have on theory-making and theory acceptance, and reactions to failures/inconsistencies/gaps pointed out in voluntary exchange theory conceptions (real or claimed). By exploring these topics, we can see the extent to which the debate over voluntary exchange theory illuminates deeply held and often buried ideological assumptions. One can also see that the nature and extent of market failure in public economics is, on a fundamental level, very closely tied to preconceptions about the economic role of government.

"My central thesis is that economists exert a minor and scarcely detectable influence on the societies in which they live. The thesis should of course be tested, and the historians of economics are the most qualified to undertake the tests." George J. Stigler, "Do Economists Matter?" Southern Economics Journal, January 1976 George Stigler suggested four test cases of economists' influence on policy: repeal of the Corn Laws in 1846, adoption of full employment policies in the mid-twentieth century, progressive income taxes, and various public regulatory policies. Among the latter were environmental regulations. Stigler's hunch was that when the public becomes concerned about pollution, economists then discover that there are external diseconomies in the production process. He suggested that "problems" conceived outside the community of economists are dressed up by economists in the language of economic theory. As he put his conclusion a few years later in the Tanner Lectures on Human Values: "The main lesson I draw from our experience as preachers is that we are well received in the measure that we preach what the society wishes to hear." My paper follows Stigler's suggestion by examining economics textbooks for the authors' explanations of what market failure is and their examples of environmental market failures. I compare their attention to environmental market failure with that given to non-environmental market failure such as monopoly and inequitable income distribution. To investigate Stigler's hypothesis, I set textbook treatment of environmental market failure against the background of the contemporaneous popular scientific and political opinion, represented by newspaper editorials, political platforms, and legislative and regulatory initiatives.

Health care providers and insurers often engage in contracts specifying coverage, prices, and admitting procedures. In competitive markets, the prospect of preferential contracting terms may provide incentives for lower prices; in the absence of competition, these contracts may cause vertical foreclosure. We estimate the effect of restrictive contracts imposed by Geisinger Medical Center, a physician-led health care system, on the Medicare Advantage (MA) market. In 2011, Geisinger stopped accepting patients from MA plans other than its own provider-sponsored plan. We use public CMS data from 2010 to 2012 and the Pennsylvania Health Care Cost Containment Council (PHC4) state inpatient discharge dataset. We estimate market share logit models as a function of MA plans' premiums, benefits, and restrictive contracts. The unit of analysis was the plan-county over time. The key independent variables were two indicators: one for the effect of restrictive contracts on the market shares of all plans in counties where Geisenger's MA plan operated; and the second for the incremental effect of such contracts on Geisenger's MA plan market share in those counties. Restrictive contracts statistically significantly reduce competitors' market shares. They do not seem to affect Geisenger's market share. Enrollees leaving other plans opt to return to FFS Medicare or may switch to MA plans that do not offer drug coverage. Consumers may be worse off when integrated plan-providers implement restrictive contracts. Competitors lose market share, consistent with the claim that the contracts lessen the value of competing plans by reducing access to valued providers. The loss of market share is unlikely due to increased quality in the Geisenger plan. A conservative estimate of the consumer surplus loss for enrollees in competing plans is $14.33 per month.

Medicare Part D contains a "donut hole" that may affect consumer behavior. While standard plan enrollees are reimbursed most of their cost of drug expenditures for annual expenses between $100 and $2700, they face a donut hole in which they pay 100% of the drug's cost when their accrued expenditures are between $2,700 and $6,154. Critics of Part D point to the possibility that enrollees may reduce consumption of medicines while they are in the donut hole with adverse consequences for health. We investigate effects of the donut hole using detailed 2008 claims data from a pharmaceutical benefit company that allows us to separate patient claims by therapeutic class, and branded versus generic drugs. Importantly, by identifying the amount of claims that are occurring within one year, we can also identify when people enter the donut hole. We propose to use a regression-discontinuity design to analyze the extent to which people on different sides of the donut hole consume different amounts of prescription drugs. We first examine whether people near but on the left side of the donut hole at the end of December spend on drugs relative to people near but on the right side of the donut hole at this point. We also seek to evaluate whether people curtail their spending in the month at which they hit the donut hole. We further evaluate whether people realize that they may hit the donut hole in December – as they would if they were rational dynamic agents with information about expected health status – by investigating the extent to which people on different sides of the donut hole in December spend less in other months. Finally, we separate these regressions by therapeutic class and branded versus generic spending, to evaluate the extent to which there is substitution along these dimensions.

The Oregon Health Insurance Experiment uses a randomized, controlled study design to evaluate the impact of expanding Medicaid. Here we evaluate the effect of Medicaid on clinical care and outcomes. We find that Medicaid coverage increased the use of health care services, including preventive care; lowered rates of depression; and nearly eliminated catastrophic out of pocket medical expenditures. We find no statistically significant effect of Medicaid on the prevalence, diagnosis, or medication of hypertension or high cholesterol. Medicaid coverage significantly increased the diagnosis of diabetes and use of diabetes medication, but we observe no significant effect on glycated hemoglobin levels or the prevalence of diabetes.

We develop a model of selection that incorporates a key element of recent health reforms: an individual mandate. We identify a set of key parameters for welfare analysis, allowing us to model the welfare impact of the actual policy as well as to estimate the socially optimal penalty level. Using data from Massachusetts, we estimate the key parameters of the model. We compare health insurance coverage, premiums, and insurer average health claim expenditures between Massachusetts and other states in the periods before and after the passage of Massachusetts health reform. In the individual market for health insurance, we find that premiums and average costs decreased significantly in response to the individual mandate; consistent with an initially adversely selected insurance market. We are also able to recover an estimated willingness-to-pay for health insurance. Combining demand and cost estimates as sufficient statistics for welfare analysis, we find an annual welfare gain of $335 dollars per person or $71 million annually in Massachusetts as a result of the reduction in adverse selection. We also find evidence for smaller post-reform markups in the individual market, which increased welfare by another $107 dollars per person per year and about $23 million per year overall. To put this in perspective, the total welfare gains were 8.4% of medical expenditures paid by insurers. Our model and empirical estimates suggest an optimal mandate penalty of $2,190. A penalty of this magnitude would increase health insurance to near universal levels. Our estimated optimal penalty is higher than the individual mandate penalty adopted in Massachusetts but close to the penalty implemented under the ACA.

Using firm-level survey data for the West German manufacturing sector, this paper revisits the technology-driven business cycle hypothesis for the case of aggregate investment. We construct a survey-based measure of technology shocks to gauge their contribution to short-run investment fluctuations. We estimate an upper bound for the contribution of technology shocks to the variance of the aggregate investment growth rate of 19 percent. The larger part of fluctuations in aggregate investment can be attributed to finance and demand shocks, which we also extract from the survey data.

We resurrect the question if improved business practices contributed to increased macroeconomic stability since the 1980s -- the Great Moderation. While previous studies on the issue are limited to examining inventory management, we analyse the role of better supply chain management on enhancing firms' ability to coordinate their production. By investigating ordering and backordering behavior in the durables manufacturing sector, we find that the improved business practices have significantly dampened order volatility to the sector (the `bullwhip effect'), by around 40-50%. Using the stylized fact that the durables manufacturing sector is responsible for half of the overall Great Moderation, we determine that the contribution of better business practices is quantitatively significant, at 20-25% of the overall Great Moderation.

This paper develops an analytically tractable Bewley model of money featuring capital and …nancial intermediation. It is shown that when money is a vital form of liquidity to meet uncertain consumption needs, the welfare costs of in‡ation can be extremely large. With log utility and parameter values that best match both the aggregate money demand curve suggested by Lucas (2000) and the variance of household consumption, agents in our model are willing to reduce consumption by 7%  10% (or more) to avoid 10% annual in‡ation. In other words, raising the U.S. in‡ation target from 2% to 3% amounts to roughly a 0:5 percentage reduction in aggregate consumption. The astonishingly large welfare costs of in‡ation arise because in‡ation tightens liquidity constraints by destroying the bu¤er-stock value of money, thus raising the volatility of consumption at the household level. Such an in‡ation-induced increase in the idiosyncratic consumption-volatility at the micro level cannot be captured by representative- agent models or the Bailey triangle. Although the development of a credit and banking system can reduce the welfare costs of in‡ation by alleviating liquidity constraints, with realistic credit limits the cost of moderate in‡ation still remains several times larger than estimations based on the Bailey triangle. Our …nding not only provides a justi…cation for adopting a low in‡ation target by central banks, but also o¤ers a plausible explanation for the robust positive relationship between in‡ation and social unrest in developing countries where money is the major form of household …nancial wealth.

I explore the role of the Just-in-Time (JIT) inventory system in the increase of cash holdings among U.S. manufacturing firms. I first demonstrate the empirical importance of JIT in shaping cash policy. I then develop a model to analyze the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for over half of the observed increase in cash.

This paper evaluates universities responses to changes in R&D funding levels with respect to graduate student funding patterns and enrollments, and investigates whether students funding mechanisms (for example, whether they were primarily supported as teaching assistants, research assistants, on fellowships, etc.) influence their decision whether to remain in the U.S. scientific workforce after graduation. Our analysis employs newly available statistical code to implement an alternative ( special regressor ) method for econometric estimation, which allows us to control for potential bias due to unobservable characteristics of students that may influence both their primary funding mechanism in graduate school and their ultimate career goals.

Every biomedical PhD must make a choice about whether or not to enter a postdoc, a choice believed to dramatically change the subsequent course of their careers. However, there has been limited research on how careers are actually affected. This research uses data on biomedical PhDs from the 1981-2008 waves of NSF s longitudinal biennial Survey of Doctorate Recipients (SDR) to examine the causal effect of the postdoc on subsequent biomedical careers. OLS results show that ceteris paribus, those who held biomedical postdocs are more likely to be conducting research 10 years past PhD. However, only 27% of people who started in biomedical postdocs are in a tenure track job at the 10 year point compared to 12% of those who did not start in a postdoc. Starting in a postdoc also makes you more likely to be conducting research in non-tenure track academia as well (one of the lowest paying sectors), balanced by being less likely to be in industry and teaching. One large downside of postdocs is that people who start in postdocs get lower salaries than those who bypassed postdocs controlling for years post-PhD, field, cohort, family characteristics and prestige of PhD university and other variables. Although these correlations are suggestive, selection may bias our results since those who enter postdocs are different than those who bypass. Therefore, we use characteristics of graduate students at the time of the PhD and other variables capturing the alternative demand for PhD in biomedicine as instruments for starting in a postdoc in order to isolate the causal impact of postdocs. Instrumenting to solve the selection problem, we find that those who started in postdocs either get equal or lower salaries to similar people who did not start in a postdoc, suggesting that PhD recipients in biomedicine are not obtaining additional human capital from postdocs useful outside academic tenure-track research.

Using population survey data on students completing PhDs in biomedical sciences and related fields, 2001-2010, we investigate how students’ primary source of financial support during graduate training impacts their cumulative debt load and early career employment choices. Overall, students acquiring more than $50,000 in graduate school debt are less likely to take jobs in scientific research. However, despite their significantly higher debt loads, underrepresented minorities are no less likely to take research jobs, and they are more likely to work for public sector employers than their non-minority peers. Finally, women more often remain involuntarily unemployed at completion of their PhDs.

The Sources of Change in Right-to-Work Laws "During the past several years there have been a number of attempts to modify state standards concerning union security agreements. Some of these attempts have succeeded while others have failed. This paper examines legislative changes to right-to-work laws in historical context. The author finds that the union security issue was primarily a local issue in the 19th century, became a national one in the early 20th century, and is today a largely partisan one.

The Effect of Differences in Prevailing Wage Methodologies on the Outcomes of Prevailing Wage Laws: On November 13, 2013, Mr. Alex L. Rosaen, Senior Consultant for the Anderson Economic Group (AEG) released a report estimating that Michigan would save $225 million per year or $2.25 billion over ten years in K-12 and higher education capital outlays by repealing the state prevailing wage law. This paper shows why Mr. Rosean’s assumptions are wrong and worse, his method is inappropriate for the task he has set himself. This paper also briefly reviews other research using alternative empirical methods and coming to markedly different conclusions.

Current debates over state prevailing wage laws focus on their effect on construction costs and the racial composition of the construction workforce. This research visits both issues. We examine the effect of prevailing wage laws on the costs of school nationwide and low income housing in California. We find limited evidence that prevailing wage laws affect the latter, but no evidence that schools built in states which require prevailing wages on school are more expensive than schools built in states which do not require payment of prevailing wages. Our research on the effect of state prevailing wage laws on the racial composition of the construction labor force

This study investigates the effects of workplace norms on female labor supply and childbirth in Japan. Japanese female workers tend to be unable to continue working after marriage and childbirth in spite of the introduction of various WLB systems, and around 60-70% of females do not have a job after having their first baby. We examined the correlation between access to various WLB systems, and female labor supply and childbirth. This is based on the concept of Social Norms and Identity Utility defined by Akerlof and Kranton (2010). We attempt to add our utility model to social norms. These social norms mean the availability of using the WLB systems in their firms. The evaluation of this model depends on social norms, but not individual preference and availability. If we work in an environment where we can easily access the WLB system, individual identity of workers and their behavior can be in harmony. As a result, Identity Utility can be increased. This study uses panel data of Japanese government statistics collected between 2002 and 2010, with a sample size of over 10,000. The main results of our study are as follows: 1) Housework time has a positive effect on access to the childcare leave system, while working hours has a negative effect. The sign about housework time shows opposite against theoretical hypothesis. 2) Employment status and working hours are the primary determinants of access to WLB systems. The positive correlation between accessibility to WLB systems and childbirth rate indicates that a clear relationship exists between the two. 3) In terms of the Bivariate Probit Model, accessibility to WLB systems has the greatest effect on continuation of work. This study implies the potential difficulty of using WLB systems within Japanese firms. If WLB systems are easy to access, female workers are better able to keep working. Additionally, further social security systems need to be applied to part-time workers and temporary workers in Japan.

In 2006, Quebec enacted a landmark reform to paid parental leave that greatly improved the generosity of entitlements and established a father's non-transferable right to paid leave. Using data from the Employment Insurance Coverage Survey and employing a difference-in-differences setup, I find that the reform was associated with a striking rise in fathers participation: an increase of 59 percentage points in the probability of a father receiving parental leave benefits. Further, there is evidence of an intra-household flypaper eect via the labeling of leave as 'daddy-only', i.e., the allocation of leave within a household appears to be influenced by the framing of legal rights even when they do not bind. In the case of mothers, the reform was associated with an increase of 14 percentage points in claim rates. The duration of the average maternity leave increased by over half a month under the new program. I find no change in mothers exit rates from the labor market on average but do find the reform to be associated with an increase in the probability of returning to the pre-birth employer, especially for first-time mothers.

The decision to enter the labor force for mothers is based on a variety of factors that includes characteristics of spouses. Husband s work schedules, work hours, and flexibility of work time play an important role in this decision to enter the labor force, and additionally, in the decision to work part-time or a set number of hours. The timing of husband s work is especially important for mothers because of time constraints imposed by schools and day care, and the desire to spend time with children. This paper uses detailed time-dairy and work schedules data to investigate the relationship between husband s work schedules and maternal employment. The results show married women with children are less likely to participate in the labor force when their husbands finish work after 6:00pm when compared to husbands that finish work before 6:00pm, even while controlling for simultaneous relationship between husband s work stopping time and wife s labor force participation. These results also hold while controlling for husband s work hours, the start of the work day, work place flexibility and working from home. The results found suggest that day care and after school care timing has a large impact on the employment of women with children.

This paper investigates the potential impact of the Dodd-Frank Bill on rectifying predatory lending practices, practices that have had a pernicious impact on minority communities. The Dodd-Frank Wall Street Reform and Consumer Protection Act, the most significant financial reform since the Great Depression, was passed into law in July 2010. As a part of Dodd-Frank, the Consumer Financial Protection Bureau (CFPB) was created to provide "a single point of accountability to assure that markets for consumer financial products work for American consumers...", and it officially opened for business on July 21, 2011. But what has happened to curtail abusive mortgage lending practices since the creation of the CFPB? Have any of the amendments in Dodd-Frank been implemented; or is it a case of business as usual? If provisions have been implemented, are they effective? This paper will assess the provisions in the ACT designed to end abusive lending practices and will evaluate actions taken post-Dodd Frank to determine if the law has had any significant impact on reducing predatory mortgage lending practices that have adversely affected minority communities.

Minority-owned businesses are sometimes deemed to be significantly impacted by economic or investment "hold-up" issues. In some instances, there may be politically related inefficiencies in contracting opportunities that may serve to stymie the growth of minority business enterprises. This paper examines hold-up problems associated with tribally-owned casino investments. The gross receipts from gaming on Indian reservations are over $25 billion dollars and the industry employees over 600,000 Indians and non-Indians. While these benefits are concentrated among a relatively small number of tribes it is nevertheless an important source of capital and employment on many otherwise very poor reservations. Gaming is regulated by states and tribes have compacts with states that allow them to undertake casino style gambling. However US courts have ruled that states can't be forced to negotiate with tribes because of a state's sovereign immunity. Thus tribes face a hold-up problem since they have to make investments in casinos although many of the gaming contracts are of limited duration. Their right to run a casino could be taken away or the amount of revenue that must be shared with the state could increase when the gaming compacts are renewed. This paper reviews the correlation between the level of investment in casinos and the terms of gaming contracts.

Business entrepreneurship has an important role to play in improving the socio-economic well-being of African-American families and communities. At its best, entrepreneurship is associated with innovation, productivity, economic growth and higher living standards for entrepreneurs and the communities they serve. There exists ample evidence that significant propensity for entrepreneurship exists in African-American communities. Indeed, the most recent available US Economic Census reported a 60.5% increase in the total number of African-American businesses, higher than the 43.7% increase for all minority-owned business and substantially higher than the 17.9% increase for all US businesses. This paper will (1) review evidence that African-American businesses suffer adversely from unequal access to capital market, (2) examine the industrial mix of African-American businesses and (3) discuss the resulting implications for the development of African-American owned businesses, especially regarding prospects for providing employment and economic growth. The paper analyses the participation of African-American owned businesses in key industries as well as the implications of industry mix on revenue generation and hiring potential. Also, the paper explores the role of adverse capital constraints on the industry mix profile of African-American owned businesses. Finally, the paper includes recommendations regarding the findings on industry mix in African-American businesses.

Why are there not more scalable business firms and employment opportunities located within black communities? If development opportunities exist in the black community, in their states and regions and in the nation as a whole, why are there not more African American-owned firms which are community stabilizers, and reliable employment growth engines? Given a difficult African American history, the finance literature has developed no conceptual platform for addressing a range of these continuously perplexing questions. The purpose of this paper is to begin to conceptualize a model wherein a financial approach might contribute to a sustained policy set to address these issues. We develop a model wherein matched pairs of identical firms experience two sets of circumstances. Initially two identical firms in any matched pair face the same operating conditions and their risk and reward structures are not differentiated. Operating outcomes are identically rewarded in financial markets. In a later period, we introduce a costly and recurrent risk event that may befall one or more matched pairs of firms. When that risk is realized, its costs fall only on one firm in each matched pair. Now insurance and finance costs become prohibitively high or dry up. Some firms become higher cost, and are thereafter unable to be competitive. With persistence distinctly different outcomes feed heuristic behaviors. From this we attempt to extract policy implications.

2014 John R. Commons Award Lecture -- Sponsored by Omicron Delta Epsilon

Empirical Evidence on the Link between Terrorism and Fertility

Food Insecurity in Vulnerable Populations: Coping with food price shocks in Afghanistan

Aiding Conflict:The Effects of US Food Aid on Civil War

Voting for Weapons

We study the effect of state-level merit aid programs (such as Georgia's HOPE scholarship) on alcohol consumption among college students. Such programs have the potential to affect drinking by (1) raising students' disposable income and (2) increasing the incentive to maintain a minimum GPA in college (in order to retain the scholarship). Using two independent datasets, we find that the presence of a merit aid program in one's state leads to an overall increase in drinking among men but not among women. This increase is concentrated among individuals who are above the minimum GPA threshold necessary for the scholarship; individuals who are below the threshold GPA experience no increase in their alcohol use. Our identification strategy is supported by the finding that no change in drinking is observed for non-students in states that adopt merit-aid programs.

Previous research has found that expansions in Medicaid eligibility reduce the chance that intended recipients, including pregnant women, go uninsured, but at the cost of substantial crowd-out of private insurance. Although there is a considerable literature documenting the extent of crowd-out of private insurance, almost no research has examined the mechanism by which this crowd-out occurs. This study tests the hypothesis that crowd-out occurs because availability of public insurance through Medicaid alters individuals' employment decisions since healthcare coverage is no longer tied to labor force participation. This change in employment decisions is likely especially in cases where labor force attachment is relatively weak, as it is among women about to become new mothers. Accordingly, this study examines the effect of Medicaid eligibility expansions on the labor supply of pregnant women, a group for whom Medicaid eligibility expansions in the past 20 years have been substantial. Labor force outcomes for women who have given birth in the past year in the Current Population Survey Annual Demographic File are matched with Medicaid eligibility measures by state and year spanning the years 1985 through 1996, the period that witnessed the largest expansions in Medicaid eligibility for pregnant women. The eligibility measure is based on a national random sample of women 18-39 years of age drawn from the 1989-1997 Current Population Survey (CPS). For several demographic groups classified by age and race, we calculated the proportion of each group that was eligible for Medicaid coverage during pregnancy for each state and year based on that state's eligibility rules. Variation in the eligibility instrument reflects only changes in Medicaid eligibility policies. Controlling for confounding trends, results based on state fixed-effects models indicate that pregnant women's labor supply is quite sensitive to the availability of Medicaid insurance.

The Earned Income Tax Credit (EITC) is unique among income transfer programs in that it is explicitly designed to provide income support while at the same time avoiding labor supply disincentives. Two key design features that promote labor force participation are that the credit is not available to individuals who did not have earned income during the tax year, and that the amount of the credit phases in with each dollar earned (at 40 cents per $1 earned for a filer with two children in 2012) until a maximum benefit ($5,236 for a filer with two children in 2012) is reached. Consistent with this design, there is an abundance of evidence that the EITC has significantly increased labor force participation in the general population, particularly for single mothers. One understudied group that is characterized by low income, low labor force participation and is of concern to policymakers is the population with disabilities. In order to determine what, if any effect, the EITC has on the employment of people with disabilities, we exploit variation over time in the adoption of state-level earned income tax credits. During the 1980s, states began to add their own supplements, set as fixed percentages of the federal EITC, and ranging from 5 percent to more than 50 percent of the federal credit. By 2009, 23 states had their own EITC, with annual refundable credits ranging from $2,433 in Wisconsin to $150 in Maine, and averaging $945. We will merge state-level EITC parameters onto a pooled cross-section of data from the CPS covering the 1990 to 2012 period. We can therefore estimate panel

The Earned Income Tax Credit (EITC) is the largest anti-poverty program in the U.S. In 1993, the EITC benefit levels were changed significantly based on the number of children in the household such that families with two or more children experienced a substantial increase in their incomes. Using data from the National Longitudinal Survey of Youth 1979 and the NLSY79 Child and Young Adult cohorts, we employ a difference-in-differences plus mother fixed-effects framework to examine the effect of this change on child health. We find that, due to the increase in income induced by EITC expansion, children of white married low-educated mothers with two or more children were statistically significantly less likely to be obese/overweight or to have an accident than those of mothers with only one child. Children of white unmarried low-educated mothers of two or more children, on the other hand, experienced increased cognitive stimulation and emotional support provided by their families. For children of black and Hispanic mothers, however, we do not see robust and statistically significant impacts of the policy change on their health. Our results provide new evidence of the effects of family income on child health and therefore have important policy implications.

This paper investigates strategic interaction among airlines in product-quality choices. Using an instrumental variable approach, the paper estimates flight-frequency reaction functions, which relate an airline's frequency on a route to its own characteristics and to the frequencies of competing airlines. A positive reaction function slope is found in some cases, indicating the presence of strategic interaction in the choice of frequencies. The paper also asks whether multimarket contact generates mutual forbearance in frequency completion, finding no evidence for such an effect.

This paper investigates airport infrastructure investment impacts on commercial property values in the area of the airport. Infrastructure investments of the Vancouver Airport in Canada and the subsequent change in commercial property values (following the investments) in the area of the airport are used in a case study analysis.

Over the last 40 years, there has been an unprecedented growth in trade among countries. The increases in trade have put tremendous pressure on transportation industries, especially shipping and port industries. Maritime trade is synonymous with international trade. An understanding of the determinants of trade is central to understanding maritime trade and integrating trade models with maritime models. This paper provides a synopsis of the trade literature, determinants of trade and relationships with maritime trade.

This paper proposes a model of international trade in which transportation costs are affected by trade imbalance. Each country is assumed to have a representative transportation firm that competes with its counterparts for operation in the global market. After solving for transportation firms' optimal pricing strategy, a transportation cost index (TCI) is derived to capture bilateral trade costs. Simulation based on the theoretical model show that larger country incurs a trade deficit while smaller country has a trade surplus under free trade. Empirically, both reduced-form and structural gravity models are estimated. Estimation confirms the findings of the theoretical model. The TCI also fits data better than traditionally used gravity variables in the gravity model.

This paper provides a novel analysis of exploitation and classes in economies with heterogeneous optimising agents and heterogeneous quality in labour inputs. A new definition of exploitation is proposed which emphasises the relational nature of exploitation and the resulting inequalities in the allocation of labour and income. It is shown that, among all of the major approaches, this definition is the only one satisfying two weak axioms that incorporate some key normative intuitions, and it allows one to generalise a number of core insights of exploitation theory. The whole class and exploitation structure of the economy is derived and the Profit-Exploitation Correspondence Principle is proved.

The importance of managers has been emphasized in many recent accounts of the increase in inequality in several countries. This paper uses a simple model of growth and income distribution along post-Keynesian/Kaleckian lines to introduce a third class of managers or supervisors, in addition to capitalists and workers, following a number of contributions old and new. It seeks to analyze what managers do in the economy, what factors determine their income, and how their presence affects the growth and distributional dynamics of the economy, and through what mechanisms.

Temporary workers make up a sizeable part of the labor force in many countries, including Korea. This paper uses an extension of a standard efficiency wage model to explain the wage gap between temporary and permanent workers. Temporary workers have a chance to become permanent; this possibility - combined with the existence of an employment rent for permanent workers - gives short-term workers an incentive to work hard. Thus, a high wage to permanent workers serves a dual purpose: it affects the effort of both permanent and temporary workers. Applying the model to the Korean experience, we discuss the effects of labor market reforms on inequality.

This paper develops a taxonomy of exploitation pertaining to scenarios in which an individual or group appropriates assets otherwise used in common by members of the greater society. The paper's argument is constructed upon a strategic bargaining model of contested appropriation, devoting particular attention to the role played by domination in exploitative relationships. The motivation behind the analytical focus and method of the argument is contrasted with the axiomatic approach taken by John Roemer, which focuses on the normative implications of unequal ownership of productive assets. In contrast, the argument here is built on the premise that domination is a defining feature of exploitation, and that understanding the role of domination is essential to characterizing the form and degree of exploitation.

Private investment strategies together with policies to "improve" the characteristics of poor people have dominated the postwar approach to poverty. And, while the 1950s and 1960s are commonly referred to as the "Golden Age" of U.S. capitalism, important barriers prevented the American economy from sustaining what Minsky characterized as tight full employment. Minsky's fundamental argument is simple: (1) poverty is largely an employment problem; (2) tight full employment improves income at the bottom of the wage spectrum; and (3) a program of direct job creation is necessary to sustain tight full employment. Thus, he argued that a program of direct job creation was "a necessary ingredient of any war against poverty" . As Minsky put it: "The New Deal, with its WPA, NYA, and CCC took workers as they were and generated jobs for them….. The resurrection of WPA and allied projects should be a major weapon of the war on poverty." Unfortunately, Johnson's Economic Opportunity Act did not provide for this kind of access. Instead, Johnson aimed to improve the skills and knowledge of the impoverished, hoping to "end poverty forever," by offering education and training to those living in or near poverty. By contrast, Minsky viewed full employment as the horse and skill- and educational-enhancement programs as the cart. And he strongly believed that a successful antipoverty campaign required the cart to follow the horse.

The paper addresses how a local Job Guarantee program can be designed and implemented to address regional economic inequality. The State of Black America 2013 calls for increased employment opportunities as the number one goal to begin closing the inequality gap. The paper builds on this theme at the regional level. The article makes the case that county-level microdata on economic inequality from sources such as the State of Black Kansas City and the American Community Survey can be used to inform policy in the areas of education and jobs. Policy programs such as the Job Guarantee will benefit as it can be specifically designed and targeted to address local economic inequality.

Proposals for a Job Guarantee have been put forward as national policies due to the flexibility the federal government has in paying for the program. This flexibility stems from the ability of the Treasury and the Central Bank to work in concert in using fiscal and monetary policies. There are many obstacles, however, to government policies at the federal level, including political, administrative, legislative, and ideological. An alternative route to true full employment at the local level would be to use a complementary currency to pay for community service employment. The paper looks at some of the issues involved in putting such a program in place.

The presentation will make the case for establishment of a program of employment assurance in the United States, a program that will eliminate the threat of unemployment for adult Americans. In addition, the presentation will provide a detailed analysis of the logistical aspects of implementation of a federal job guarantee, paying close attention to lessons to be learned from precedents in India and Argentina. Implications for the fiscal deficit and austerity economics also will be examined.

The job of the public sector is not to mimic the behavior of the private sector but to offset it. At the macro-level this is especially true where counter-cyclical spending is concerned. However, the same can be said of employment policy. There is only one sector at the macro-level that can expand employment when the rest of the economy is shedding workers. A counter-cyclical employment policy is then by definition a counter-cyclical spending policy. However, fiscal policies in the postwar era have been conducted in a way that have not only failed to secure full employment but have also contributed to the erosion of the income distribution. The paper discusses how fiscal policy can be reoriented to remedy those deficiencies.

This paper describes SNAP in the context of the food assistance safety net more generally. It first reviews the evidence on whether the diets of SNAP participants differ from those of low-income non-participants. A key feature of this review is close attention to selection bias, which complicates efforts to measure program impacts using participant-nonparticipant comparisons. The paper then considers the economic relationship between income level and dietary quality. It summarizes recent efforts to align USDA food assistance programs with dietary guidelines and explores how SNAP might be used to better address the needs of the low income population today.

This paper provides empirical evidence on a little-studied but important connection between SNAP and the new Affordable Care Act ("health care reform" or "Obamacare"). Among other changes, this law will allow more people to be eligible for Medicaid. The paper estimates that low-income Americans with serious health conditions are more likely to participate in SNAP and Medicaid together and less likely to participate in SNAP alone. The paper concludes that the new health care law may increase the fraction of SNAP participants with serious health conditions and increase the policy motivation to re-orient SNAP to focus on nutrition and health improvement.

In response to low consumption of fruits and vegetables by SNAP recipients, the USDA Food and Nutrition Service created the Healthy Incentives Pilot (HIP) to test the efficacy of providing a 30 percent incentive for purchases of fruits and vegetables. Published elasticity estimates imply that a pure price reduction of 30 percent would increase fruit and vegetable consumption by about 20 percent; i.e., about a fifth of a cup per day. This paper considers the applicability of predictions based on a pure price reduction. It then reports interim results of a random assignment evaluation of HIP which find an increase of about a fifth of a cup per day.

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Within the neighborhood renewal process, property owners and investors attempt to reverse the decline in the quality of the housing stock and/or correct market obsolescence through redevelopment. However, since the existing improvements can be either redeveloped in part (renovations) or in whole (teardowns), a choice must be made between these two processes. While renovations and teardowns have been studied within the gentrification literature as separate phenomena, this study jointly examines these decisions to provide a better understanding of how and where gentrification occurs. The results show support for the notion that renovations and teardowns occur in spatial clusters, but further refine this finding in that they tend to occur in separate spatial clusters. Additionally, the implicit market prices of the structural attributes of properties purchased for major renovations are shown to be equivalent to teardown sales, where the property is valued only for the underlying land.

Governments often use tax incentives to encourage residential investment in blighted neighborhoods. Exploiting the lottery structure of Missouri's Neighborhood Preservation Act (NPA), this paper examines how tax incentives to promote housing investment affect communities. Missouri's NPA offers tax credits to homeowners and developers that improve or expand the owner-occupied housing stock in the state's poorer neighborhoods. Due to limits on the amount that can be awarded, the state uses a lottery to determine which applicants receive credits. Taking advantage of the random assignment of NPA tax credits and exploiting detailed property-level data, I find evidence that the program has positive but modest effects on construction activity. While there appear to be some positive spillovers on neighbors' investment behavior, the effects are confined to properties within 50 feet of those receiving credits. Impacts on property values are larger in geographic scope, implying important roles for both neighbor interactions and amenity effects in local housing markets.

Entrepreneurship is widely believed to be a main source of economic growth. This paper’s objective is threefold: (1) to estimate the impact of entrepreneurship measured by the birth of businesses on urban employment and income growth; (2) to examine how entrepreneurship supported by government guaranteed loans compares with market entrepreneurship regarding its impact on urban growth; and (3) to examine whether market and government-backed entrepreneurship are complements or substitutes. The study of entrepreneurship and urban growth is hampered by the joint determination of the two. I use the variation in entrepreneurship generated by the homestead exemption levels in state bankruptcy laws in 1975 to examine urban growth between 1993 and 2002. I find that a ten percent increase in the birth of small businesses increases MSA employment by 1 to 1.5% and income by 2.5 to 3.5% after ten years. I next examine whether the federal Small Business Loan program that guarantees loans to entrepreneurs that were unable to finance through the market generates urban growth. I find no growth impact from government-backed entrepreneurship and further find that government-backed entrepreneurship crowds out market entrepreneurship one for one. Nonetheless, a complete assessment of government-backed entrepreneurship requires further examination of equity concerns, such as potential discrimination in small business lending.

We examine bankruptcy spillovers between very close neighbors. Our fine grained location data allows us to use the cross-sectional difference methodology (e.g. Grinblatt, Keloharju, Ikaheimo (2008), Campbell, Giglio, Pathak (2011)) to control for non-random neighborhood sorting and unobservable neighborhood shocks. This approach subtracts characteristics of inner-ring neighbors (14 households on average) from outer-ring neighbors (207 households and 0.2 square kilometers on average) to control for neighborhood level unobservables affecting both rings. We show that inner-ring neighborhood bankruptcies, controlling for outer-ring neighborhood bankruptcies, impacts the individual’s choice of whether or not to default, as well as of the legal mechanism of default.

With rapid economic growth, petroleum demand in India has been rising rapidly, making it the fourth largest consumer of crude oil in the world. But most of this crude oil has to be imported, putting inflationary pressure on the economy when oil prices rise. Thus, estimations of crude oil demand and projections for the future should be useful to policy makers in making appropriate supply arrangements for the future. This paper empirically estimates demand relations for crude oil, diesel, and Gasoline for India for the period between 1970–71 and 2010–11 using the ARDL cointegration procedure and uses these estimations to project demand for these products up to 2025. Our projections show that by 2025, demand for crude oil is likely to increase by about 90%, for diesel by about 110%, and for gasoline by about 165% under likely future GDP growth scenarios (averaging 7%). The corresponding annual growth rates are 4.7% for crude oil, 5.4% for diesel and 7.2% for Gasoline. Thus, India needs to (i) improve efficiency in the use of petroleum products, (ii) make concerted efforts to increase use of alternative energy sources such as nuclear, hydro, solar and wind and (iii) augment future supplies through increased exploration and production sharing agreements by Indian oil companies with other countries.

One of the anomalies in export and import relationships is the fact that firms often exit existing relationships and then reestablish or recover the same relationships after a period of time (or an trade gap). This is puzzling because the trade literature documents hysteresis in trade, the existence of sunk costs associated with entering into trading relationships, and suggests that the advantages of previous exporting experiences dissipate fairly rapidly leading to significant reentry costs. The focus of this study is to understand the dynamics of trade gaps and the heterogeneity in recovery of dormant trading relationships or the recovery margin of trade. Using disaggregated bilateral trade data at the 6-digit HS level for the period 1995 to 2010, we examine 3 aspects of export gaps: the conditional probability, the speed and the intensity of trade recovery. We identify various sources of heterogeneity in trade recovery such as characteristics of export gaps, trade in core products and with core markets, export market diversification, export market competition, product differentiation and continued trade in related products and markets during the gap. The key results indicate that the number of prior export gaps and the length of the export gap unambiguously reduce the probability of trade recovery and size of initial exports at reentry. Conditional on being in an export gap, dormant trading relationships that involves core markets, core products, and where there is more trade in closely related products (proximate trade) have a greater probability of recovery. However, trading in core products appears to have a larger impact on recovery than trading in core markets. The overall share of world trade, export market diversification and competition all increase both the probability of recovery and the speed of recovery. There is also preliminary evidence of considerable heterogeneity with respect to quality upgrading in post-recovery trade and that on average quality upgrading occurs in goods with revealed comparative advantage. An important policy implication is that governments have to be cautious about what type of recovery they promote if they want to move their country’s exports up the value chain.

The phasing out and the ultimate expiration of quotas removes a single major distorting factor in the economic geography and trade in textile and apparel products. The resulting realignment of trade provides a unique opportunity to test the significance of increasing returns to scale and vertical linkage hypothesis predicted by new trade theories and economic geography models, along with the traditional comparative advantage and distance arguments. Our empirical results show that low wages remain a significant determinant of US apparel imports – providing support for comparative advantage. Imports from quota constrained country-product pairs show a significant increase following the elimination of quotas. The estimate increased from an average of 2.98 between 1995 and 2003 to 3.86 between 2004 and 2007. The estimate shows the biggest jump in 2004 to 4.22. We test for scale economies using two different measures: the relative GDP of exporting country i to the US and the exporting country's share of world apparel production. We find that scale economies are significant in both specifications. Moreover scale economies become increasingly important as quotas are phased out and finally terminated. Backward linkages for the apparel industry is measured by country i's share of world textile production. Evidence for the backward linkages is less clear. Finally, Asia shows the biggest gains from the elimination of quotas, followed by the Caribbean Basin countries. The net losers are Africa, Western Europe and Oceania. Surprisingly, Latin American and NAFTA (Mexico and Canada) show insignificant results along with Eastern Europe.

The literature on ERPT has not considered product-level comparative advantage (CA) as a source of heterogeneous firm productivity. However, a firm's production choice may determine its productivity level and also its pricing decision as both the degree of market power and the fixed costs of exporting vary across products. This paper empirically analyses the export pricing behaviour of Chinese and Indian exporters while considering these countries' degree of international competitiveness in different commodity groups. Previous pass-through estimates that did not take product-level competitiveness into account could be biased as the degree of pricing power due to changing product-level competitiveness could be correlated with the exchange rate variations. We use 6-digit product-level data across different export destinations over the period 1994-2007 to compute China and India's product-level CA, showing that pass-through tends to be more incomplete when the industries increasingly specialize in exporting. However, export prices increase with export specialization. This is because a stronger presence in export markets allows both higher market power and lower fixed costs of exporting, but in this case the former effect prevails over the latter. Export prices of India are sensitive to the volatility of the trade-weighted real effective exchange rate (REER), indicating heterogeneity in prices to maintain competitiveness, while the nominal currency volatility for China has insignificant explanatory power given a fixed currency system.

This study applies unit-root tests to investigate the Purchasing Power Parity (PPP) for China's real exchange rate vis-a-vis the USA over the period 2000-2012. Along with traditional unit root tests, we use the procedure developed by Zivot and Andrews and Lee-Strazicich to endogenously determine possible structural breaks. The results indicate that PPP hypothesis in China holds under a fixed ("pegged") exchange regime. But it does not hold in the long run under the managed floating exchange rate regime. The finding confirms that the exchange rate regime affects the validity of PPP.

The first step toward Globalization was taken in India in the 1990's (beginning in 1991) when the government embarked on an economic liberalization plan. The effect of this so called Big Bang announcement was felt in various sectors of the economy: manufacturing, agriculture and most of all the financial markets. The financial markets in India had a latent demand for their products and as foreign direct investments began to increase in India, more sophisticated financial instruments became popular among the middle classes, a newly emerging and powerful force in India. New regulations were set into motion by India's central bank, the Reserve Bank of India (RBI), to control the flow of these vast amounts of money coming from domestic as well as foreign investors. In the past few years, the RBI has had a hard time maintaining the balance between GDP growth down to 5% in 2012, the lowest rate in a decade, and an inflation rate which is still stubbornly high at 7%. Unless the rate of inflation comes down to a more reasonable, the central bank cannot afford to significantly cut interest rates to stimulate growth without simultaneously re-fueling inflation, although the RBI did cut rates three times this past year while contradicting its action with statements of warnings on inflation. The Primary equity market, however, remains subdued. Its recovery depends on improvement in macroeconomic fundamentals, continued fiscal consolidation and revival of global growth. Global financial and market conditions have improved recently due to monetary stimulus and liquidity support, in various areas of the world according to an IMF report. High interest rates affect the financial instruments in India, by making the fixed deposits more attractive to Indians, rather than some of the more newly developed instruments such as swaps, options and derivatives which carry a high level of risk and volatility. On the other hand, the Indian financial market is composed mainly of Foreign Direct Investment, alternative investment options, banking and insurance, pension markets and asset management. Before the liberalization process, the financial markets in India were characterized by controls over the pricing of financial assets, restrictions on transactions, barriers to entry and high transaction costs. After the mid 90's, financial markets in India were more integrated, both domestically and globally through the integration of the money markets, the government securities market and the foreign exchange market. Recent global development in Europe, the U.S. and the aggressive action of the Bank of Japan Global in financial markets are now pricing in the impact of large fiscal and monetary stimuli. If a sustained dollar appreciation occurs the Indian markets will be adversely impacted through the exchange rate channel the European and emerging market and developing economies'(EMDE's) equity markets. However, while resource mobilization through public issues in the IPO's market remained muted, mutual funds posted a pick-up led by private sector mutual funds in 2012-13. Various reform measures, inter alia, postponement of GAAR (General Anti Avoidance Rules) by two years, partial deregulation of diesel prices, liberalized FDI limits for certain sectors, rise in FII limits in corporate debt and G-sec market and announcement of a fiscal consolidation path, further boosted the confidence of global investors in the Indian economy. Our paper will test to see if on the domestic front, the slow recovery envisaged in 2013-14 may undermine the nascent strength of the financial markets. A potential recovery is already at odds with macro-financial indicators as is evident from sub-par corporate earnings, deteriorating current balance account, deteriorating asset quality and stretched leverage in certain sectors, especially power and construction. Sustained commitment to reforms and policy action, on the other hand could considerably lower this risk, but at the expense of fiscal consolidation, also far from tamed. Some of the financial institutions that will be analyzed in this paper are: Reserve bank of India, Commercial Banks, Development finance institutions, Non-banking finance companies (NBFC), Venture capital companies, mutual funds and insurance institutions. The research is based on considerable data mining from the RBI, IMF, World Bank, and OECD, aside from other publications.

Over the past decades the gaps between official agricultural and production and consumption data have increased, which leads to ever growing concerns about the quality of these data. For example, while according to official statistics China's rice and wheat production continues to rise and per capita consumption declines, China had to import millions of tons of wheat and rice in 2012 to fulfill its domestic demand. Similar concerns are raised regarding livestock products, since China's official meat production is about four times the level of official meat consumption! Exploring the reasons behind these gaps and creating a consistent agricultural supply and demand data set is not only important for policy makers but also for researchers of China's agricultural economy. Based on earlier work in analyzing China's agricultural production, consumption and trade, we analyze China's grain and meat balances for all years since 2005. Compared with existing studies, it has the distinct feature that it gives an overall review of the supply and demand balances, and does not just focus on grain or meat alone. This is important given the links between grain and meat balances via the animal feed requirements. After discussing possible explanations of the gaps between China's agricultural supply and demand, the paper constructs an adjusted supply and demand balance sheet for major agricultural products from 2005 to 2012, which can be used as reference for other studies on China's agricultural economy.

Several secular trends, including an aging population, growing healthcare expenditure, and the ongoing healthcare reform, have led to increasing attention to China's health sector among economists. However, the existing data and statistics on health and medical care in China have been less extensively examined than their counterpart on general economy. The proposed research intend to review existing data and statistics on health and medical care in China in terms of availability, comparability, accuracy, potential usefulness for research, as well as strengths and caveats that researchers need to be mindful of. We intend to examine both macro data, e.g., national or provincial aggregate data published by official statistical agencies, and micro data, e.g., survey data sponsored by national and international agencies. An example of a micro dataset is the China Health and Nutrition Survey, which has been extensively used by researchers interested in China's health issues. However, it has been noted that the imputed income measures may be inadequate. A list of such assessments and recommendations will be made. The research team will include researchers from both within and outside of China with expertise on both health and economics.

China’s food safety system is characterized by widespread under-enforcement of regulations punctuated by high-profile food safety scandals. While there has been a wave of public and scholarly interest, official data on food safety are scarce, and some fundamental questions remain unanswered. Our analysis attempts to overcome this problem using a unique data set compiling media reports on food safety incidents at the provincial level between 2004 and 2011. Preliminary results indicate food safety problems are most acute in poor provinces, where regulators are understaffed and underfunded. Food safety problems also increase with the rate of urbanization, which may reflect the increased complexity of urban food systems. Finally, we find that food safety is sensitive to government expenditures, suggesting that increasing the allocation of fiscal resources to regulatory agencies may be effective in combating China’s food safety crisis.

This paper discusses data used in publishing statistics on earnings, the distribution of household income and poverty in China by National Bureau of Statistics (NBS) which is widely used by policy makers, international agencies and researchers. Different from many other countries China has up to now had a dual system of household surveys with one rural system and one urban system. This has some consequences which we discuss together with some other challenges for such official data on wages, income and poverty. Researchers have since the end of the 80s been active in the construction of some larger data bases aiming to map earnings, household income and poverty which are also presented in the paper.

This paper investigates the impact of the railroad boom on the regional concentration of manufacturing in Germany. The fast pace of mechanization during this period suggests that economies of scale and agglomeration provided incentives for firms to concentrate production in a few locations. Therefore, the dramatic reduction in transportation costs could have led to industrial growth in central regions and de-industrialization in the periphery. Preliminary results show that improvements in market access did indeed have a negative impact on manufacturing growth in regions wit below median per capita manufacturing employment, but for regions above this mark the impact was positive. This means that the railroad boom did not support the dispersion of industry but instead contributed to the geographic concentration of industrialization.

We develop a new measure of residential segregation based on individual-level data. We exploit complete census manuscript files to derive a measure of segregation based upon the racial similarity of next door neighbors. Our measure overcomes several of the shortcomings of traditional segregation indices and allows for a much richer view of the variation in segregation patterns across time and space. With our new measure, we can distinguish between the effects of increasing the racial homogeneity of a location and of increasing the tendency to segregate within a location given a particular racial composition. We provide estimates of how our new measure relates to traditional segregation measures and historical factors. We also show how the segregation measure is related to the health outcomes of African Americans through the late-nineteenth and twentieth centuries. We conclude with a discussion of how this measure can be used in a variety of ways to improve and extend the analysis of segregation and its effects.

We present new city-level evidence about the military origins of Europe's economic "backbone," the prosperous urban belt that runs from the Low Countries to northern Italy. Military conflict was a defining feature of pre-industrial Europe. The destructive effects of conflict were worse in the countryside, leading rural inhabitants to relocate behind urban fortifications. Conflict-related city population growth in turn had long-run economic consequences. Using GIS software, we construct a novel conflict exposure measure that computes city distances from nearly 300 major conflicts from 1000 to 1799. We find a significant, positive, and robust relationship between conflict exposure and historical city population growth. Next, we use luminosity data to construct a novel measure of current city-level economic activity. We show evidence that the economic legacy of historical conflict exposure endures to the present day.

I investigate the effect of banning the sale of alcohol on murders during the state prohibition movement of the early 20th century. To account for the variation in the timing of alcohol prohibition legislation, I have constructed a panel data set of 48 cities with yearly observations from 1914 to 1925. Unlike measuring homicides at the state and national level, cities do not suffer from selection bias. Cities were involuntarily required to enforce prohibition by state and national legislators instead of voluntarily entering into prohibition. To account for the growth of both the legalized market for alcohol and black market for alcohol I use yearly observations of intoxication arrests for each city. I find that homicides increase under prohibition when keeping the number of intoxication arrests in the city constant. However, the overall net effect of legislation varies depending on the reduction of intoxication arrests in a city.

I examine the effect of Lehman Brothers' bankruptcy on the prices of exchange traded structured index products during the financial crisis of 2007-2009. I document a significant drop in their premia, as well as an asymmetric widening of their bid-ask spreads in the post September 2008 period. The effect is most pronounced in structured products on indices that are difficult to hedge. The results suggest that market maker hedging costs have become a major trading cost component of structured products following the default of Lehman Brothers. Issuer credit risk does not explain the drop in the premia.

We develop a state-space model to decompose bid and ask quotes of CDS into two components, fair default premium and liquidity premium. This approach gives a better estimate of the default premium than mid quotes, and it allows to disentangle and compare the liquidity premium earned by the protection buyer and the protection seller. In contrast to other studies, our model is structurally much simpler, while it also allows for correlation between liquidity and default premia, as supported by empirical evidence. The model is implemented and applied to a large data set of 118 CDS for a period ranging from 2004 to 2010. The model-generated output variables are analyzed in a difference-in-difference framework to determine how the default premium as well as the liquidity premium of protection buyers and sellers evolved during different periods of the financial crisis and to which extent they differ for financial institutions compared to non-financials.

Many practitioners and academics alike assume that the value of reputation is so important to reputation-dependent industries such as credit rating agencies and auditors that they would never put their reputation at risk to collude with a client. However, both the current global financial crisis and the accounting scandals at the beginning of the decade seem to call this assumption into question: even if none of the failures were profit-driven, only one failure of the many led to a firm collapse. This paper explores this assumption by modelling a monopolist certifier, whose certificate of viability is required for capital-constrained entrepreneurs to take their projects to the capital markets for funding. Results suggest that the monopolist will sell fraudulent certificates of viability to at least some fraction of the non-viable projects in at least some periods.

We propose an empirical framework to assess the likelihood of joint and conditional sovereign default from observed CDS prices. Our model is based on a dynamic skewed-t distribution that captures all salient features of the data, including skewed and heavy tailed changes in the price of CDS protection against sovereign default, as well as dynamic volatilities and correlations that ensure that uncertainty and risk dependence can increase in times of stress. We apply the framework to euro area sovereign CDS spreads during the euro area debt crisis. Our results reveal significant time-variation in distress dependence and spill-over effects for sovereign default risk. We investigate market perceptions of joint and conditional sovereign risk around announcements of Eurosystem asset purchases programs, and document a strong impact on joint risk.

Our research design involves a comparison between a traditional model of high school economics instruction and the use of the International Economic Summit (IES) program. We hypothesize that the IES program will result in more student engagement across behavioral, affective, and cognitive dimensions. Our data were collected from a sample of 748 students and 16 teachers in high school economics classes in California from fall 2011 through spring 2012. Thirteen of the teachers used the IES in their classes and three control teachers did not use the IES. Students completed pre and post class surveys that allow us to capture measures of student engagement, and teachers completed a post-class survey that allows us to capture measures of teacher engagement. Students also took pre and post tests (based on the TEL) that allow us to investigate correlations between student and teacher engagement and student achievement. We are able to control for standard demographic factors such as gender, race and ethnicity, parent education, and teacher and school quality. Our preliminary analysis of the pre-class data show that control groups and experimental (IES) groups differed significantly along measures of engagement. Student engagement (but not the IES) is found to be significantly related to student achievement. The next step may be to promote curricula, materials, and teaching approaches that encourage engagement in high school economics classes.

Much attention has been devoted to improving teaching pedagogy both in and outside the economics classroom; yet, one area that is generally lagging in academia is the effective use of visuals. Instructors traditionally use visuals in two ways: First, when they assign students written sections of the textbook before coming to the lecture, and then in class when they use the all-too-common approach of placing a concise set of notes onto PowerPoint slides. Yet evidence from both cognitive and brain science suggested major limitations with both techniques, because they both rely mostly on written text as the core visual strategy. And considerable body of research exists on the benefits of multimedia presentations over text. Research in multimedia learning has led to the following conclusions: People have separate audio and visual channels; these channels have limited capacity; and learning involves the active selection, organization, and integration of the information presented via the auditory and visual channels. In other words, students learn better from words and pictures than from words alone. This paper addresses these issues using a two-fold approach. First, we compare the efficacy of multimedia learning modules with traditional textbooks for a few topics of an introductory microeconomics course. Students were randomly assigned into one of three groups. One group received the multimedia learning module presentations, and the other two groups received the presentations via one of two versions of written text. All students then completed the same set of assessment questions. By comparing student performance between each group, our results provide evidence that students receiving the multimedia learning modules performed significantly better than students having access to only text-based presentations.

In this paper, the author examines the effects of professional development, teacher certification, and role model effects on student achievement in K-12 economics as measured by the 2006 National Assessment of Educational Progress (NAEP) Economics exam.

This paper examines the effects of teacher training on student achievment in the "Keys to Financial Success" high school personal finance course offered to students in high schools throughout Delaware, New Jersey, and Pennsylvania. This study relies on pre- and post-test data collected in two academic years from thousands of high school students taught by teachers trained by the Federal Reserve Bank of Philadelphia and the University of Delaware Center for Economic Education and Entrepreneurship. Preliminary evidence reveals that students whose teachers have more formal training in economics and personal finance perform better on the 50-question "Keys to Financial Success" personal finance achievement exam.

Tax reforms are often motivated by their potential to affect economic growth. However, their actual impacts on growth are difficult to determine. In this paper, we analyze the impact of flat tax reform on economic growth using a novel data-driven empirical method, “synthetic control”. We identify the 8 Eastern and Central European countries that adopted flat tax systems between 1994 and 2005: Estonia, Latvia, Russia, Slovak Republic, Ukraine, Georgia, Romania, and Turkmenistan. We then compare the difference in GDP per capita and GDP per capita growth rates before and after the reform for the “treated” (e.g., tax reform) country to a convex combination of similar but “untreated” (e.g., no tax reform) countries, while accounting for the time-varying impact of unobservable heterogeneity. We find positive impacts of tax reform in most, but not all, countries.

Recent literature has started to explore the use of nonparametric methods to estimate alphas and betas in the conditional CAPM and conditional multifactor models. This paper explores two of the most recent contributions and proposes a third method. Nonparametric estimation of factor modeling involves choosing techniques which are different both technically and in application, but common in the nonparametric literature. The methodology does not impose any functional form on how alphas [pricing errors] or betas [factor loadings] evolve over time. Local data is used in estimations, but of crucial significance is the bandwidth selection or optimal window size. Clearly, observations further away from time t are less relevant in estimating time t alphas and betas, so if we are too far away from time t we potentially have a very large bias. However, if too small a bandwidth is selected, the estimate could be quite noisy, leading to a large variance. A popular technique in the literature is the leave-one-out-cross-validation method which is completely data driven. The researcher may use simulations to illustrate how the optimal window size varies with changes in the underlying unobservable state variables. Another bandwidth selection procedure often used in the literature is the plug-in method. The plug-in method however, relies on choosing an unknown parameter in estimating the optimal window size, while the leave-one-out method is completely data driven. This paper explores the effectiveness of these two methods and proposes a nonparametric estimation of multifactor models using a cross validated local polynomial regression method. Local polynomial regression has emerged as a leading approach to nonparametric estimations of regression functions. Using a completely data driven approach to the joint determination of polynomial order and bandwidth eliminates the ad-hoc approach to determining polynomial order which may not be optimal.

We test the relative income elasticity of shopping at Walmart and Target using quarterly data from 1997-2010. We seek to isolate the effects of income changes by controlling for price level, retail space, and measures of time. In contrast to Basker (2011), we find that the income elasticity of Walmart shopping , while lower than Target’s, is positive, indicating that shopping at both stores is normal rather than inferior.

This paper attempts to explain the gaps in learning outcomes between "advantaged" and "disadvantaged" primary school children in two developing countries, Peru and Vietnam, by assessing the contribution of four distinct factors that could explain these gaps: a) The child and household characteristics that increase learning, such as parental education, are higher among the more advantaged groups; b) The impacts of the child and household characteristics that increase learning are stronger for advantaged children; c) More advantaged children "sort" into better schools; and d) Learning increases due to school characteristics are higher for advantaged children (relative to disadvantaged children) within schools. Preliminary results indicate that the first and third factors explain most of the gap in Vietnam, while the fourth factor explains most of the gap in Peru.

Does paying teachers more make them more effective in the classroom? This paper presents results from a large randomized field experiment in Indonesia that evaluates the effects of teacher certification – which includes a permanent doubling of pay – on teachers’ knowledge, effort, and student learning outcomes. To our knowledge, this is the first RCT of the effects an unconditional salary increase in education and the first of its size—involving more than 3000 teachers and 80,000 students—in any field. We find that the program significantly improved teacher job satisfaction, reduced the incidence of and hours worked on outside jobs, and reduced self-reported financial stress. Nevertheless, the doubling in pay led to no improvements in either teacher skills, measures of teacher effort, or student learning outcomes, suggesting that the salary increase was mostly a transfer to teachers with no discernible short- or medium-term impact on student outcomes. It appears that if the reform is to improve student learning, it will need to operate through other channels, such as skill upgrading by teachers not yet eligible for salary increases or improvement in the quality of applicants to the teaching profession.