We investigate how Export Promotion Agencies (EPAs) affect manufacturing outcomes in Sub-Saharan Africa using difference-in-differences methodology. Results indicate that three and seven years following EPA’s adoption, industry value added to GDP ratio increased by 3.24% and 14.64%, respectively. The joint effects of EPAs and Export Processing Zones (EPZs) are a reduction in customs and trade regulations. EPA countries’ manufacturing firms post lower level of collaterals for bank loans. Private credit is significantly higher in EPA countries. EPA facilitated credit enables industrial firms’ access to trade credit and working capital financing. Results are confirmed by placebo and average treatment effects tests.

This paper examines the effects of regional euro-currency integration on agricultural productivity in Sub-Saharan Africa. We utilize a propensity score matching estimator to estimate the treatment effect of Sub-Saharan African countries joining the CFA Franc Zone on agricultural value-added. Our parameter estimates reveal that CFA Franc Zone membership has positive effects on agricultural value-added. This suggests that as an institutional arrangement, regional currency union membership can improve agricultural productivity in Sub-Saharan Africa, which is an important component of achieving economic growth that is effective in reducing poverty.

In its inaugural flagship report, the 2014 African Transformation Report, the African Center for Economic Transformation (ACET) argues that while the recent high economic growth in Africa is welcome, it will not by itself sustain development on the continent and that in order to ensure that growth is sustainable and continues to improve the lives of most people, African countries need to vigorously promote economic transformation. Page (2012) also notes that Africa must industrialize otherwise the continent cannot sustain high growth rates that it experienced recently. Hausmann et al. (2007), Hidalgo (2009), and Hidalgo and Hausmann (2009), among others, have emphasized the importance of structural transformation in economic growth and development. These authors argue that different products have different consequences for development. In this paper, we use 1990-2010 disaggregated import and export data for 21 African countries that were studied in ACET’s recent work on economic transformation in Africa and develop a new trade intensity index (TII) which is then used in empirical estimations to investigate the role of trade in specific subsectors in explaining structural transformation. More specifically, we use the TII as our variable of primary focus to shed light on these two questions: (1) Can the type (capital goods versus other goods) of major imports predict structural transformation? (2) Can the type of exports (manufacturing or services versus primary commodities) predict structural transformation? Our indicator of structural transformation is ACET’s African Transformation Index (see the 2014 African Transformation Report). We perform IV and Arellano-Bond dynamic panel GMM estimations and, in addition to TII on the right-hand-side, we control for a number of relevant variables, including institutional quality, natural resource dependence, ethnic tensions, regime change, human capital, openness to trade, financial development, inward foreign direct investment, and per-capita income. The empirical results suggest that the composition of imports matters more than the composition of exports for explaining structural transformation in natural-resource-dependent countries, while the composition of exports matters more in the case of countries that are relatively natural-resource scarce. In addition, the impact of trade is found to be influenced by institutional quality and income. We discuss the lessons we can learn from the role trade and trade policies, as well as the institutional arrangements influencing them, in shaping the pathways to economic transformation in Africa. In particular, we contrast trade and institutional arrangement patterns in two SSA countries (Mauritius and South Africa) that have high scores on ACET’s African Transformation Index to the patterns in a group of SSA countries that have very low ATI scores. Our study aims to complement the literature by providing further evidence on the drivers of structural transformation in the African context. More specifically, our paper will make three main contributions. First, it will be the first to utilize two new indicators, the African Transformation Index (developed by ACET) and a new trade intensity index to investigate the drivers of structural transformation in Africa. Second, our paper is a cross-sectional analysis, which allows identifying the drivers of structural transformation in the average African country. In other words, our study allows identifying factors that on average, contribute to structural transformation in Africa. Third, in addition to our variables of interest, our approach allows controlling for the effects of other factors, including policy-related factors on structural transformation in Africa. Indeed, beside trade-related variables –i.e., composition of exports and imports- which are our variables of interest, we also control for the effects of policy and institutional variables that have the potential to contribute to structural transformation in Africa

African countries have achieved impressive growth rates within the past decade. Amid this performance, however, are inter-country variations in the region’s economic growth, with some countries still grappling with lackluster growth rates. How might Africa’s growth performance be explained, and why are some countries still lagging behind? This paper uses fixed effects panel regressions, embedded within an endogenous growth model, to explore some of the determinants of growth in Africa. Using a panel dataset from 31 Sub-Saharan African countries covering the period 2000-2012, the paper investigates the role of innovation and institutional factors in Africa’s economic growth. Results from the empirical analysis suggest that institutional factors are just as important for growth in Africa as stylized factors such as physical capital and openness of the economy. Specifically, the paper confirms the notion that political stability is important for economic growth in the region. The empirical analysis also reveals that the ability to absorb technological knowledge is more important for economic growth in Africa than the ability to innovate.

This study examines the effects of gender diversity on economic performance within the microfinance industry. We use ROA to capture financial performance and OpEx to capture operating efficiency. We measure gender diversity at two hierarchical levels: gender diversity within the Board represents the decision-making level; gender composition within the rank of loan officers embodies the operational level. Approximately 1700 observations suggest that gender diversity enhances economic performance, especially in Africa. These findings advocate that policy makers and practitioners place a stronger emphasis on training and developing women for various hierarchical positions in microfinance firms.

Abstract Ensuring environmental sustainability amidst the quest to stimulate growth in Sub Saharan Africa (SSA) remains an issue of great concern. In spite of this, the evidence for SSA is sparse, both at the theoretical and empirical level as literature has not adequately interrogated the effects of economic growth process on the sustainability of the environment in SSA. Using a panel dataset from 1985-2010 covering 35 Sub Saharan Africa (SSA) countries this study examined the environmental impact of economic growth and growth-enhancing factors such as trade openness, Foreign Direct Investment (FDI) and industrialization under the Environmental Kuznet Curve (EKC) framework. The environmental variables employed are CO2 emissions, Adjusted Net Savings (ANS) and energy consumption per capita. Employing the system Generalized Method of Moment, trade openness was found to reduce pollution/degradation through reduced CO2 emissions and energy consumption per capita while at the same time reducing environment sustainability of SSA through reduced ANS. Industrialization was also found to unambiguously harm the environment while rapid urbanization is revealed to increase pollution/degradation through increased CO2 emissions and energy consumption. FDI is the only component found to be accompanied by a fall in pollution/environmental degradation through reduced CO2 emissions and energy consumption and a rise in environmental sustainability through increased ANS. Finally, while the Environmental Kuznet Curve (EKC) is confirmed for ANS and energy consumption, it is not established for CO2 emissions. Keywords: Environmental degradation, Economic growth, Sub-Saharan Africa, System Generalized Method of Moment. JEL Classification: F1, O4, Q4, Q5

Farmers’ decisions about how much crop insurance to buy are not generally consistent with either expected profit or utility maximization. They do not pick coverage levels that maximize expected subsidy nor do they demand full insurance coverage. In addition, the absolute size of farmer-paid premium seems to influence the type of insurance product farmers buy. Understanding demand drivers for crop insurance has taken on new importance because of the expanded role Congress has designated for crop insurance as a key part of Federal farm policy. By modeling financial outcomes as gains and losses, prospect theory offers an appropriate framework to better understand farmers’ purchase decisions. Because insured events are best modeled as continuous random variables, cumulative prospect theory is used to find a theoretical foundation that can explain farmers’ anomalous decisions. The role of the reference point that defines outcomes as either a gain or a loss, the degree of loss aversion, and the probability weighting function are explored under typical distributions of price, yield, and revenue for a corn producer. Choice of reference points that are consistent with farmers using crop insurance to manage risk are not consistent with observed purchase decisions. Choosing the reference point to make crop insurance akin to a stand alone investment generates optimal choices that are consistent with observed decisions and with the way that insurance agents sell the product.

Total liabilities for crop insurance policies covering specialty crops are more than $13 billion and Congress has mandated coverage of additional crops in additional regions, so that the subsidies and the influence of such subsidies are growing. We develop conceptual models to consider how a particular type of crop insurance important for specialty crops specialty crop acreage. We formalize implications of crop insurance subsidy on crop acreage response, separate from demand for insurance, to help assess the causal impact of crop insurance on crop choice. We derive acreage response to insurance from model that recognizes differences across farms and locations in alternative crops and risk of crop loss. Catastrophic Risk Protection (CAT) insurance provides at zero farmer premiums relatively small indemnities per dollar of revenue based on yield losses over 50 percent. CAT is the most widely adopted insurance plan for specialty crops, especially in irrigated areas. Since the full premium for CAT is paid by USDA, and is thus a subsidy to producers (and insurers, if the supply of insurance is upward sloping), we use CAT premium subsidies across crops and counties to identify supply response to insurance premium subsidies. In our estimation strategy, we make use of individual policy-holder information from a unique data set.

This study develops a model of the risk-management features of CSA and CSF-style production contracts, and predicts when unfavorable substitutions will be most severe. Using surveys of local food and fisheries in Florida and in New England, we apply the model to identify cases where efficiency and adoption could be improved by updating contracts in line with local consumer preferences. The contribution of this paper to the literature is that we discuss a contractual relationship in the context of community supported agriculture and we extend the idea to fishery contexts as well.

Agricultural contracts and crop insurance are important ways for farmers to mitigate risks in modern U.S. agriculture. In this paper, we investigate the effect of crop insurance enrollment on farmers’ participation of marketing contracts. Following Ligon (2003), we setup a mechanism design framework to demonstrate an integrator’s contract design problem where farmers are assumed to be expected utility maximizing agents. We use a Babcock (2012) style specification to depict farmers’ optimal choice of insurance coverage and the incentive compatibility and participation constraints for the integrator. Our model shows that, under certain assumptions, a lower crop insurance premium rate could induce higher compensation from integrators. Moreover, crop insurance subsidy allows for higher marketing contract participation. The rationale is that when farmers purchase crop insurance, they rely less on contracts to mitigate risk and become more independent from integrators. Therefore, integrators may revise their contract offers so that the they are more attractive and incentive compatible. This result indicates that the use of one risk management tool may not crowd out the use of the other. For the empirical estimation, we use various data sources and 2SLS to see how crop insurance enrollment affects farmers’ participation in marketing contracts. We use pre-growing season weather variables as IV for insurance enrollment. The second stage result indicates that farms with higher possibility of insurance enrollment will have about 40 percent higher chance of participation in marketing contracts as well. Moreover, we show that the subsidy effect of crop insurance is heterogeneous among different crops.

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Piketty argues that r>g is the “the central contradiction of capitalism” and that it will lead to an “endless inegalitarian spiral.” As a result, he argues for a new global tax on capital. In this brief essay, I explain why I am not persuaded by either his prediction or his prescription.

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Much optimism has been invested in the developmental role of migrants’ remittances. Altruism and frequent interactions should indeed make intra–household resource allocation efficient. But geographical dispersion may breed information asymmetry and jeopardize efficiency. We develop a model of transfers from the Senegalese diaspora based on socio–anthropological evidence of remittances earmarked by migrants for investments or expenditures by their households of origin, especially assets and housing. The model allows for information asymmetry and monitoring by the migrant. It shows that under some conditions it may be optimal for recipients to behave strategically and we may observe systematic discrepancies between recipients’ and senders’ reports of the goods to be financed by transfers. Novel matched data enable us to test and find support for the model’s predictions.

We run a controlled experiment to link managers of manufacturing firms in three African countries. The experiment features exogenous link formation, exogenous seeding of information and exogenous assignment to treatment and placebo. We study the impact of the experiment on firm business practices outside of the lab. We find that the experiment successfully created new variation in social networks. When we designed the experiment we specified two primary regression specifications to measure peer diffusion. We estimate both of these specifications on a range of outcomes and we find only limited evidence of diffusion. We find suggestive evidence of positive diffusion in activities that may be characterized as relatively low risk and low cost (such as having a bank account or having an overdraft facility). We also find suggestive evidence of negative diffusion in activities that present higher risks and higher costs (such as exporting and introducing new products).

Mutual support in village economies is often analyzed in the light of risk sharing. One particular focus is the formation and the sustainability of risk sharing. Yet, the complex nature of support relationships makes it challenging to test the theoretical predictions of risk sharing formation empirically. In this paper, I focus on the role of expected neediness for the sustainability of risk sharing, and investigate the potential of analyzing risk sharing with a network model approach. Based on a model of favor exchange in networks (Jackson et al., 2012), I predict that under strategic link formation a strong positive relationship should be observed between the likelihood of neediness and mutual support. The predictions are tested using data on support networks in a fishing village on the Philippines. Determinants for mutual support are assessed with the help of dyadic regression models and exponential random graph techniques. I find that there is substantial difference between reciprocated and unreciprocated support. The estimated role of neediness points into the direction the risk sharing model predicts: households are less likely to engage in mutual support arrangements when the predicted likelihood to become needy differs substantially between the partners. Data limitations make the specification challenging. By addressing some of the key issues of estimating link formation models empirically, this paper contributes to the emerging literature on linking network theory and empirics.

We use data on informal networks of relatives and people relied upon for help obtained from both a household survey and a separate census in a single village in Ethiopia to examine the robustness of data on sampled networks. We study three issues: …first, we examine the role of measurement error in links; second, we examine the difficulties of ascribing unilateral and bilateral links and …finally, we examine the relationship between degree and economic outcomes and contrast the sample data with information from the census.

This paper studies, theoretically and empirically, the role of overconfidence in political behavior. Our model of overconfidence in beliefs predicts that overconfidence leads to ideological extremeness, increased voter turnout, and increased strength of partisan identification. Moreover, the model makes many nuanced predictions about the patterns of ideology in society, and over a person's lifetime. These predictions are tested using unique data that measure the overconfidence, and standard political characteristics, of a nationwide sample of over 3,000 adults. Our numerous predictions find strong support in these data. In particular, we document that overconfidence is a substantively and statistically important predictor of ideological extremeness and voter turnout.

We present a model of electoral control with behavioral voters. The model is intended to capture the main regularities of voting behavior found in empirical studies. Specifically, the voters' propensity to keep an incumbent in office is governed by a stochastic reinforcement process instead of strategic reasoning. The likelihood of a positive feedback for a voter depends on the effort level exercised by the public official. Our model generates comparative statics that are consistent with the main empirical regularities of electoral accountability. We then show that despite the lack of rational responses by voters, the electoral control of public officials can be substantial. Indeed, electoral control is the highest when voters are most forgetful. Forgetfulness, however, may limit electoral control if voters adjust their evaluation of a candidate repeatedly during a term.

Behavioral economics presents a "paternalistic" rationale for a benevolent government's intervention. We consider an economy where the only "distortion" is agents' time inconsistency. We study the desirability of various forms of collective action, ones pertaining to costly commitment and ones pertaining to the timing of consumption, when government decisions respond to voters' preferences via the political process. If only commitment decisions are centralized, commitment investment is more moderate than if all decisions are centralized. Commitment investment is minimal when only consumption is centralized. First-period welfare is highest under either full centralization or laissez faire, depending on the populations' time-inconsistency distribution.

We analyze a voting model with voters who have correlation neglect, that is, they sometimes fail to appreciate that different sources of information might be correlated. While correlation neglect has the effect of polarizing opinions, we show that this doesn't translate directly to inefficient outcomes. Indeed we show that compared with a rational electorate, when the distribution of preferences in society is heterogeneous and sufficiently balanced, a society composed of voters with correlation neglect may aggregate information in a more efficient way. Moreover, we show that the polarization in opinions does not necessarily translate into policy polarization.

We document the behavior of macro and credit variables during episodes of capital inflows reversals in economies with different degrees of exchange rate flexibility. We find that exchange rate flexibility is associated with milder credit growth during the boom but, even though smaller than in more rigid regimes, it cannot completely shield the economy from a credit reversal. Furthermore, we observe what we dub as a recovery puzzle: credit growth in economies with more flexible exchange rate regimes remains tepid well after the capital flow reversal takes place. This results stress the complementarity of macro-prudential policies with the exchange rate regime. More flexible regimes could help smoothing the credit cycle through capital surcharges and dynamic provisioning that build buffers to counteract the credit recovery puzzle. In contrast, more rigid exchange rate regimes would benefit the most from measures to contain excessive credit growth during booms, such as reserve requirements, loan-to-income ratios, and debt-to-income and debt-service-to-income limits.

This paper studies with a tractable model the policies to deal with systemic financial crises that are amplified by a fire sale pecuniary externality. We focus on the optimal mix between ex-ante policy measures (macroprudential regulation), and ex-post policy interventions (such as low interest rate policy, bailouts, and other forms of financial safety nets). We find that: (i) both types of interventions should be used in equilibrium; (ii) ex-post interventions may increase or decrease the need for ex-ante macroprudential policy, depending on how they are designed; (iii) one benefit of macroprudential policy is to allow more discretion in the use of ex-post policies; (iv) for small crisis risk the welfare gains from financial safety nets dominate those of macroprudential policy by an order of magnitude; (v) using the proceeds from ex-ante macroprudential taxes to finance the ex-post safety nets decreases welfare.

Based on a novel quarterly dataset for 52 countries for the period 1970-2011, we analyze the use and cyclical properties of reserve requirements (RR) as a macroeconomic stabilization tool and whether RR policy substitutes or complements monetary policy. We find that (i) more than 50 percent of developing countries have used RR policy as a macroeconomic tool compared to no industrial country; (ii) 74 percent of developing countries use RR policy counteryclically compared to just 35 percent that have engaged in countercyclical monetary policy; and (iii) in most developing countries, RR policy has substituted monetary policy as a countercyclical tool. We interpret the latter finding as reflecting the reluctance of many emerging markets to reduce interest rates in bad times for fear of letting their currency depreciate rapidly or raising interest rates in good times for fear of attracting even more capital inflows and currency appreciation. Under these circumstances, RR policy provides a second instrument that substitutes for monetary policy. RR could increase (decrease) during booms (busts) to cool off (spur) the economy by increasing (reducing) the lending spread. Evidence from expanded Taylor rules supports these mechanisms.

In this paper we build a new comprehensive, quarterly house price data set comprising 57 advanced and developing economies—representing more than 95 percent of world GDP—with varying time-coverage from 1970 to 2012. We show that house prices in emerging markets grow slower, are more volatile and less persistent, and are more correlated with the real effective exchange rate and the current account, than in advanced economies. We provide evidence that indicates that house price booms are much larger and are more closely associated with capital inflows, loose global liquidity conditions, shallow domestic financial systems in emerging economies than in advanced economies. Finally, we find that while an exogenous change in global liquidity has a sizable impact on consumption, house prices and the current account in emerging markets, it has a much smaller and economically not significant impact on the same variables in advanced economies. We interpret our empirical evidence as suggesting that while global imbalances would have played a lesser role in explaining house price boom in developed economies in the period previous to the Great Recession, the increase in global liquidity in response to it may be playing an important role explaining recent house price dynamics in emerging markets.

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We leverage non-linearities in Danish child support guidelines together with rich administrative data to provide causal estimates of parental behavioral responses to child support obligations. We estimate that a 1,000 DKK ($183) increase in a father's annual obligation is associated with a 507 DKK ($85) increase in his annual payment. However, we also show that an increase in the obligation reduces the likelihood that the father lives with his child, pointing to some substitution between financial and non-pecuniary investments. Further, we find that larger obligations are associated with higher new-partner fertility among both parents. The maternal fertility response is consistent with a positive income-fertility relationship, while the paternal fertility response may reflect increased demand for new offspring as a result of reduced contact with existing children. Finally, we find evidence that some fathers reduce their labor supply to avoid facing higher support obligations. Our findings suggest that government efforts to increase child investments through mandates on parents can be complicated by their behavioral responses to them.

This paper explores whether increased competition for college places in the UK can explain the distinct trends in time investments by parents with different educational attainments in the UK over the past three decades. Using five 24-hour diary surveys covering 1974-2005, the research finds that the average amount of time spent by parents with their children increased over the period. However the education gradient in time investments did not follow a monotonic trend. Our analysis reveals a divergence in time investments by parental education until the mid-90s, fading away towards 2005. Although by the end of the period, all parents, regardless of their education levels, invested about the same amount of time in childcare, parents with some college spent more of that time (around half an hour per week more) on educational activities than less than college educated parents. Children's homework time more than doubled, but whereas in the 70s children devoted the same amount of time to homework regardless of their parents’ educational background, at the end of the period children from more educated backgrounds spent almost twice as much time doing homework as children from less educated family backgrounds. We rule out standard explanations for the differential trends in parental and children's time investments, such as income effects, working arrangements, safety concerns, or parenting values. Novel data on student enrolment numbers and examination results is used to show that the trends in the education gradient in parental time investments closely coincided with the trends in the competition for college slots at elite universities. As previously found for the US, competition for college admissions may also be a plausible explanation for the trends in parental time investments for parents with different educational attainment in the UK over the 1974-2005 period. Additionally, the fact that UK college admission processes are based on previous academic performance to a larger extent than US processes may also explain why parents and children invest in more intensive educational activities in the UK. Given that parental time investments have quantifiable effects in children's long-term outcomes, understanding the extent of inequality in parental time resources invested in children by parental educational background and its likely causes is crucial from a child development perspective and for policies aimed at reducing inequality.

In this paper I explore the relationship between first-birth timing and post-birth labor supply, and how it is influenced by family and career characteristics. Given that pre-birth wages are increasing in fertility delay, the rising opportunity cost of time would suggest that later mothers work more. Yet I only find this pattern for high school graduates. For college graduates, I instead find surprisingly no relationship between first-birth timing and post-birth hours worked, despite strongly increasing pre-birth wages. Furthermore, after controlling for family and career factors, many of which influence hours worked and are correlated with fertility timing, this different pattern by education remains.

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Each year more than 190,000 students participate in the AP Economics programs. This report briefly explains the structure of the AP exams, how AP content is aligned with college courses, how the AP exams are developed, how student essays and graphs are graded, and what the results may reveal about strengths and weaknesses in pre-college economic education. The report also touches on professional development programs for high school teachers and past research on AP grades as a predictor of success in college.

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This paper uses information from a randomized experiment matched to administrative tax and bankruptcy records to estimate the effect of loan modifications on subsequent repayment, bankruptcy, and labor supply. A large non-profit credit counseling organization and eleven unsecured creditors offered a subset of distressed borrowers lower interest rates and longer repayment periods. After five years, borrowers offered lower interest rates were more likely to have repaid their debts and less likely to have filed for bankruptcy protection. For the most heavily indebted borrowers, lower interest rates also modestly increased the probability of being employed. In contrast, there was little impact of a longer repayment period on repayment, bankruptcy, or labor supply. These results suggest that debt overhang, and not liquidity constraints, is the most important problem facing borrowers in our data.

Monetary policy is perhaps the most important tool the government has to quickly affect the trajectory of the economy. This paper estimates the impact of policy-driven short-term mortgage rates on home equity based borrowing. Using credit record panel data from 1999-2010, we show that the likelihood of equity extraction peaked in 2003 when mortgage rates hit historic lows, and estimate that a 100 basis point rate decline leads to a 25 percent rise in extraction. Exploiting geographic variation in house price fluctuations, we find this rate effect is half the magnitude of the house price effect. Additionally, differential responses by age and credit score provide new evidence of financial frictions. Finally, equity extraction increases default risk, most strikingly for those extracting in 2006 when both interest rates and house prices were peaking. Conditional on many factors including credit score, zip code house price changes and county fixed effects, those who extracted in 2006 were 90 percent more likely to become delinquent on a mortgage than non-extractors over the next four years.

Buyers in two-sided marketplace platforms may draw conclusions about the quality of the platform from any single transaction. This induces an externality across sellers that reputation mechanisms will not alleviate. Furthermore, buyers who abandon the platform without leaving feedback will cause seller reputations to be biased. Using data from eBay, we document this externality and argue that platforms can mitigate it by actively screening sellers and promoting the prominence of better quality sellers. Exploiting the bias in feedback, we create a measure of seller quality and demonstrate the benefits of our approach through a controlled experiment that prioritizes better quality sellers to a random subset of buyers. We thus highlight the importance of externalities in two-sided markets and chart an agenda that aims to create more realistic models of two-sided markets.

All markets must facilitate coordination: buyers and sellers must know where to find each other to trade goods and services of a certain type. Notably, market participants naturally have an incentive to disclose information about their preferences with respect to horizontal differentiation---one aspect of the coordination problem. However, the incentive to disclose preferences with respect to vertical differentiation (“quality”) is more fraught with strategic considerations, as it is “close” to information about willingness-to-pay. Surprisingly, we find that endogeneous communication of quality preferences is a powerful tool to induce coordination. We investigate a large-scale field experiment in which a tool was introduced to an online labor market that allowed buyer-side vertical differentiation preferences to be communicated to sellers. In the treatment cells of the experiment, upon posting a job, buyers chose what expertise level they seek, and are told that higher expertise will command a higher wage. We find that buyers readily reveal their preferences and this revelation---which itself was experimentally manipulated---strongly affected seller-side sorting. In other words, we induce a separating equilibrium. However, the strategic concerns of buyers are not second-order: sellers who learned a buyer’s preferences substantially altered their bids in the expected direction.

This paper reports on an experiment conducted at the Wharton School of the University of Pennsylvania, testing a new mechanism for matching students to schedules of courses. The experiment compared Budish’s (2011) approximate competitive equilibrium from equal incomes (CEEI) to the incumbent, a fake-money auction used by Wharton and numerous other professional schools. CEEI outperformed the auction on quantitative measures of efficiency and fairness and qualitative measures of perceived strategic simplicity and student satisfaction. The experiment succeeded in the Roth (1986) sense of “whispering in the ears of princes”, persuading the Wharton administration to adopt CEEI and guiding real-world implementation.

Common application systems are a growing part of recent education reforms. This paper develops a model to study the effects of moving from a decentralized application system to a common application system in the presence of application costs. We then exploit an unusual policy change in Chicago Public Schools where magnet school admissions went from a decentralized application process to a common application process in 2011 to examine the welfare effects of common application systems.

Class size is a first-order consideration in the study of education production and education costs. How larger (smaller) classes affect student outcomes is especially relevant to the growth and design of online classes. We study a field experiment in which college students were randomly assigned to either a large or a small class. All classes were conducted online. Large classes had, on average, about ten percent more students than small classes (mean increase 9.3 percent, standard deviation 4.1 percent). The experiment was conducted at DeVry University, one of the nation's largest for-profit post-secondary institutions, and included over 100,000 students in nearly 4,000 classes across 102 different undergraduate and graduate courses. First, we examine main effects on student success in the course, and student persistence in college during subsequent terms. Second, theoretical arguments, like Lazear (2001), suggest the effects of class size are likely heterogeneous by student ability. We test whether class size effects are due the increase in number of students per se, or a change in the quality of peers, or both. Finally, we compare the University's direct cost savings from increased class sizes with the implied losses from reduced student persistence.

Little experimental evidence exists on the causal impact of class time on academic performance when students have access to extensive course material online. We randomized 725 college students into traditional twice-per-week and compressed once-per-week lecture formats in introductory microeconomics. Students in the traditional format scored 3.2 out of 100 points higher (0.21 standard deviations) on the midterm than those in the compressed format but a statistically insignificant 1.6 points higher (0.11 standard deviations) on the final. There were no differences in non-cognitive outcomes. Students in the middle tercile of predicted test scores performed worst in the compressed format relative to those in the traditional format but there was little difference in test scores by format in the top tercile of predicted performance. Compressed lecture formats supplemented with online material can lessen the need for traditional amounts of face-to-face time with modest impact on student performance.

This paper contains a field study of learning outcomes and delivery modality for principles of economics. The experimental design randomly assigns students to one of three delivery modalities: online, blended, or classroom based instruction. In the classroom, students meet with an instructor, once in a lecture session and once in a discussion session. In the blended format students meet weekly with the instructor in a discussion session, and view online lecture materials. In the online course students view online lectures as their course instruction and have access to extensive online materials developed to be consistent with a set of external standards for best practices in online education. With University IRB approval, data is being collected on academic achievement, demographic characteristics, and personality traits on four consecutive semesters. The class size for each arm of the experiment is capped at 35. The experiment began in fall 2012. Three semesters of data collection are complete. The fourth and final semester of data collection is being collected during the spring 2014 term. Power analyses were conducted prior to running the experiment to assure we would be able to detect reasonably small changes in academic outcomes across the types of course offerings. The learning outcomes based on the first three semesters of data collection on exam scores are not, at a statistically significant level, different between the control group (traditional modality) and blended treatment group. However, the exam scores for the control group are higher, at a statistically significant level, than for the purely online treatment group. The preliminary results suggest that if equivalence of learning outcomes is a goal, then as higher education moves forward with purely online education more instructional resources should be directed at online relative to traditional instruction.

We investigate the role of socioeconomic status (SES) on people’s ability to learn from information in financial markets. In an experimental setting we find that low SES participants, relative to medium or high SES ones, form more pessimistic beliefs about the distribution of outcomes of financial investments when, objectively, these investments are likely to be good. This pessimism bias regarding risky investments that is induced by coming from a low SES environment is particularly strong if participants are actively investing, rather than passively learning, and if financial losses are possible. These results suggest that SES shapes in predictable ways people’s perception of financial news, which in turn may help explain differences in households’ propensity to participate in financial markets.

Many previous experiments have found that participants invest more in risky assets if they see their returns less frequently, see portfolio-level (rather than segregated asset-by-asset) returns, or see long-horizon (rather than one-year) historical asset class return distributions. In contrast to these other studies, we find that such aggregated returns disclosure does not increase equity allocations in an experiment where—in contrast to previous experiments—participants invest in real mutual funds over the course of one year. We show that previously documented aggregation effects are sensitive to the distribution of the risky asset’s returns and how much time elapses between the portfolio choice and the viewing of the returns.

We use neural data collected from an experimental asset market to test the underlying mechanisms that generate peer effects. Despite the fact that subjects are randomly assigned to pairs and endowed with the same information set, we find substantial evidence of peer effects in investment decisions. We then use the neural data to construct empirical tests that can separately identify a social learning mechanism and a relative wealth concern mechanism. We observe neural activity that indicates both mechanisms contribute to peer effects. The neural activity that we use in the empirical tests is measured at the time when subjects receive information about a peer’s investment decision. Our results therefore demonstrate how neural data generated in the absence of choice can be used to distinguish between competing theories of financial decision-making.

A commonly held view is that laboratory experiments provide researchers with more control over an environment than do natural field experiments, and that this advantage is to be balanced against the disadvantage that laboratory experiments are less generalizable. This paper presents a simple model that explores circumstances under which natural field experiments provide researchers with more control than do laboratory experiments. This stems from the covertness of natural field experiments: laboratory experiments provide researchers with a high degree of control in the environment which participants agree to be in; when participants systematically opt out of laboratory experiments, the researcher’s ability to manipulate certain variables is limited. In contrast, natural field experiments can bypass the participation decision altogether and allow for a potentially more diverse participant pool. This is important when treatment effects are thought to interact with participant characteristics.

“Site selection bias” occurs when the probability that partners adopt or evaluate a program is correlated with treatment effects. I test for site selection bias in the context of the Opower energy conservation programs, using 111 randomized control trials (RCTs) involving 8.6 million households across the United States. Predictions based on rich microdata from the first ten replications substantially overstate efficacy in the next 101 sites. There is evidence of two positive selection mechanisms. First, local populations with stronger preferences for environmental conservation both encourage utilities to adopt the program and are more responsive to the treatment. Second, program managers initially target treatment at the most responsive consumer sub-populations, meaning that efficacy drops when utilities expand the program. While it may be optimal to initially target an intervention toward the most responsive populations, these results show how analysts can be systematically biased when extrapolating experimental results, even after many replications. I augment the Opower results by showing that microfinance institutions (MFIs) that run RCTs differ from the global population of MFIs and that hospitals that host clinical trials differ from the national population of hospitals.

Impact evaluations often aim to explain human behaviour so as to better predict what would occur in the future. However, they are rooted in particular contexts and results may not generalize across settings. This paper models the context-dependence and provides the first estimates of how much one can generalize from impact evaluations across a wide variety of interventions in development. I find results from impact evaluations on similar interventions have significant predictive power for studies done in different contexts, however, government-executed programs fare worse and are not well-predicted by other programs, suggesting problems for scale-up. Specification searching and publication bias may threaten the credibility of a study’s results, and the second part of this paper examines to what extent these issues pose a problem. Contrary to findings in other disciplines, impact evaluations in development economics do not appear to suffer from much manipulation.

Suppose a policymaker is interested in the impact of an existing social program. Impact estimates using observational data suffer potential bias, while unbiased experimental estimates are often limited to other contexts. This creates a practical trade-off between internal and external validity for evidence-based policymaking. We explore this trade-off empirically for several common policies analyzed in development economics, including microcredit, migration, and education interventions. Based on mean-squared error, non-experimental evidence within context outperforms experimental evidence from another context. This advantage declines, but may not reverse, with experimental replication. We offer four reasons these findings are of general relevance to policy evaluation.

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Firm dynamics in poor countries show striking differences to those of rich countries. While some firms indeed experience growth as they age, many firms are simply stagnant in that they neither exit nor expand. We interpret this fact as a lack of selection, whereby producers with little growth potential survive because innovating firms do not expand enough to force them out of the market. Our theory stresses the role of imperfect managerial contracts. If managerial effort provision is non-contractible, firms will endogenously limit managerial authority to reduce the extent of hold-up. As large producers will have a higher incentive to put such inefficient monitoring policies in place, the returns to innovation decline rapidly. Improvements in the degree of contract enforcement will therefore raise the returns of growing large and increase the degree of creative destruction; innovative firms will replace inefficient producers quickly. To discipline the quantitative importance of this mechanism, we incorporate such incomplete managerial contracts into an endogenous growth model and calibrate it to firm level data from India. Improvements in the contractual environment can explain a sizable fraction of the difference between US and Indian lifecycles of plants. The model also suggests that policies targeted toward small firms could indeed be detrimental to welfare as they slow down the process of selection.

What determines the technology that a country adopts? While many factors affect technological adoption, the efficiency of the country's financial system may also play a significant role. To address this question, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The ability of an intermediary to monitor and control the cash flows of a firm plays an important role in the technology adoption decision. Can such a theory help to explain the differences in total factor productivity and establishment-size distributions across India, Mexico, and the United States? A quantitative illustration suggests the answer is yes. Keywords: Costly cash-flow control; costly state verification; dynamic contract theory; economic development; establishment-size distributions; finance and development; financial intermediation; India, Mexico, and the United States; monitoring; productivity; self-finance; technology adoption; ventures

We model a firm as a collection of managers who coordinate on joint production. The firm-level production technology features increasing returns to the number of managers and complementarity across managers of heterogeneous skills. Individuals are born into families that differ in size and managerial skill endowment. Each member of a family has the option to (i) work as a manager in the family firm; (ii) work as a manager in a non-family firm; or (iii) supply non-managerial labor for a wage. Non-family firms are constrained by a basic moral-hazard constraint: individual managers can steal a fraction of the joint output and forgo their managerial remunerations. The fraction that they may steal can be reduced by costly monitoring, which determines the optimal size of the firm. The limitation of family firms is, naturally, that the size and the managerial skill endowment of a family are exogenously given and immutable. We use a rich dataset of family and non-family firms from Ethiopia to test and quantify the parameters of the model.

In this paper, we document trends in credit use across income groups in the period surrounding the Great Recession. We investigate trends in the use of different credit products such as mortgages, auto loans, and credit card debt. We compare credit outcomes across areas with different labor and housing market paths. Our findings may provide insight into the well-being of different income groups in the context of the Great Recession.

In this paper, we examine the effects of economic cycles on low- to moderate-income families. We use variation across states and over time to estimate the effects of cycles on the distribution of income, using fine gradations of family income-to-poverty. We also explore how the effects of cycles affect the risk of falling into poverty across demographic groups, focusing on age, race/ethnicity and family type. We conclude by testing to see whether these relationships have changed in the Great Recession. We discuss the results in light of the changes in the social safety net in recent decades.

We examine how participation in social safety net programs differs by income-to-poverty levels, and how that relationship differs before and after the Great Recession. We define income-to-poverty level based on the average of two years of merged CPS data. We find changes in both the level and the distribution of safety-net program participation during the Great Recession.

We use administrative data on parental income and child college attendance to document the distribution of parental income across higher education institutions 1999-2013. We find that students at top schools are drawn very disproportionately from families at the very top of the income distribution. We compare parental income distributions at private schools and at equivalently ranked public schools as well at junior, community, and for-profit colleges. We conclude by documenting how these parental income distributions have changed over time.

This paper examines the associations between intergenerational mobility and cross-sectional inequality in Norway over four generations. Similar to Chetty et al. (2014, NBER WP 19843), we ask whether the “Great Gatsby curve” – the negative association between mobility and inequality documented across countries (Corak, 2013, JEP) – is present also across regions within a country. Our main contribution, however, is to examine the stability of this relationship over time. We do this for a particularly interesting period when Norway transforms from a poor, rural and unequal country into a rich, urbanized and highly redistributive welfare state. Our analysis builds on two new datasets. We have collected the first from historical tax records that report detailed information on the distribution of income at the level of hundreds of municipalities from 1930 onwards. The second dataset is at individual-level and has been created by linking information from several Censuses, the Pension Register, the registers of the Norwegian Armed Forces and other administrative registers. Apart from the information from the Armed Forces (which is available only for men), these sources cover the entire Norwegian population and contain information on income, occupation, education, residence municipality, cognitive ability test scores and demographics. They allow us to measure intergenerational associations between father-son pairs starting with fathers born in the turn of the 20th century and ending with sons born in the late 1970s (for income) or early 1990s (for education). We can estimate these intergenerational mobility measures separately for each cohort and municipality and thus link them to the local level of inequality at the time when the sons were growing up.

Shifts in the intergenerational transmission of economic status are commonly attributed to contemporaneous institutional, technological or social change. We argue that mobility shifts may, instead, be caused by events in the more distant past. First, we examine the dynamic response of income mobility to structural changes in a theoretical model of intergenerational transmission. We find that mobility today depends on current but also past policies and institutions. Mobility variation across groups or countries can thus be a lingering consequence of former structural differences, and institutional reform or technological change may generate mobility trends that last over multiple generations. These trends are often non-monotonic – changing returns to skills or a shift towards a more meritocratic economy, for instance, tend to raise mobility initially while generating a negative trend over subsequent generations. Times of change are thus times of high mobility, and declining mobility today may reflect past gains rather than a recent deterioration of “equality of opportunity”. Second, we study a compulsory school reform in Sweden to test the dynamic implications of our model empirically. Exploiting register data over three generations we document a non-monotonic effect on income and educational mobility. The reform reduced the transmission of economic disparities from parents to their offspring by up to one fourth in directly affected cohorts (born in the 1940/50s). However, the same policy increased measures of intergenerational persistence in the next generation. Of comparable magnitude, this second-generation effect is likely to persist up to very recent birth cohorts.

We write and estimate an equilibrium model of geographic variation in the intergenerational earnings elasticity (IGE). The theory extends the Becker-Tomes model, introducing a production sector in which human capital inputs are strategic complements. We show that the equilibrium return to human capital investments is lower in places where strategic complementarity is more intense, and that this is associated to less intergenerational persistence (lower IGEs). Furthermore, optimal education policies are more progressive where these complementarities are stronger, leading to a negative correlation between progressive public policy and IGEs. Using microdata we construct various location-specific measures of skill complementarity and document that the patterns of geographic variation in IGEs are consistent with our hypothesis. Quantitatively, geographic differences in skill complementarity account for up to 1/5 of cross-country variation in intergenerational earnings persistence. Governments in countries where prominent industries exhibit greater skill complementarities tend to spend larger fractions of GDP on public education, suggesting that underlying technology differences may indirectly explain an even larger proportion of cross-country IGE variation.

We present a structural model of life-cycle human capital accumulation to isolate the direct effect of parents' human capital on children's human capital. Identification of this spillover term comes from the model delivering a relationship between parental human capital, and both the schooling and earnings of the child. We demonstrate identification is achieved by comparing the earnings levels of individuals with the same schooling level but different parental schooling levels. A generalized version of the model with taste shocks for schooling is estimated using HRS data, and we find substantial evidence of strong parental spillover effects. We conduct a policy experiment to examine the impact of compulsory schooling laws. These laws have been used as an instrument to isolate the causal effect parental schooling on children's schooling. We find that a large parental spillover term is consistent with both a large OLS coefficient from regressing child schooling on parent schooling, as well as a (close to) zero IV coefficient. Nonetheless, the reform has a positive impact on earnings. This is because much of schooling variation is explained by taste shocks, and higher parental human capital has a level effect, reducing the need for children to spend more time in school. Contrary to some recent debates that put less emphasis on nurture, we conclude that parental spillovers can explain more than half of the human capital transmission from parents to children.

This paper studies the extensive and intensive margins of firms' global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm imports, as well as those countries' characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourcing decisions naturally interact through the firm's cost function. In particular, the marginal change in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible parametric restrictions, selection into importing features complementarity across markets and firms' sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country's potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential benefits of sourcing from a country leads to significant and heterogeneous changes in sourcing across both countries and firms.

A key trend in international trade over the last two decades has been the rising fragmentation of production across countries. We use transaction-level Chinese customs data, matched Chinese census data, and Chinese Input-Output tables, to better understand where and why firms operate along the global value chain. We characterize firms’ production line position with two measures: the number of production stages between output industries and final consumers (“upstreamness”), and the number of production stages between any pair of input and output industries (“distance”). First, we document the evolution of firms’ production line position over time, and in response to China’s accession to the WTO. Second, we show how it correlates with firm performance (value added, profitability) and with firm characteristics that likely determine the choice of production line position (productivity, ownership). Finally, we study how supply chains differ across source countries, destination countries, and Chinese provinces depending on per capita income, factor endowments and institutional conditions.

This paper first assembles a unique industry-level dataset of foreign affiliate sales to document a new empirical regularity: multinational production is disproportionately allocated to industries where local producers exhibit comparative disadvantage. Then, it shows analytically and quantitatively that multinational production raises average productivity and lowers sectoral productivity dispersion in the host economy. By inducing a larger transfer of technology in sectors where the host economy is relatively less productive, multinational production weakens the host country's comparative advantage. To measure these channels, this paper incorporates sectoral heterogeneity into a Ricardian general equilibrium model of trade and multinational production. The model is estimated to measure the extent of technology transfers across countries and sectors as well as to quantify the welfare effects of multinational activity. The heterogeneity of foreign affiliate sales across sectors is quantitatively important in accounting for welfare gains from multinational activity. In particular, gains from multinational production are 15 percentage points higher compared with a counterfactual scenario in which foreign affiliate sales are homogeneous across sectors. Furthermore, as a consequence of the impact of multinational production on comparative advantage, gains from trade are about half of what they would be without sectoral heterogeneity in multinational activity (10 percent rather than 19 percent).

How do global supply chain linkages modify countries' incentives to impose unilateral import protection? Are these linkages empirically important determinants of tariffs and other policy barriers to trade? To answer these questions, we integrate supply chain linkages into the terms-of-trade model of trade policy, and we develop testable predictions that relate observed bilateral final goods tariffs to domestic and foreign value-added content. We test the predictions using a new database of bilateral applied tariffs and value-added content derived from global input-output tables for 14 major economies and 15 sectors over the 1995-2009 period. We find that domestic content in foreign final goods production lowers bilateral tariffs on final goods imports, consistent with the theory. We also find that foreign value added in domestic final goods production raises import protection for final goods. We find similar results for non-tariff barriers as well.

Previous empirical studies of the incentive effects of medical malpractice liability have largely ignored the incentives of providers to restructure to protect assets. This study uses a large panel database to provide evidence on asset-shielding responses to the enactment of pro-plaintiff tort laws in the nursing home industry. The evidence suggests two important asset-shielding responses. First, large chains sold many homes in the affected states to smaller, more judgment-proof owners (with fewer assets, little or no insurance coverage and protective legal structures). Second, chains became relatively less likely to brand their homes with names that linked them directly to the central corporation or sister units (we provide legal and informational explanations for why branding units is likely to increase expected tort liability). In addition to extending the empirical literature on malpractice, the paper provides evidence on the horizontal ownership of service establishments, branding and the choice of business names.

The theoretical literature suggests that means-tested welfare programs reduce individuals’ savings. Such effects have important public policy implications. Empirical evidence on this, however, is sparse. In this paper, we provide evidence that the elderly decumulate large amount of assets in anticipation of Medicaid nursing home benefits. In 2006, Medicaid tightened its eligibility rules related to asset transfer and nursing home use. First, the asset look-back window increased from three to six years. Second, the penalty period, if any, starts from the date of nursing home use rather than from the date of asset transfer. Using data from the Health and Retirement Study (HRS), we examine whether this Medicaid policy change affected the elderly’s asset holding decisions. We find that married elderly at high risk of using nursing homes significantly decreased their total asset holding by about $100k, or 20%, after the policy change, relative to those at low risk of using nursing homes. The majority of the decumulation occurred with non-protected assets under Medicaid policy. Our findings are not driven by pre-trending. We also find that single elderly decreased their asset holdings too, though at a slower rate and the estimates are not precise. We examine heterogeneous effects by various factors including asset levels, financial literacy, and financial planning horizon. Finally, we use the off-year HRS consumption data to examine whether the observed assets decumulation is accounted for by increased consumption or by asset transfer. Our results are consistent with the elderly behaving strategically to transfer assets at a faster rate when facing tightened Medicaid eligibility rules.

This paper analyzes the income manipulation to cutoffs in eligibility for a subsidized program in the Massachusetts health insurance reform, the state-level precursor to federal health care reform. Using data from the American Community Survey, I test for the existence of income manipulation and find clear evidence around the cutoffs of 150 percent and 300 percent of Federal Poverty Level. The lower cutoff falls between plans with zero and non-zero out-of-pocket premiums, and the effect is concentrated among the self-employed. The higher cutoff falls between plans with the largest difference of out-of-pocket premiums, and is concentrated among wage workers. Based on the evidence of manipulation, I estimate the elasticity of labor supply with respect to wage rate, and calculate the welfare loss due to the subsidized program.

This paper exploits Social Security legislation changes to identify the causal effect of Social Security income on out-of-pocket medical expenditures of the elderly. Using the household-level consumption data from the 1986-1994 Consumer Expenditure Survey and an instrumental variables strategy, the empirical results show that the estimated income elasticities of out-of-pocket total medical costs, medical service expenses, and prescription drug expenses are about 0.89, 1.03, and 0.91, respectively. The estimated elasticities increase substantially and are statistically significant for elderly individuals with less than a high school education. The corresponding income elasticities are 2.40, 3.46, and 1.41, respectively. These findings are in sharp contrast to existing studies and provide empirical evidence that health care expenditures are highly income sensitive among the low educated elderly.

Empirical evidence suggests that both leisure time and medical care are important for maintaining health. We develop a general equilibrium macroeconomic model in which taxation is a key determinant of the composition of these two inputs in the endogenous accumulation of health capital. In our model, higher taxes lead to using relatively more leisure time and less medical care in maintaining health. We find that difference in taxation between the US and Europe can account for a large fraction of their difference in health expenditure-GDP ratio and almost all of their difference in time input for health production.

We show that delegating decision rights to a third party can overcome the negative consequences of reputation concerns and improve social welfare. Delegation is valuable by making public signals noisy, and therefore, mitigates the long run players' incentives in reputation building. Our result explains why politicians can shift public blame by delegating unpopular decisions to agents, and establishes a novel role of delegation, which is in sharp contrast to the bulk of literature where the delegated agent has superior information or the ability to acquire information.

We study a principal-agent model with moral hazard and adverse selection. Agents have private information about the distribution of outputs conditional on each effort (and, possibly, the cost of effort). We prove existence, characterize the solution, and establish several general properties of the resulting multidimensional screening problem. A positive mass of types with low conditional probabilities of success gets a constant payment and zero rents. Exclusion is desirable if and only if it is first-best efficient. When agents are risk neutral, an intermediate mass of types is also pooled, although they are offered contracts with variable payments and get positive rents. In addition, the region of types who exert high effort is contained in the interior of the first-best high-effort region and, unlike in pure adverse selection models, there is distortion everywhere. Under additional conditions, the optimal mechanism offers only finitely many contracts. We apply our framework to multidimensional generalizations of canonical models in insurance, regulation, and optimal taxation and show that it generates novel results.

The proliferation of new payment methods on the Internet rekindles the old and unsettled debate about merchants’ incentive and ability to differentiate price according to payment choice. This paper develops an imperfect-information framework for the analysis of platform and social regulation of card surcharging and cash discounting. It makes three main contributions. First, it identifies the conditions under which concerns about missed sales induce merchants to perceive that they must take the card. Second, it derives a set of predictions about cash discounts, card surcharges and platform fees that match, and shed light on existing evidence. Finally, it studies regulation when surcharging is allowed, showing that (i) capping merchant fees reduces welfare if surcharges are unconstrained, (ii) recent reforms to cap surcharges at or above merchant cost ignore the merchant’s benefit from card payments and are accordingly too lenient; indeed surcharges should be banned when the merchant fee is regulated optimally.

Consider an auctioneer that repeatedly sells identical or similar items using a first-price sealed-bid auction. The auctioneer has a choice of what information about past auctions to disclose. We hypothesize that disclosing winning bids generates more revenue in the steady state than disclosing all bids. This is due to some bidders not realizing that winning bids are not representative of all bids and hence best-responding to the historical distribution of winning bids. We test this hypothesis using a laboratory experiment in which bidders repeatedly compete in pairs drawn from a group of 12 subjects and receive feedback only about the aggregate distribution of bids or winning bids in the group before the next repetition of bidding. Bidders receive no feedback about the outcome of their individual auctions until the end of the experiment. After 11 repetitions of bidding, we observe that the distribution of bids in the winning-bids treatment first-order stochastically dominates the distribution of bids in the all-bids treatment. Under the uniform distribution of valuations, the average revenue is 8 percent higher in the winning-bids treatment, consistently with our hypothesis. To test our hypothesis further, we perform a structural estimation of best-responses. Using bids from the all-bids treatment, we estimate a CRRA risk aversion parameter for each subject. We repeat the same exercise for the winning-bids treatment, with the exception that the estimated parameters now represent a combination of risk aversion and bias in best-responding. Comparing the two distributions of parameters allows us to identify the average extent of the bias in perceiving the distribution of competing bids. We find that a significant fraction of bidders are subject to such bias, consistently with our hypothesis. Moreover, the ones who are not are also affected since they respond to higher competing bids.

Evidence from behavioral experiments suggests that consumers suffer from self-control problems and that intertemporal preferences reflect hyperbolic rather than exponential discounting. This paper shows that in the presence of self-control problems, consumers tend to have a lower elasticity of intertemporal substitution. Furthermore, in contrast to the standard case of exponential discounting with iso-elastic utility, the elasticity of intertemporal substitution for quasi-hyperbolic consumers depends on the duration of the change in the intertemporal relative price. In particular, lasting changes in the real interest rate are likely to generate a smaller degree of intertemporal substitution in consumption than temporary changes. For plausible parameter values, the extent of intertemporal substitution is about 20% smaller for a permanent change than for a temporary change, so the effect is economically significant and has potentially important public policy implications.

Television advertising of prescription drugs is controversial, and it remains illegal in all but two countries. Much of the opposition stems from concerns that advertising directly to consumers may inefficiently distort prescribing patterns toward the advertised product. Despite the controversy surrounding the practice, its effects are not well understood. Exploiting a discontinuity in advertising along the borders of television markets, I estimate that television advertising of prescription antidepressants exhibits significant positive spillovers on rivals' demand. I then construct and estimate a multi-stage demand model that allows advertising to be pure category expansion, pure business stealing or some of each. Estimated parameters indicate that advertising has strong market level demand effects that tend to dominate business stealing effects. Spillovers are both large and persistent. Using these estimates and a simple supply model, I explore the consequences of the positive spillovers on firm advertising choice. I solve for the Markov Perfect Equilibrium and compare that to counterfactuals whereby firms work together to set advertising. In a full industry cooperative advertising campaign, simulations suggest that the co-operative would produce four times as much advertising as the competitive equilibrium, resulting in a 18 percent increase in category size and a 14 percent increase in category profits.

This paper studies experimental A/B testing in the context of a large e-commerce insurance broker. The broker sells insurance plans across a wide range of insurance markets, including ACA Exchanges, Medicare Part D, Medicare Advantage, and Medigap, among others. We perform a sequence of large scale field experiments that focus on increasing the number and quality of consumer purchases through this large online broker. We present evidence related to search costs, consumer attention, and consumer heterogeneity in the context of different specific experiments. We then consider the experimental A/B testing process in sum, and set up a framework to determine the benefits of sequential and repeated experimentation on consumer welfare, firm profits, and social welfare. We compare the sales and welfare of consumers in the presence of a large private e-commerce company doing A/B testing to the case where there is a government run website (as for the ACA exchanges) that cannot do such testing.

Individuals must often choose among discrete actions with imperfect information about their payoffs. Before choosing, they have an opportunity to study the payoffs, but doing so is costly. This creates new choices such as the number of and types of questions to ask. We model these situations using the rational inattention approach to information frictions. We find that the decision maker's optimal strategy results in choosing probabilistically in line with a generalized multinomial logit model, which depends both on the actions' true payoff s as well as on prior beliefs.

The ENERGY STAR certification is a voluntary labeling that favors the adoption of energy efficient products. In the US appliance market, the label is a coarse summary of otherwise readily accessible information. Using micro-data of the US refrigerator market, I develop a structural demand model and find that consumers respond to certification in different ways. Some consumers have a large willingness to pay for the label, well beyond the energy savings associated with certified products; others appear to pay attention to electricity costs, but not to the certification, and still others appear to be insensitive to both electricity costs and ENERGY STAR. The findings suggest that the certification acts as a substitute for more accurate, but complex energy information.

We analyze the contribution of leisure preferences to a model of long-run risks in leisure and consumption growth. The marginal utility of consumption is affected by short- and long-run risks in leisure under non-separable and recursive preferences, respectively. Our model matches equity risk premia and macroeconomic moments with plausible coefficients of relative risk aversion. Further, the incorporation of leisure in utility allows us to examine the optimal tradeoff between labor and leisure and derive model implications for the price of and return on human capital. Human capital exhibits returns that are significantly less volatile than and positively correlated with stock returns, implies expected returns that are between 45% and 60% of the equity premium, and has a Sharpe ratio that is 30% higher than that of the equity return.

In this paper, we feature alternative entropy-based restrictions on the permanent component of stochastic discount factors to evaluate asset pricing models. Specifically, our entropy bound on the square of the permanent component of stochastic discount factors is intended to capture the time-variation in the conditional volatility of the log permanent component as well as distributional non-normalities. Extending extant treatments, we develop entropy codependence measures, our bounds generalize to multi-period permanent component of stochastic discount factors, are based on pricing the risk-free bond, the long-term discount bond, and a set of risky assets, and are substantially sharper. Our empirical application to some state-of-the-art asset pricing models indicates that the search for properly specified asset pricing models is far from over.

We construct a general equilibrium model with heterogeneous firms, financial frictions, and financial shocks to explain the observed high asset price volatility. Firms face two shocks: classic productivity shocks and financial shocks that affect the tightness of the financial constraint. We calibrate the model to the U.S. data and find that productivity shocks generate only modest asset price volatility. However, our model with both productivity shocks and financial shocks generates a volatility in the price of equity comparable to the observed aggregate stock market volatility while also fitting key aspects of the behavior of aggregate quantities.

This paper studies optimal dynamic compensation when firms are subject to uncertainty shocks but have only limited ability to commit to long-term contracts. I analyze a continuous-time dynamic principal-agent model with private effort and regime switching in cash flow volatility and characterize the optimal managerial compensation and termination policy. In high volatility times, firms are forced to expedite payments to managers because sufficient deferred compensation is no longer credible. At the same time, contract length shortens, that is, termination becomes more likely. This relation between the timing of payments and expected contract length may explain the sizeable cash bonuses observed in crises times. In contrast, with full commitment firms defer compensation more when volatility is high.

We formulate a dynamic financial contracting problem with risky inalienable human capital. We show that the inalienability of the entrepreneur's risky human capital not only gives rise to endogenous liquidity limits but also calls for dynamic liquidity and risk management policies via standard securities that firms routinely pursue in practice, such as retained earnings, possible line of credit draw-downs, and hedging via futures and insurance contracts.

We analyze a continuous time multi-task problem of a manager who has to take care of the day-to-day business and also invest to maintain in the long-term profitability of his operation. That is, the manager controls unobservable investment spending which stochastically affects the firm's future profitability. The interaction of these two tasks generates dynamic agency costs of investment without assuming private costs of investment or empire-building preferences. This results in investment distortions under the optimal long-term contract which depend both on the manager's performance record as well as on the firm's returns to investment. That is, firms with high returns to investment will overinvest relative to first best and firms with low returns to investment will underinvest. As the manager's performance record improves, the agency problem is relaxed, thus reducing investment distortions. Hence, in the overinvestment case, investment decreases in realized cash flows while it increases with cash flows in the underinvestment case. A similar effect has an improvement in corporate governance measures: As better governance makes the underlying agency problem less severe, it reduces the "amplitude" of investment distortions. That is, investment decreases in the overinvestment case and it increases in the underinvestment case.

We present CoMargin, a new methodology to estimate collateral requirements in derivatives central counterparties (CCPs). CoMargin depends on both the tail risk of a given market participant and its interdependence with other participants. Our approach internalizes trading externalities and enhances the stability of CCPs, thus, reducing systemic risk concerns. We assess our methodology using proprietary data from the Canadian Derivatives Clearing Corporation that include daily observations of the actual trading positions of all of its members from 2003 to 2011. We show that CoMargin outperforms existing margining systems by stabilizing the probability and minimizing the shortfall of simultaneous margin‐exceeding losses.

Counterparty default risk might hamper trade and trigger a financial crisis. The introduction of a central clearing counterparty (CCP) benefits trading but pushes systemic risk into CCP default. Standard risk management strategies at CCPs currently overlook a risk associated with crowded trades. This identifies it, measures it, and proposes a margin methodology that accounts for it. The application to actual CCP data illustrates that this hidden risk can become large, in particular at times of high CCP risk.

The Lehman bankruptcy highlights the potential for interconnectedness to cause negative externalities through counterparty contagion, but the externalities may also arise from information contagion. We examine troubled financial firms and find that both channels are significant factors in creating spillover effects. Counterparty contagion is greater in cases of riskier firms and larger and more complex exposures. However, the counterparty exposures are small, especially among banks that face diversification regulations, and do not typically cause a cascade of failures. Information contagion is stronger for rivals in the same markets and has a larger impact in cases of distress than in bankruptcies.

Using a large and unique micro dataset compiled from the official real estate registry in Japan, we examine the loan-to-value (LTV) ratios for business loans from 1975 to 2009 to draw some implications for the ongoing debate on the use of LTV ratio caps as a macro-prudential policy measure. We find that the LTV ratio exhibits counter-cyclicality, implying that the increase (decrease) in loan volume is smaller than the increase (decrease) in land values during booms (busts). Most importantly, LTV ratios are at their lowest during the bubble period in the late 1980s and early 1990s. The counter-cyclicality of LTV ratios is robust to controlling for various characteristics of loans, borrowers, and lenders. We also find that borrowers that exhibited high-LTV loans performed no worse ex-post than those with lower LTV loans, and sometimes performed better during the bubble period. Our findings imply that a simple fixed cap on LTV ratios might not only be ineffective in curbing loan volume in boom periods but also inhibit well-performing firms from borrowing. This casts doubt on the efficacy of employing a simple LTV cap as an effective macro-prudential policy measure.

We complement the literature on how managerial traits relate to corporate choices by documenting that firms run by female CEOs have lower leverage, less volatile earnings, and a higher chance of survival than otherwise similar firms run by male CEOs. Additionally, transitions from male to female CEOs (or vice-versa) are associated with economically and statistically significant reductions (increases) in corporate risk-taking. The results are robust to controlling for the endogenous matching between firms and CEOs using a variety of econometric techniques. We also discuss some theoretical mechanisms that might explain our results.

This paper examines whether and how the appearance of chief executives officers (CEOs) relates to shareholder value. We obtain a Facial Attractiveness Index of 667 CEOs based on their facial geometry. CEOs with a higher Facial Attractiveness Index are associated with better returns around their job announcements, and higher acquirer returns upon acquisition announcements. To mitigate endogeneity concerns, we compare stock returns surrounding news dates with CEOs’ images to returns surrounding news dates without CEOs’ images. Facial Attractiveness Index positively affects returns only around news dates with CEOs’ images. These findings suggest that CEO appearance matters for shareholder value.

We examine the causal effect of unionization on a firm’s takeover exposure and merger gains. To establish causality, we use a regression discontinuity design that relies on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Barely passing a union election leads to a significant reduction in a firm’s probability of receiving takeover bids. Conditional on receiving a takeover bid, barely unionized targets enjoy a lower announcement return, receive a lower offer premium, and experience longer bid duration. The negative effect of unions on targets’ takeover exposure and merger gains is more pronounced when the mergers are horizontal, the firms have large unions, and the unions locate in states without right-to-work laws or states with more union-friendly successor statutes. Bidders of unionized targets seem to have more experience in making merger deals, possess a higher bargaining power, and face less union threat by themselves. Our paper provides new insights into the real effects of unionization regarding the market for corporate control.

We study the efficiency of internal capital markets at state-controlled and privately owned business groups in China. Using highly granular data on within-group capital flows, we document stark differences: while private groups allocate more capital to units with better investment opportunities, state groups do the opposite. Product market competition and external monitoring by minority private shareholders help discipline state groups’ tendency to ignore investment opportunities. We conjecture that capital allocations at state groups reflect the private career objectives of their chairmen. We show that promotion depends not on increasing profitability but on avoiding layoffs. Consistent with a career motive, we find that capital allocations are used to prop up large and struggling employers, but only if the chairman has a realistic chance of being promoted and if the cost of self-interested behavior is not too high.

We propose a new measure, the Ability to Forecast Earnings (AFE), to identify skilled fund managers. AFE focuses on stock performance during a short window around earnings announcements, in which price movements are predominantly due to firm-specific information revealing fundamental values. It is thus less affected by noise and other shocks in the market. Over the period 1984–2008, we find strong persistence in AFE for skilled funds in the subsequent three years. Moreover, funds in the top decile with the highest AFE subsequently outperform those with the lowest AFE by 2 to 3 percent per year.

Prior studies have documented that pension plan sponsors rigorously monitor a fund’s performance relative to a benchmark. We use a first-difference approach to show that in an effort to beat benchmarks, fund managers controlling large pension assets reduce fees and increase their exposure to high-beta stocks. Managers increase beta without affecting tracking error because they strategically substitute low-beta stocks for high-beta stocks with low idiosyncratic volatility. The findings support theoretical conjectures that benchmarking pressures increase demand for high-beta stocks and help to explain their low returns. Managerial risk-taking responses to benchmarking pressures complicate financial planning for investors.

This paper proposes several new holdings-based measures of fund investment horizon, and examines the relation between manager skills and fund holding horizon. We find that both aggregate holdings and trades of long-horizon funds are informative about superior future long-term stock returns, whereas aggregate trades, but not holdings, of short-horizon funds are associated with future short-term stock returns. Specifically, stocks that are largely held by long-term funds outperform stocks that are largely held by short-term funds by roughly 3% per year over the following five-year period. This superior performance of fund managers with long investment horizons stems from their ability to identify superior long-term firm fundamentals. In contrast, short-term funds predict short-term earnings or use simple mechanical strategies, such as momentum strategies, to select stocks.

This paper investigates whether financial analysts' power to move prices arises from investors' tendency to blindly follow analyst earnings estimates. Analyst forecasts are often overly optimistic. This optimism is predictable and may generate temporarily inflated stock prices. In addition, for high credit risk stocks, the quintile predicted to have the most optimistic forecasts outperforms the quintile with the least optimistic forecasts by about 19% per year. Certain types of firms attract significantly more analyst optimism than others—namely those with poor credit quality. For these firms, the price distortions caused by analyst optimism are so large and frequent that they account for the negative credit risk-return relation observed in the cross section of U.S. stocks.

We show that in an experimental research setting individual mutual fund investors invest sub-optimally and suffer from behavioral biases when only provided with summarized textual and tabulated mutual fund information. They perceive the risk level of mutual fund incorrectly, follow return-chasing strategies and as a result incur unnecessary fees. Adding real-life graphical risk and returns representations to the disclosed information significantly de-bias individuals’ investment decision. The incurred unnecessary fees drop by 7 to 24 percent relative to the control group depending on the treatment information, while funds’ average perceived risk level improves and return-chasing strategies become less popular. Our results suggest that including graphical representations helps investors to make cheaper investment decisions and should therefore seriously be considered by financial regulators when deciding upon the disclosure policy of financial products.

This paper empirically studies how the interaction between short-term investors and analyst recommendations is related to a speculative component in stock prices. Using a new measure of the holding duration of institutional investors (called Stock Duration), we document that frequently traded stocks with optimistic (pessimistic) analyst recommendations have large negative (positive) future alphas that follow large positive (negative) past outperformance. Using Russell 2000 index reconstitutions to capture exogenous changes in institutional ownership, Stock Duration and analyst coverage, we conclude that strong analyst recommendations serve as a coordination mechanism among short-term, likely speculative, traders, causing significant misvaluations and subsequent price reversals.

We examine the impact of distance on investor search behavior, and the effect of geographic dispersion of investor search on the stock market response around earnings announcements. We find significant “local bias” in Internet search behavior. While more visible firms have more geographically dispersed search, there is significant additional variation in search dispersion. Motivated by theories of network effects and psychological distance, we predict and find that firms with a higher geographic dispersion of search experience higher abnormal trading volume, lower abnormal bid-ask spreads, and larger earnings response coefficients at the time of earnings announcements, as well as weaker post-earnings-announcement drift. These results hold both cross-sectionally and when examining changes in dispersion or propensity-score matched pairs. In addition, path analysis suggests that both network effects and investor psychology are significant drivers of the return results. Overall, our results suggest that geographic proximity affects search, and that firms with more geographically dispersed search experience better market responses to earnings announcements.

This paper documents and explains previously unrecognized dynamics following the collapse of a housing bubble. A simple model predicts that supply adjustments by speculative developers ensure stable pre-crash relative prices between low- and high-quality segments of the market. Post-crash exit of developers removes that disciplining effect which allows relative prices to potentially diverge, in which case lower quality segments must fall further so that the rank order in prices across quality segments is preserved. Market recovery implies the return of developers causing relative prices to revert back to their pre-crash levels. We implement the model using size-stratified repeat sales measures of house price inflation for Phoenix, Arizona. Although home prices doubled 2004-2006, relative prices of small-to-large homes remained stable. Post-crash, a striking monotonic pattern of relative prices appears, with smaller home values falling further than larger home values prompted in part by increased turnover associated with distressed sales in smaller home market segments. As markets have begun to recover since 2011, much of the divergence in relative prices has disappeared. Anticipated mean reversion indicates that cities can reduce post-crash volatility and possible mispricing by publicizing size-stratified repeat sale house price indexes.

Macro economists have documented the association between consumer confidence dynamics and durables purchases. A similar dynamic exists in China’s urban housing market. At any point in time Chinese consumer confidence hinges on beliefs about the state of the macro economy and the resolution of policy uncertainty related to the national and local housing policies. We build a 35 Chinese city real estate confidence index. All else equal, this index predicts subsequent house price appreciation and new housing construction. Given that housing plays a key role in China’s marriage market, we document that in cities with more skewed sex ratios that this index has a stronger association with market price dynamics. In cities featuring a more inelastic housing supply, we document a stronger association between price dynamics and the confidence index. We supplement this city panel research with results from our household level expectations survey.

This paper studies the evolution of U.S. house prices across 45 metropolitan areas from 1980-2012. It uses a lagged version of the Gordon dividend discount model, modeling price as present value of imputed rents along lines in Lai and Van Order (2010). This allows for a very parsimonious specification, using only lagged rents, property values and interest rates to explain property values. Rents are in effect a summary statistic for all sort s of variables commonly used in modeling real estate. We use Pooled Mean Group (PMG) estimation, which allows panel data such as ours to have different adjustment speeds across, in our case, cities, but forces long run coefficients to be the same. In our case we assume that every city converges to a price given by the Gordon model except for fixed effects, which allow some cities to be “growth stocks” relative to others. This allows us to impose standard asset pricing theory in the long run, while allowing for well-known sluggishness of price adjustment and variation of adjustment speeds across cities. We use this structure to analyze regime shifts over the period and differences in “bubbles” across cities, and we test whether the Gordon model applies consistently in the long run and speed of adjustment to the long run.

We construct a new "list-price index" that uses the repeat-sales approach to measure house prices but for recent months uses listings data instead of transactions data. Because listings data describe the current offering price and are available essentially in real time, our index is more timely than existing house price indices in two ways. First, our index describes house values at the contract date when the price is determined rather than at the closing date when the property is transferred. As a result of this difference in timing, our index displays a stronger correlation with stock prices and less short term serial correlation than a standard repeat-sales index. Second, our index accurately reveals trends in house prices several months before existing sales price indices like Case-Shiller become available. In a sample of nine large MSAs over the years 2008-2012, our index (i) accurately forecasts the Case-Shiller index several months in advance, (ii) outperforms forecasting models that do not use listings data, and (iii) outperforms the market's expectation as inferred from prices on Case-Shiller futures contracts.

Not really. This paper compares the unlevered returns on value added and core investments of private commercial real estate equity in the National Council of Real Estate Investment Fiduciaries (NCREIF) database. We use capital expenditures on building improvements to identify value added investments, and use a difference in differences approach to control for mismatch in holding periods and locations of investments. The results provide no evidence for difference in average returns on value added and core investments, despite higher perceived risk for the former. We also find that value added investments have lower unlevered returns when “value creation” starts in booming real estate markets and when “value creation” costs more, which suggests possible systematic mispricing of the real options embedded in value added investments.

This paper examines how asset risk impacts corporate investment and financing decisions. We derive a general model that incorporates risk, adjustment cost, and depreciation features of assets-in-place into investment decisions. The model suggests that the risk and adjustment cost of assets-in-place reduce both corporate investment and financing. We empirically test the model in a panel of US firms from 1985 to 2010 with data on real estate risk exposure. Evidence shows that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. However, the effect on leverage depends on risk measures and asset types. Overall, in contrast to previously documented effect of the real estate value, real estate risk exposure exhibits mostly the opposite effects on investment, financing, and capital structure.

This paper reports empirical evidence on the nature and magnitude of real depreciation in commercial and multi-family investment properties in the United States. The paper is based on a much larger and more comprehensive database than prior studies of depreciation, and it is based on actual transaction prices rather than appraisal estimates of property or building structure values. The paper puts forth an “investment perspective” on depreciation, which differs from the tax policy perspective that has dominated the previous literature in the U.S. From the perspective of the fundamentals of investment performance, depreciation is measured as a fraction of total property value, not just structure value, and it is oriented toward cash flow and market value metrics of investment performance such as IRR and HPR. Depreciation from this perspective includes all three age-related sources of long-term secular decline in real value: physical, functional, and economic obsolescence of the building structure. The analysis based on 107,805 transaction price observations finds an overall average depreciation rate of 1.5%/year, ranging from 1.82%/year for properties with new buildings to 1.12%/year for properties with 50-year-old buildings. Apartment properties depreciate slightly faster than non-residential commercial properties. Depreciation is caused almost entirely by decline in current real income, only secondarily by increase in the capitalization rate (“cap rate creep”). Depreciation rates vary considerably across metropolitan areas, with areas characterized by space market supply constraints exhibiting notably less depreciation. This is particularly true when the supply constraints are caused by physical land scarcity (as distinct from regulatory constraints). Commercial real estate asset market pricing, as indicated by transaction cap rates, is strongly related to depreciation differences across metro areas.

Option pricing theory predicts that capital improvement expenditures are positively linked with high or increasing market lease rates. Ceteris paribus, when the market lease rate is high, or when there is an expectation of higher lease rates in the future, owners are encouraged to increase investment to capture a larger profit. In contrast, when the market lease rate is low, or when there is an expectation of lower lease rates in the future, owners are encouraged to defer capital improvements, causing a skewness in the cash flows. However, not all capital improvement decisions are made on this basis. Some capital expenditures are defensive investments, made when the market lease rate is low, or when there is an expectation of lower lease rates in the future. Defensive investments can, in theory, improve cash flow, reduce vacancies, reduce leasing and repair costs, and preserve building value. Still, defensive investments can be shared growth options, easily replicated by others with minimal effort. Consequently, it is possible for any routine cost reductions or any economic rent associated with defensive investments to be dissipated over time, or at least so the theory goes. We test these predications using property-level data during the period from 2003 to 2012. The evidence supports the conjecture that capital improvements lead to higher incomes. The evidence does not, however, provide support for the conjecture that capital expenditures are fully capitalized into market values. In point of fact, the evidence argues just the opposite. Nonetheless, despite this result, the same data provide evidence that investors are fully, or more than fully, compensated in terms of overall total return on investment for the differing expenditures.

We conduct an empirical investigation of the pricing and economic sources of commonality in liquidity in the U.S. REIT market. Taking advantage of the specific characteristics of REITs, we analyze three types of commonality in liquidity: within-asset commonality, cross-asset commonality (with the stock market), and commonality with the underlying property market. We find evidence that the three types of commonality in liquidity are priced in REIT returns but only during bad market conditions. We also find that using a linear approach, rather than a conditional, would have underestimated the role of commonality in liquidity risk. This explains (at least partly) the small impact of commonality on asset prices documented in the extant literature. Finally, our analysis of the determinants of commonality in liquidity favors a demand-side explanation.

This paper examines the flow-performance relationship for direct real estate investment funds. Combining a unique data set with a VAR model framework, we find evidence that investors chase past returns at the aggregate level. However, we find against a market timing hypothesis - real estate fund flows do not seem to predict subsequent returns. Additional findings indicate aggregate flows into direct real estate funds are serially correlated and negatively related to changes in the risk free rate. Our analysis of individual fund flows is motivated by a growing body of literature that addresses the flow-performance relationship and the effect of illiquid assets. Overall, we find the flow-performance relationship for direct real estate investment funds is convex. This finding is consistent with studies based on funds with more liquid underlying assets such as equity funds. More importantly, we find that the flow-performance shape varies with fund-level liquidity. Individual fund flows are less sensitive to poor performance as liquidity increases. The flow-performance sensitivity is higher for high performing funds as liquidity increases. Together these results imply that fund liquidity increases the flow-performance convexity of real estate funds. The implications are that investors are more sensitive to fund-level underperformance (i.e., more likely to sell), when there is increased liquidity risk.

The real estate and urban economics literature has consistently shown that foreclosed homes adversely impact the selling price of surrounding real estate. In this study, we examine the external impact of foreclosures on nearby real estate liquidity in particular. In addition to using more traditional binary measures, we construct a continuous distance-weighted foreclosure externality measure that incorporates temporal overlap between a listed property’s marketing period and nearby foreclosures. This approach allows us to estimate effects of nearby foreclosed homes at various points in a property’s marketing period, allowing the spillover to vary in intuitive ways. While much of the literature shows that foreclosed properties have a modest effect on nearby home prices, our results show that foreclosed homes adversely impact the liquidity of nearby homes substantially, increasing a nearby home’s time on market and significantly reducing the probability that it will sell. Further, the results suggest that foreclosure externality on liquidity is primarily driven by a disamenity effect, as the estimated external supply effect of a foreclosed property is approximately the same as a non-foreclosed property.

So far the main body of the asset pricing literature has computed liquidity risk premia for either markets or single assets. The vast majority of these studies have been focused on fairly liquid assets, but recently a greater attempt to price such an important component of the asset pricing factors in markets with high illiquidity (especially in real estate) has also started to take place. The present paper brings these recent studies together, and estimates the liquidity premium of illiquid assets looking at three main sources – time on market, liquidation bias and market liquidity – using three main empirical estimation models and several liquidity measures suggested in the literature. We find strong evidence of a high premium that varies across sectors and periods. This estimation is robust to different measures of liquidity and model specifications.

We examine the extent to which innovation and patenting activity in China is inefficiently skewed toward the State Sector (SOEs), slowing technology advance and productivity growth. The past decade has witnessed a surge in patent applications and grants in China, and SOEs’ share in patent activity has been disproportionately high. SOEs’ investment in R&D has surged, much of it benefitting from state subsidies on innovation. Anecdotal evidence suggests that SOEs’ patenting activities have been in part a response to government pressure. However, there is mounting evidence that SOEs’ patent grants lag in their impact on productivity and financial performance and that there is a misallocation of intangible investment between the state- and non-state sectors is serious and deteriorating (Du, et al 2014). We follow Melitz and Polanec (2012) in decomposing firm-level TFP growth based on a time-varying index of resource misallocation over the period 1998-2008. We relate a firm’s position in the resource reallocation hierarchy affects innovative outputs as measured by innovation patents, utility patents (which are lower in innovation content), intangible asset growth, and new product sales. We show that the cheap credit and other subsidies to SOEs leads to resource misallocation and lowers firm-level and aggregate TFP growth, with obvious implications for the sustainability of China’s progress beyond the “middle income trap”.

China’s gap in industrial labor productivity with the United States has been steadily shrinking over recent decades. In this paper we examine the main sources of gap reduction and the potential for further catch-up. Using Chinese above-scale firm-level data during 1998-2007 period and BEA industry -level data in the US, we first document the respective rates of growth of labor productivity, gap reduction, and contributions to overall catch-up of China’s manufacturing sector during 1998-2007. We then aggregate the firm-level data to the 3-digit industry level to estimate a productivity gap reduction function and find that the key drivers for the productivity convergence are the initial technology gap, increased R&D spending, firm’s ownership restructuring, and industry level entry-exit ratio, a measure of competitive dynamism. A key finding is that the catch-up dynamic entails the break out of a small number of firms within each industry rather than catch-up of lagging firms. We then use these finding to investigate on-going patterns of catch-up during 2007 to 2011.

China overtook the U.S. in 2011 to become the country filing the largest number of patent applications. Has China's patenting ascendancy been propelled by Chinese firms' increasing technological sophistication or their much greater propensity to seek patents? Using a unique and never before used data set, where the State Intellectual Property Office (SIPO) patent records have been matched to their applicant firms, we differentiate the two potential explanations by estimating a patents production function. Our main findings are 1) Chinese firms have intensified their R&D spending; 2) the patenting surge has been an across-the-board phenomenon, with more rapid growth coming from industries that were previously not seeking patents as actively as they are now; 3) the correlation between patents and R&D has become weaker, particularly for utility models and for domestic Chinese firms; 4) despite the weakening association between patents and R&D, the willingness to acquire patents has significantly increased; and 5) less innovative firms and firms from less innovative regions have shown a greater willingness to apply for patents.  

The quality of manufactured products made in China has improved tremendously in the past several decades. In this paper, we argue that crises beget opportunities for quality upgrade. We first develop a theoretical framework to show that a crisis, if used wisely, could present good opportunities for entrepreneurs and local governments to form collective action to improve product quality. Next, we empirically test the hypothesis using a panel data set from 1990 to 2008 at the county level in Zhejiang Province, China, showing that after crises, the number of patents, trademarks, and ISO application spiked. Based on a survey in about 100 clusters, we also find that the type of collective action has shifted from promoting quantify explanation to facilitating quality upgrade after a crisis.

Alan Gruchy’s broad description of social provisioning highlighted the importance of providing the flow of goods and services to meet the overall needs of its economic participants, including disadvantaged members whose activities tend to be immersed in the non-market sphere. Numerous economists, both institutionalist and mainstream, going back to the early postwar years have often pointed to the provision of some form of basic income as the next “evolutionary” policy step to ensure a crucial safety net for all, regardless of labor market participation. Inspired by the work of Polanyi (on the effects of “outdoor relief” under the Poor Laws), the “aid-in-wage” system generated labor market outcomes perhaps similar to those that could arise from the adoption of a guaranteed basic income. This is because income guarantees could spread deflationary wage pressures among low-income participants due to the compensation effect of the basic income. This would have not only important micro outcomes for employment income at the low end of the wage scale, but it could have an impact at the macro level under the crucial assumption of fiscal deficit neutrality of these basic income proposals. This directly links to the Keynesian view of the state, whereby a basic income guarantee without some form of fiscal policy of functional finance would be destabilizing at the macroeconomic level (a connection to social provisioning also emphasized by Todorova).

The financialization process around the world as part of the shadow financial system has arrived by different ways not only as part of an official dialogue in the macroeconomic field but also in the microcredit sphere. Microfinance institutions are part of the inclusion financial process especially for poor people in developing countries but must of these microcredit are used by women who needs to improved their income. Microcredit has been used by the dominant ideology as a mechanism for the empowerment of women throughout the last years. The empowerment from a gender perspective consists in transforming women into economic agents, capable beings with “freedom to choose”, not only to determine credit’s use and to get involved in productive projects, but also as entrepreneurs in administrative, social and political decisions of society. Microcredit with a woman’s face is one of the most important metamorphoses that came up from structural changes in financial circuits and labor-market circuits from late seventies until today. Microcredit not only encourages empowerment, it also leads women to become economically profitable subjects at microfinance’s service. At the same time the profits of the microfinance institutions are part of the financialization process around the world. Many of the microfinance institutions depend or are part of the big banks. The objective of the present paper is to point out the way in which microfinance acquire the face of women.

Economic activity takes place within an institutional framework. People are not rational individuals whose main goal is to maximize profits or utility, but members of a society, and their behaviour is an outcome of rules that define this society. The economy, like society, represents a complex of institutions, ranging from the smallest, such as the family, to the largest and most comprehensive, namely the state. Institutional economics offers a broad perspective, which allows to bring forward the concept of gender, since gender is a fundamental organizing principle of institutions. A focus on social provisioning, typical for both feminist as well as institutional economists, leads to a broader understanding of economic activity. This broader approach includes activities, like caring and care labour, that cannot be entirely understood in terms of individual choices. Care and economy are interconnected. Care is important for the economy, which depends on care services and would not be able to develop or even to operate without it. On the other hand economic relations influence the quantity and quality of care provided in society. In the paper the relations between care and economy are explored from the perspective of institutional and feminist economic theory. Economic theories are basis for public policies, that have a major impact on people’s lives. In the paper I will argue that the change of dominating economic perspective into feminist-institutional would improve the situation of care providers, and that would contribute to the development of the society and the economy.

Consumers today are under increasing pressure to make the “right” spending decisions. A “good” consumer is supposed to be environmentally conscious, support the local economy, and promote economic and social justice—all through the power of the dollars they spend. We explore the potential of transforming from consumers to social provisioners and shifting the conversation from individual choice and personal responsibility to social provisioning and caring relations. We analyze the spectrum of behavior displayed by economic individuals from the consumer to the social provisioner and the influence of ethics in their actions. Additionally, we contextualize understanding of the behavior of economic individuals within diverse economic theories and current realities. Finally, we examine how to challenge the materialist status quo through the use of government regulations, ethical and religious guidance, and social norms.

This paper investigates the institutional nexus of Welfare Support Programs (WSPs) in the US and households’ access to social needs, particularly affordable healthcare and education. A close look at the Survey of Consumer Finances (SCF) reveals that households that were turned down when they applied for credit in the past are more likely to receive welfare support in the survey year. Moreover, welfare recipient households report lower status of health and lower years of education regardless of their income and demographic attributes. These results support the hypothesis that WSPs limit households’ access to healthcare and education due to the institutional set-up of the two in the US. Constrained-households find themselves in the welfare trap because their limited access to better health care and education are reflected in their household income, pushing them further down the ladder and increasing their dependency on WSPs for subsistence. Neither the repeal nor the expansion of WSPs will solve this dilemma unless the US government enacts institutional policies to address the way higher education and healthcare is provided and financed in the country. Affordability of health care and higher education should be the main target of these policies to enable households to pull themselves out of the welfare trap by finding and maintaining jobs without regressing back in to welfare support.

This paper examines economists’ indefensible attachment to the positive-normative distinction, and suggests a behavioral economics explanation of their behavior on the subject. It traces the origins of the distinction to Hume’s guillotine and logical positivism, and argues they contributed to Robbins’ understanding of value neutrality. It connects philosophers’ rejection of logical positivism and their rejection of the positive-normative distinction, explains and modifies Putnam’s view of fact-value entanglement, and identifies four main ethical value judgments that contemporary economists employ. The behavioral explanation of economists’ denial of these value judgments emphasizes loss aversion and economists’ social identity as economists.

Most economics majors today, like their counterparts fifty years ago, are unable to demonstrate retained understanding of economic principles or to apply them to real-life situations (Stigler 1963; Bice et al. 2015). Yet the Samuelsonian mode of economics education persists, due in part to limited cooperation among educators who would favor reforms to enhance students’ capacities for self-directed analysis and learning. The author argues that economists’ shared commitment to the Enlightenment aim of teaching students to think for themselves could facilitate broad-based conversations about and support for liberal revisions to the learning goals, teaching strategies, and curricular structures of the economics major. In support of this claim, the paper demonstrates that liberal education ideals are native to virtually every branch of modern economics and explores how undergraduate economics education might be enhanced if economists of diverse theoretical traditions were to engage in more conversations about how to expand students’ intellectual capabilities.

Contemporary mainstream economics has widely “poisoned the well” from which people get their ideas about the relationship between economics and ethics. The image of economic life as inherently characterized by self-interest, utility- and profit-maximization, and mechanical controllability has caused many businesspeople, judges, sociologists, philosophers, policymakers, critics of economics, and the public at large to come to tolerate greed and opportunism, or even to expect or encourage them. This essay raises and discusses a number of counterarguments that might be made to the charge that current dominant professional practice is having negative ethical effects, as well as discussing some examples of the harms inflicted in the areas of law, care work, the environment, and ethics itself. (The attached file is a 2012 working paper version; the final version is forthcoming in The Oxford Handbook of Professional Economic Ethics, edited by George DeMartino and Deirdre McCloskey.)

This paper analyses the financial crisis from three ethical perspectives. It starts from utilitarianism, the ethical theory underlying neoclassical economics, which has partly driven the crisis. The best-known alternative is deontology, a rule-based ethics. This has failed to prevent the crisis because the dominant utilitarianism has undermined professionals’ belief in universal rules. The third approach is the ethics of care, a relational ethics grounded in moral commitments between people in their particular contexts, which emerged from research on families, households, and healthcare. There are two case studies that illustrate that the ethics of care is not necessarily limited to micro practices shaped by women’s traditional roles as caregivers. One case is on ‘caring finance’ in Rabobank, and the other is on gender differences in financial behavior. They illustrate that the ethics of care deserves more attention from economists.

In this paper, we exploit the abrupt closure of the San Onofre Nuclear Generating Station to estimate the value of electricity transmission. Following the plant's closure in February 2012, we find that as much as 75% of lost generation during high demand hours was met locally. Although lower-cost production was available elsewhere, transmission constraints and other physical limitations of the grid severely limited the ability of other producers to sell into the southern California market. These constraints also made it potentially more profitable for certain plants to exercise market power, and we find evidence consistent with one company acting non-competitively.

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During the last two decades many countries have recognized the challenges posed by resource scarcity, environmental pollution, and climate change and sought for policies to foster more sustainable energy consumption. In this spirit Germany introduced a new ad-quantum excise tax on electricity consumption in 1999. The goals were twofold. First, to encourage improvements in energy efficiency and second, to foster economic growth by using the revenues from the electricity tax to lower labor costs. We examine the impact of the electricity tax on the economic performance of firms in the manufacturing sector. We propose a nonparametric regression discontinuity design that exploits sharp discontinuities in the marginal electricity tax rate. A year by year evaluation during the period 1999-2005 shows, that the causal impact of the electricity tax on firms’ revenues, employment, investment, and exports are economically and statistically insignificant. Our findings suggest, that eliminating the reduced marginal electricity tax rates would increase revenues for the government without significantly harming firms.

Since 2007, coal-fired electricity generation in the US has declined by a stunning 25%. At the same time, natural gas-fired generation and wind generation have dramatically increased due to technological advances and policy interventions. We examine the joint impact of natural gas prices and wind generation on coal generation, with a particular focus on the interaction between low natural gas prices and increased wind generation. Exploiting detailed daily unit-level data, we estimate the response of coal- fired generation across four transmission regions within the US. Low natural gas prices and increased wind generation have both led to reductions in coal-fired generation. Furthermore, we find evidence that the interaction between natural gas prices and wind generation is statistically and economically significant, and led to a greater reduction in coal-fired generation than would be explained by either factor alone. In some regions, marginal responses of coal-fired generation to natural gas prices in 2013 were several times what they would have been had wind generation remained at 2008 levels. Similar sensitivities were found for responses to wind generation. As a consequence, our results suggest that policies such as carbon pricing combined with those that increase wind generation would be complementary in terms of their impact on coal-fired generation.

Diversity of opinions among investors plays a crucial role in models of financial market speculation and bubbles. Yet, little is known about the origins of investor disagreement. Using unique data from China, we identify an important cultural and linguistic factor. We show that investors living in linguistically diverse areas express more diverse opinions on stock message boards and trade stocks more actively. We use geographical isolation of an area due to hilly terrain as an instrument for linguistic diversity. We then discriminate in favor of a differential interpretations mechanism and against slow news diffusion due to language barriers.

This paper uses the segmented dual-class shares of Chinese firms---A shares traded inside mainland China by local investors and H shares traded in Hong Kong by foreign investors---to compare reactions of local and foreign investors to the same public news. We find that local investors react more strongly to earnings forecast revisions by local analysts, while foreign investors react more strongly to forecast revisions of foreign analysts. This finding cannot be explained by local investors being more informed about local firms, earnings forecasts of local analysts being more precise, or local investors having better access to forecasts of local analysts. Instead, it supports the notion that local investors have more trust for local analysts while foreign investors have more trust for foreign analysts, and highlights social trust as an important force driving people with different social backgrounds to react differently to the same information.

We study how bias in the social transmission process affects the spread of time preference norms. In the model, consumption is more salient than non-consumption. This visibility bias causes people to perceive that others are consuming heavily and to infer that a high discount rate is normative. The transmission of norms for high discounting increases consumption and the interest rate. Information asymmetry about the wealth of others dilutes the inference from high observed consumption that the discount rate is high. In consequence, in contrast with the Veblen wealth-signaling approach, information asymmetry about wealth *reduces* overconsumption.

We examine to what extent institutional frictions such as short-sale constraints deter entry into informational arbitrage ex ante and reduce informational efficiency ex post. We focus on small arbitrageurs who target hard-to-short companies with correspondingly high potential for overvaluation. Being price-takers, they cannot correct mispricing through trading. Instead, they reveal their information to the market in an effort to induce long investors to sell so that prices fall. As long as the information is credible, revealing it accelerates price discovery and so reduces noise trader risk. By implication, even extreme short-sale constraints need not constrain arbitrage, as is often assumed.

Emerging markets exhibit high returns to capital, the `Lucas Paradox,' alongside volatile growth rate regimes. We investigate the role of long-run risks, i.e., risk due to fluctuations in economic growth rates, in leading to return differentials across countries. We take the perspective of a US investor and outline an empirical strategy to identify risky growth shocks and quantify their implications. Long-run risks account for 60-70% of the observed return disparity between the US and a group of the poorest countries. At the individual country level, our model predicts average returns that are highly correlated with those in the data (0.61).

Legal institutions affect economic outcomes, but how much? This paper documents how costly supplier contract enforcement shapes firm boundaries, and quantifies the impact of this transaction cost on aggregate productivity and welfare. I embed a contracting game between a buyer and a supplier in a general-equilibrium macro-model. Contract enforcement costs lead suppliers to underproduce. Thus, firms will perform more of the production process in-house instead of outsourcing it. On a macroeconomic scale, in countries with slow and costly courts, firms should buy relatively less inputs from sectors whose products are more specific to the buyer-seller relationship. I first present reduced-form evidence for this hypothesis using cross-country regressions. I use microdata on case law from the United States to construct a new measure of relationship-specificity by sector-pairs. This allows me to control for productivity differences across countries and sectors and to identify the effect of contracting frictions on industry structure. I then proceed to structurally estimate the key parameters of my macro-model. Using a set of counterfactual experiments, I investigate the role of contracting frictions in shaping productivity and income per capita across countries. Setting enforcement costs to US levels (alternative: zero) would increase real income by an average of 3.6 percent (7 percent) across all countries, and by an average of 10 percent (13.3 percent) across low-income countries. Hence, transaction costs and firm boundaries are important on a macroeconomic scale.

Recently a small and growing empirical literature has attempted to analyze the role that quality plays in our understanding of trade. In particular, the recent work of Khandelwal (2010) has brought the insights of structural IO models of demand to bear into trade data. Our work builds on this new structural literature; we use similar demand estimation techniques on a panel of Danish apparel firms from 1997 to 2010 in order to analyze how firms responded to China’s entry to the WTO and the dismantling of the Multi-Fibre Agreement. We explore the implications of offshoring and import competition on the distribution of apparel quality within Denmark, and demonstrate the firm-level mechanisms that induced the observed aggregate changes. In particular, we show that the quality ladder tightens in response to trade shocks as initially low quality firms upgrade their quality relative to other firms while initially middle and high quality downgrade their output quality. An important qualification is that the quality of exports from the source country is a key determinant in both the uptake of offshoring and resultant decisions regarding quality. Finally, import competition appears to spur entry of higher quality firms and exit of lower quality producers. Nevertheless, the reallocation pattern is imperfect, suggesting that two sources of heterogeneity – the productivity and the quality margin – are key to understanding these patterns.

During the last three decades, the U.S. labor market was characterized by its employment polarization. As jobs in the middle of the skill distribution disappeared, employment expanded for the high and low-skill occupations. Real wages did not follow the same pattern. While earnings for the high-skill occupations increased robustly, wages for both the low and middle-skill workers remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and develop a three-country stochastic growth model to rationalize the asymmetric pattern of employment and wages. In the model, the increase in offshoring negatively affects the middle-skill occupations, but benefits the high-skill ones, which in turn boosts aggregate productivity. As the income of high-skill occupations rises, so does the demand for complementary services provided by the low-skill workers. However, low-skill wages remain depressed due to the surge in unskilled immigration. Native workers react to immigration by upgrading the skill content of their labor tasks as they invest in training, which further boosts aggregate productivity over time. The model is estimated with multilateral trade-weighted macroeconomic indicators and data on enforcement at the U.S.-Mexico border.

We provide direct estimates of how agents trade off immediate costs and uncertain future benefits that occur in the very long run, 100 or more years away. We exploit a unique feature of housing markets in the U.K. and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. The difference between leasehold and freehold prices reflects the present value of perpetual rental income starting at leasehold expiry, and is thus informative about very long-run discount rates. Agents discount very long-run cash flows at low rates, assigning high present values to cash flows hundreds of years in the future. Given the riskiness of rents, this suggests that both long-term risk-free discount rates and long-term risk premia are low. We discuss how the estimated very-long run discount rates are informative for climate change policy.

The Stern Review’s evaluation of environmental protection relies on extremely low discount rates, an assumption criticized by many economists. The Review also stresses that great uncertainty is a critical element for optimal environmental policies. An appropriate model for this policy analysis requires sufficient risk aversion and fat-tailed uncertainty to get into the ballpark of explaining the observed equity premium. A satisfactory framework, based on Epstein-Zin/Weil preferences, also separates the coefficient of relative risk aversion (important for results on environmental investment) from the intertemporal elasticity of substitution for consumption (which matters little). Calibrations based on existing models of rare macroeconomic disasters suggest that optimal environmental investment can be a significant share of GDP even with reasonable values for the rate of time preference and the expected rate of return on private capital. Optimal environmental investment increases with the coefficient of relative risk aversion and the probability and typical size of environmental disasters but decreases with the degree of uncertainty about policy effectiveness. The key parameters that need to be pinned down are the proportionate effect of environmental investment on the probability of environmental disaster and the baseline probability of environmental disaster.

Weitzman (1998, 2001) proposed a simple “gamma discounting” method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates. This rule which justifies using a smaller discount rate for longer maturities is now used for long-term policy evaluations in the UK, France, Norway, and potentially in the US. But we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion, the expected net present value rule. Considering a standard Lucas tree economy, we characterize the term structure from a coherent joint distribution of future spot interest rates and future consumption levels. When future growth rates are positively serially correlated, efficient discount rates today are decreasing with maturity, and the gamma discounting rule yields discount rates that are larger than the efficient ones.

There is a close linkage between optimal saving rare and the optimal discount rate. This paper examines the discount rate issue in the context of the optimal savings rate. Using new measures of national saving, it asks whether the US savings rate is consistent with the hypothesis that the national discount rate is too high.

We exploit a 2004 credit reform in Brazil that simplified the sale of repossessed cars used as collateral for auto loans. We show that the reform expanded credit to riskier, self-employed borrowers who purchased newer, more expensive cars. The legal change has led to larger loans with lower spreads and longer maturities. While the credit reform improved riskier borrowers’ access to credit, it also led to increased incidences of delinquency and default. Our results shed light on the consequences of a credit reform, highlighting the crucial role that collateral and repossession play in the liberalization and democratization of credit.

We present a theory in which the key driver of short-term debt issued by the financial sector is the portfolio demand for safe and liquid assets by the non-financial sector. This demand drives a premium on safe and liquid assets that the financial sector exploits by owning risky and illiquid assets and writing safe and liquid claims against those. The central prediction of the theory is that government debt (in practice this is predominantly Treasuries) should crowd out the net supply of privately issued short-term debt (the private supply of short-term safe and liquid debt, net of the financial sector’s holdings of Treasuries, reserves and currency). We verify this prediction in U.S. data from 1914 to 2011. We take a series of approaches to address potential endogeneity concerns and omitted variables issues: Testing additional predictions of the model (notably that checking deposits should be crowded in by government debt supply), including controls for the business cycle, exploiting a demand shock for safe/liquid assets, and exploring the impact of government supply on the composition of consumption expenditures. We also show that accounting for the impact of Treasury supply on bank money results in a stable estimate for money demand and can help resolve the “missing money” puzzle of the post-1980 period. Finally, we show that short-term debt issued by the financial sector predicts financial crises better than standard measures such as private credit/GDP.

During the 15 years prior to the global financial crisis the volume of securitized assets transacted in the US has grown substantially, reflecting a change in the nature of the financial intermediation process. Together with increased securitization, financial entities, who participate more heavily in the asset-backed security (ABS) market and hold a diversified portfolio of assets, have also become more relevant. As a result, the volume of securitization, although traditionally associated with credit markets, influences the outcomes of other asset markets. We investigate the link between securitization and asset prices and show that increases in the growth rate of the volume of ABS issuance lead to a decline in both the bond and equity premia. We then build a model of bank portfolio choice where the creation of synthetic securities may occur. The pooling and tranching of credit assets relaxes both the funding and the risk constraints financial entities face allowing them to increase balance sheet holdings. This increase in asset demand depresses the compensation for undertaking risk in the economy, confirming our empirical results. We show that financial intermediation is linked with asset prices through this portfolio mechanism, whose strength depends on the volume of deals in the securitization market.

A typical loan contract includes a series of covenants that serve as a governance mechanism for its lenders, requiring borrower to renegotiate when covenants are (close to being) violated. The incidence of corporate loans with covenant-light provisions -- i.e., loan contracts with weaker enforcement features that allow corporations more financial leeway in various ways -- has been interpreted as a sign of easy credit conditions, and even overheating, in the loan market. We point out that there is another possibility, based on the increasing involvement of non-bank institutions in the syndicated loan market including hedge funds, mutual funds, structured products, and, to a lesser degree, pension funds and insurance companies. Based on the (narrower) skills and diverse preferences of the institutional lenders, optimal contracts between them and corporate borrowers likely involve fewer monitoring tools and weaker control rights. In short, these lenders are similar to bond investors, and the optimal debt contract is likely to look more like a bond, i.e. covenant light. We compare these two explanations of covenant light contract provisions in a large sample of U.S. loans. We document that proxies for fund flow into institutional lenders are associated with more covenant light provisions, but not necessarily easing in loan pricing terms or speed of syndication.

Structural demand estimation founded on the Berry, Levinsohn, and Pakes (1995) (BLP) model utilizes variation in product market shares to infer the influence of product attributes on consumer tastes. We consider this analysis in settings with complex products and sparse consumer preferences. That is, though products are characterized by a high-dimensional set of attributes, relatively few of a these characteristics effectively influence consumer tastes. Sparsity introduces two complications to the standard inference problem. First, it allows for more efficient estimation through a pre-estimation model selection step to impose the zero restrictions implied by sparsity. We automate this selection exercise by adopting a penalized GMM criterion function and augmenting the selected variables by a set of "amelioration" controls to prevent omitted variable bias. Second, sparsity indicates many BLP instruments, particularly those related to unselected product characteristics, are not relevant demand shifters. For complex products, the large number of irrelevant instruments introduces a many-moment bias in the GMM problem. We find using optimal instruments for the selected attributes in an unpenalized post-model selection estimator effectively controls for this source of bias.

This paper analyzes Random Coefficient (RC) models in high-dimensional settings. High-dimensional data have become increasingly available in Economics, especially in microeconomic applications. Online sales and computer-based sales systems, e.g., enable to collect plentiful information about consumer behavior and demand of individuals. Therefore there is a need for econometric models tailored to this kind of data. Specifically, RC models have become popular in many consumer demand applications, both with discrete choices (see BLP (1995)) and continuous choices (see Lewbel and Pendakur (2014)). RC are popular as they allow to model heterogeneity in setups. We propose an estimator for the RC density in high-dimensions based on a Lasso type l₁-penalization scheme. Besides estimation, testing remains challenging in high-dimensional settings. Fitting high-dimensional statistical models requires the use of non-linear parameter estimation procedures and, as a consequence, it is generally impossible to obtain the exact distribution of the parameter estimates. We adopt very recently proposed algorithms for quantifying the uncertainty associated with parameter estimates which have nearly optimal size in order to address the specific features that arise in the corresponding testing problem. For instance, it is important to test for rationality, heterogeneity and endogeneity. We also show that our procedures have good small sample properties in a simulation study. Finally, we apply the method to continuous choice demand data, as in Lewbel and Pendakur (2014).

Advertising to sales ratios in consumer packaged goods categories can be very high, around 10%. Dorfman and Steiner (1954) derive the optimal static level of advertising to sales ratios as a function of the elasticities of advertising and price. In this paper, we use German household panel data on television advertising exposure and purchases for the laundry detergent category to estimate advertising elasticities. We estimate a new panel data, semiparametric discrete choice model where both aggregate advertising campaigns and individual advertising exposure can be correlated with aggregate and consumer-specific unobservables. We allow the functional form for how advertising enters the model to be chosen in a data-driven way using techniques from model selection.

In this paper we show how to estimate substitution patterns in differentiated product demand models. The standard model in the literature suggests a conditional moment restriction based on the orthogonality between observed product characteristics and demand errors. Yet empirical work relies on translating this moment restriction into unconditional moments that identify substitution patterns. Most empirical studies to date have yielded imprecise estimates of these substitution patterns, leading to the perception that local substitution patterns are not relevant. We show the problem relies on the construction of instruments. We adapt Lasso to the problem of constructing optimal instruments based on a natural expansion of the mean projection of share on product characteristics using the economic restrictions of the model. We show these instruments perform well in practice and apply it to show the importance of local substitution patterns in scanner data.

A fruitful emerging literature reveals that shocks to uncertainty can explain asset returns, business cycles and financial crises. The literature equates uncertainty shocks with changes in the variance of an innovation whose distribution is common knowledge. But how do such shocks arise? This paper argues that people do not know the true distribution of macroeconomic outcomes. Like Bayesian econometricians, they estimate a distribution. Using real-time GDP data, we measure uncertainty as the conditional standard deviation of GDP growth, which captures uncertainty about the distribution’s estimated parameters. When the forecasting model admits only normally-distributed outcomes, we find small, acyclical changes in uncertainty. But when agents can also estimate parameters that regulate skewness, uncertainty fluctuations become large and counter-cyclical. The reason is that small changes in estimated skewness whip around probabilities of unobserved tail events (black swans). The resulting forecasts resemble those of professional forecasters. Our uncertainty estimates reveal that revisions in parameter estimates, especially those that affect the risk of a black swan, explain most of the shocks to uncertainty.

This paper attempts to provide a decision-theoretic foundation for the measurement of economic tail risk, which is not only closely related to utility theory but also relevant to statistical model uncertainty. The main result is that the only tail risk measure that satisfies a set of economic axioms proposed by Schmeidler (1989, Econometrica) and the statistical property of elicitability (i.e. there exists an objective function such that minimizing the expected objective function yields the risk measure; see Gneiting (2011, J. Amer. Stat. Assoc.)) is median shortfall, which is the median of tail loss distribution. Elicitability is important for backtesting. Median shortfall has a desirable property of distributional robustness with respect to model misspecification. We also extend the result to address model uncertainty by incorporating multiple scenarios. As an application, we argue that median shortfall is a better alternative than expected shortfall for setting capital requirements in Basel Accords.

Uncertainty associated with the monetary policy transmission mechanism is a key driving force of business cycles. To investigate this link, we propose a new term structure model that allows the volatility of the yield curve to interact with macroeconomic indicators. The data favors a model with two volatility factors that capture short-term and long-term interest rate uncertainty. Increases in either of them lead higher unemployment rates, but they interact with inflation in opposite directions.

We provide a new measure of sovereign country risk exposure to global sovereign tail risk (SCRE) based on information incorporated in 5-year sovereign CDS spreads. Our panel regressions with quarterly data from 53 countries show that macro risks have strong explanatory power for SCRE. After controlling for liquidity conditions and financial market variables, SCRE increases for countries with higher interest rates, public debt, public deficit, credit-to-GDP, lower economic growth and looser monetary policy. We show that our risk exposure variable reacts significantly more than mean (median) CDS spreads to macro-financial risks. Our results therefore imply that good fundamentals protect countries against sovereign risk especially in times of global distress.

We examine the long-term impact of expansions to Medicaid and the State Children's Health Insurance Program that occurred in the 1980's and 1990's. With administrative data from the IRS, we calculate longitudinal health insurance eligibility from birth to age 18 for children in cohorts affected by these expansions, and we observe their longitudinal outcomes as adults. Using a simulated instrument that relies on variation in eligibility by cohort and state, we find that children whose eligibility increased paid more in cumulative taxes by age 28. These children collected less in EITC payments, and the women had higher cumulative wages by age 28. Incorporating additional data from the Medicaid Statistical Information System (MSIS), we find that the government spent $872 in 2011 dollars for each additional year of Medicaid eligibility induced by the expansions. Putting this together with the estimated increase in tax payments discounted at a 3% rate, assuming that tax impacts are persistent in percentage terms, the government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance. Moreover, using the MSIS data, we find that each additional year of Medicaid eligibility from birth to age 18 results in approximately 0.58 additional years of Medicaid receipt. Therefore, if we scale our results by the ratio of beneficiaries to eligibles, then all of our results are twice as large.

We use a panel data set of U.S. tax records spanning 2008-2012 to study the impact of the Affordable Care Act (ACA) requirement to allow young adult dependents to be covered by their parents’ insurance policies on labor market-related outcomes. How health insurance expansions affect young adults through employment and education have important implications for public finance. Since tax data record access to employer provided fringe benefits on W-2 forms, we are able to examine the impact of this coverage expansion by comparing young adults whose parents have access to benefits to other similar aged young adults, before and after the law, and to young adults who are slightly older than the age threshold of the law. The use of tax data to identify families who have fringe benefits through their employer is an important advantage because the law was implemented during a labor market recovery in which outcomes could differ by age, even absent the law. Despite sizable increases documented elsewhere in insurance coverage resulting from this law, we find no meaningful changes in labor market related outcomes. We examine a comprehensive set of outcomes (including measures of employment status, job characteristics, and post-secondary education), and are the first to use a triple difference strategy to examine labor market effects of this law; we are also the first we know of to use tax data to examine the impact of the ACA on labor market outcomes. Although it is possible that labor market outcomes have changed in ways not captured by tax data (e.g. a change in hours of work while holding total wages constant, or a change in non-reported self-employment), our evidence suggests that the extension of health insurance to young adults did not substantially alter their labor market outcomes thus far.

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Novating a single asset class to a central counterparty impacts both the mean and variance of total net exposures between counterparties in an OTC derivatives trading network. In the case of homogeneous networks where the number of asset classes is small relative to the number of dealers, central clearing reduces both the mean and variance of net exposures. However, when the number of asset classes is large relative to the number of dealers there is a tradeoff: an increase in expected net exposures is accompanied by a reduction in variance. Most real-world financial networks are not homogeneous. We therefore construct heterogeneous networks using the network formation process described in Dorogovtsev, Mendes and Samukhin (2000). The introduction of central clearing produces a tradeoff between increased expected net exposures and reduced variance for all non-trivial DMS networks. This paper builds on and generalizes aspects of Duffie and Zhu (2010).

It is well established that when monetary policy is accommodative, banks tend to grant more credit. However, only recently attention was given to the quality of credit granted and, naturally, the risk assumed during those periods. This article makes an empirical contribution to the analysis of the so-called risk-taking channel of monetary policy. We use bank loan level data and different methodologies to test whether banks assume more credit risk when monetary policy interest rates are lower. Our results provide evidence in favor of this channel through different angles. We show that banks, most notably smaller banks, grant more loans to non-fi…nancial corporations with recent defaults or without credit history when policy interest rates are lower. We also find that loans granted when interest rates are low are more likely to default in the hiking phase of the interest rate cycle. However, the level of policy interest rates at the moment of loan concession does not seem to be relevant for the ex-post probability of default of the overall loan portfolio.

In this paper, we investigate the impact of European Central Bank (ECB) interventions on the private short-term funding of European banks and asset prices of sovereign bonds and bank stocks during the sovereign debt crisis. We show that consistent with a market discipline role of wholesale funding “runs,” the U.S. money market funds reduced unsecured funding for risky banks during summer 2011, and increased unsecured and repo funding to low risk non-Eurozone banks. This market discipline effect of risk on funding liquidity is reversed with a series of ECB interventions; Eurozone risky banks gain access to repos during the period of interventions, and recover part of their unsecured funding after the intervention period. Short-term funding flowing back to risky banks coincides with increasing sovereign bond prices of peripheral countries. Event studies around ECB intervention dates support this: We find that banks with large GIIPS holdings experience abnormal stock returns and get increased access to U.S. MMF following ECB interventions.

Monetary policy measures taken by the Federal Reserve as a response to the 2007- 09 financial crisis and subsequent economic downturn led to a large increase in the level of outstanding reserves. The Federal Open Market Committee (FOMC) has a range of tools to control short-term market interest rates in this situation. We study several of these tools, namely interest on excess reserves (IOER), reverse repurchase agreements (RRPs), and the term deposit facility (TDF). We find that overnight RRPs (ON RRPs) provide a better floor on rates than term RRPs because they are available to absorb daily liquidity shocks. Whether the TDF or RRPs best support equilibrium rates depends on the relative intensity of the frictions that banks face, which are bank balance sheet costs and interbank monitoring costs in our model. We show that when both costs are large, using the RRP and TDF concurrently most effectively raises short-term rates. While public money supplied by the Federal Reserve in the form of reserves can alleviate bank liquidity shocks by reducing interbank lending costs, large levels of reserve increase banks’ balance sheet size and can induce greater bank moral hazard. RRPs can reduce levels of costly bank equity that banks are endogenously required to hold as a commitment device against risk-shifting returns on assets.

Mary Gatta will share her research in which she went undercover, posing as a client in a New Jersey One-Stop Career Center. One-Stop Centers, developed as part of the federal Workforce Investment Act, are supposed to be an unemployed worker's go-to resource on the way to re-employment. Weaving together her own account with interviews of jobless women and caseworkers, Gatta will share a revealing glimpse of the toll that unemployment takes and the realities of social policy. In this session she will highlight the promise and weaknesses of One-Stop Career Centers, and recommend key shifts in workforce policy, which will lead to a system that is less discriminatory, more human, and better able to assist women and their families in particular.

Ofer Sharone will share his research exploring the world of job searching and unemployment. Through in-depth interviews and observations at job-search support organizations, Ofer Sharone reveals how different labor-market institutions give rise to job-search games like the chemistry games in the United States in which job seekers concentrate on presenting the person behind the résumé. By closely examining the specific day-to-day activities and strategies of searching for a job, Sharone develops a theory of the mechanisms that connect objective social structures and subjective experiences in this challenging environment and shows how these different structures can lead to very different experiences of unemployment.

Geri Scott and Alexandra Waugh will share research and best practices of their experiences providing technical assistance and peer learning opportunities to facilitate and support the development of a national network of green workforce development expertise among participating communities. This support focuses on fostering effective employer engagement, strengthening the links of workforce partnerships to organized labor, improving training curricula and aligning workforce programs with union pre-apprenticeship standards, and increasing the enrollment and success of women and underserved minorities in these well-paying, nontraditional occupations.

We examine the relationship between employee ownership and firm survival in the United States using Form 5500-CompuStat matched data on a panel of publicly-traded companies during 1999-2010.We examine how firms with employee ownership programs weathered the recessions of 2001 and 2008 in terms of firm survival relative to firms without employee ownership programs. We estimate Cox Proportional Hazards regressions to predict the likelihood of firm failure with employee ownership as the main dependent variable, and controls for firm size, union status, and industry. In our econometric analyses, we use a rich array of measures of employee ownership at firms, including the presence of employee ownership stock in pension plans, the presence of Employee Stock Ownership Plans (ESOPs), the value of employee ownership stock per employee, the share of the firm owned by employees, the share of workers at the firm participating in employee ownership, and the share of workers at the firm participating in ESOPs. Our findings indicate that employee ownership firms had significantly higher survival rates during 1999-2010.

This paper presents a new way to assess the effect of employee ownership (EO) on employee behavior. It extends the contingent renewal model of the labor exchange to the case of the EO firm. Contrary to existing theoretical literature, which holds that EO is either inconsequential or detrimental to employee performance, this model predicts increased employee effort in EO firms relative to conventionally-owned ones. It also indicates that a profit-maximizing EO firm will respond to this increased effort by using fewer supervisory inputs. Effort is difficult or impossible to observe in complex settings, but this model indicates that the impact of EO on effort is observable through the effect on firm structure. To test for this a matched-pair sample of EO and conventionally-owned firms is constructed using a new database of US majority EO firms, and supervisory ratios are determined using firm filings with the US EEOC. This has important implications for economic theory and policy, not least of which is that conventional ownership may be pareto inferior to EO.

Popular claims that a workplace is good for its employees may overlook gender, ethnoracial, and class variation in employee reactions and experiences. This paper analyzes variation in employee perceptions of organizations that have been promoted as best places to work. Our empirical analysis is based on a unique dataset of all firms that applied to be one of Fortune s 100 Best Companies to Work For (BCTW) between 2006 and 2011, and includes over 600,000 employees in 1,052 companies. Our analysis focuses on the effects of gender, race/ethnicity, and occupational level on perceptions of trust, empowerment, and justice, and whether working for a BCTW firm or for a firm with employee ownership results in different perceptions. Our findings reveal that 1) BCTW firm employees from historically marginalized groups (white women, nonwhite men and women, and working-class employees) perceive their firms as more just than similar employees of non-BCTWF firms; 2) hourly workers react most positively to BCTWF firms; and 3) employee ownership has mixed effects on employees from marginalized groups.

This paper examines how experimental economics might advance our understanding of employee ownership. Theorists must invoke a behavioral model to analyze how individuals might respond to a given set of firm institutions, yet our current understanding of what this behavioral model is, or should be, is in flux. Further, conventional empirical analysis often draws from data that is insufficiently disaggregated and prone to biases stemming from self-selection and unobservable heterogeneity. Experiments complement theory by aiding in the development of new behavioral foundations, and they also complement conventional empirical analysis, particularly in cases where naturally occurring data does not exist.

The paper will examine trends and changes in the structure of white-collar employment over the past two decades. The structure of white-collar employment career ladders, compensation, and employment arrangements has experienced changes over the last 20 years, accompanying evolving products, the diffusion of information and telecommunication technologies, and the organization of service activities on broader geographic scope (e.g. ability to coordinate the outsourcing of data entry, coding, and paralegal research to other countries). The paper will review recent evidence on the employment impacts of these longer term trends as well as further changes triggered by the great recession and its legacy of chronic underemployment, particularly among recent cohorts of high-school and college graduates. The focus will be on entry-level and mid-level white-collar occupations in service producing industries, insurance and banking (e.g. Customer relationship manager and underwriter assistants), as well as general clerk jobs across industries. This review will place changes in the structure of white-collar work in the context of changes in employment structures within firms across industrial sectors.

The legal profession, long an example of a well established professional occupation, has been remade by a combination of technology, which permits outsourcing of work, as well as changing economics within Big Law as customers become more sophisticated and demanding regarding staffing a billing. As a consequence the careers of young associates have been transformed with the probability of making partner diminished. At the same time outsourcing of low level work, such as document review, has the potential for enabling associates to do more interesting work that better develops their skills. This paper, based on interviews with a sample of Big Law associates, will explore the changing nature of legal careers and the implications of these changes for the life chances of young lawyers.

As organizations change their shape and boundaries due to restructuring, layoffs, and outsourcing the nature of managerial work changes as do career trajectories. Through archival research, the paper will link changes in public and private funding to changes in the normative organizational structures within the sector and document shifts in the archetypal career trajectories of the managers who lead non-profit human services organizations. The argument is that as managerial professionals dominate human service organizations, they bring a bureaucratic logic that proliferates administrative roles, increases administrative intensity, and diminishes career prospects for the non-executive professional staff members. The argument is tested through a quantitative longitudinal study of over 200 human service non-profits as well as qualitative interviews with non-profit leaders with different career backgrounds.

For many families, facing an unexpected adverse health event and as a result incurring large medical expenditures could cause significant financial distress. Medical care economic risk is the risk of incurring these large unexpected medical expenditures; this paper uses the 2013 Current Population Survey Annual Social and Economic Supplement (CPS ASEC) to develop this concept. We first estimate future medical expenditures and then examine risk as measures of the dispersion of these future expenditures. We examine this risk across different groups, including health insurance status as well as individuals’ and families’ classification by the Supplemental Poverty Measure (SPM) income-to-poverty ratios (IPR), since these are especially relevant for examining the implementation of the Patient Protection and Affordable Care Act (ACA). We are interested in exploring a number of policy implications with our results. A particular interest is to identify people ineligible for subsidy, but at risk for large expenses and those who would be in the eligible range for subsidy after accounting for expenses. Since the SPM deducts from income the resources spent on medical care while the Poverty Guidelines and Thresholds do not, examining the risk of expenses using the SPM framework is useful. We are also especially interested in using the SPM to explore how including in the family unit unrelated individuals outside of the health insurance unit affects the risk for the individuals in those family units. In addition, results could be used to consider the tax treatment of expenses and the appropriateness of retrospective payments if actual medical expenses exceed some threshold of the estimated expected medical expenses.

In our 2013 paper “The Recent Decline in Employment Dynamics,” we documented that the incidence of short-duration jobs has been declining during the past 15 years; see Hyatt and Spletzer (2013). Using employment measures derived from quarterly wage records, we define short-duration jobs as those jobs that start and end in the same calendar quarter. We there show that short-duration jobs have fallen from 11.4 percent of employment in 1998:Q4 to 6.0 percent in 2010:Q3, and much of this decline occurs during recessions. This decline in short-duration jobs is not well-known amongst labor economists, yet undoubtedly reflects fundamental changes in the labor market. Since completing our analysis on the declines in the rates of worker flows (hires and separations), job flows (job creation and destruction), and job-to-job flows (worker movements from one employer to another), we have turned our attention to the decline in single-quarter jobs, which accounts for roughly half of the decline in gross worker flows from the late 1990s to 2010. The goal of our research is to characterize the nature of the decline in single-quarter jobs and explore its implications. We explore data from the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics (LEHD) program. We present new evidence that shows what LEHD data can tell us about the decline in short duration jobs. Our contributions are as follows: (1) we provide basic descriptive statistics on the types of individuals and the types of employers engaged in short-duration jobs, (2) we examine how the decline in short duration jobs has changed the tenure distribution during the past decade, and (3) we assess whether short-duration jobs are “stepping-stone jobs” that allow individuals to gain work experience and move on to more stable jobs.

Using a linked database based on a list of all Small Business Administration (SBA) loans in 1992 to 2011 and annual information on all U.S. employers from 1976 to 2012, we apply detailed matching and regression methods to estimate the variation in SBA loan effects on job creation across firm age and size groups. The firm-level proportional impact of loan receipt is estimated to fall with pre-loan firm size and age, and is largest for start-ups and very young and very small firms. The number of jobs created per million dollars of loans is also estimated to be highest for start-ups but otherwise generally increases with size and age. The estimated survival impact of loan amount is larger for smaller and younger firms.

Access to scarce runway capacity at most U.S. airports is allocated by queuing, creating the scope for congestion externalities. Unlike a classic “tragedy of the commons”, congestion externalities from airline decisions can be strategic. Airlines regularly schedule more departures than an airport’s runways can handle without delay. I develop an empirical framework for airline schedule choices that accounts for benefits from scheduling flights close together in time – such as enabling connections and serving demand at preferred times of day – and the effect of congestion. I use an engineering model of runway capacity and queuing to construct measures of marginal congestion, but the measures are endogenous in an airline’s scheduling choice because they depend on other schedules. I exploit variation in runway capacity due to weather patterns within the day and across seasons, together with excluded variation in the schedules of rival users of the runway to estimate the effect of marginal congestion on airline scheduling at hub and spoke airports. I find that airlines trade-off benefits from connections and passenger preferred times against the cost of increase congestion, but this cost is outweighed at hubs by the strategic entry deterrence benefit of congesting peak times. The effect is larger at times that are more valuable to competitors.

Gulf carriers, such as Emirates Airline, Etihad Airways, and Qatar Airways, have expanded aggressively and are creating an increasingly dense global network. These carriers’ future growth prospects, however, hinge on their ability to gain access to markets in Europe and America, for example. Existing bilateral agreements stifle the Gulf carriers' ambitious expansion plans in some instances, and incumbent carriers lobby to restrict further market access. To contribute to this debate, the objective of this research is to empirically examine the effects of Gulf carrier competition on U.S. carriers’ passenger volumes and fares in international route markets. Based on data obtained from the U.S. Department of Transportation, the empirical results suggest that greater competition by Gulf carriers in U.S. international markets is associated with 1) significant growth in U.S.-Middle East traffic volumes and 2) small but statistically significant traffic losses and fare reductions for U.S. carriers in route markets connecting the U.S. with Africa, Asia, Australia and Europe.

Most studies of motorcycle fatalities attribute deaths to avoidance of wearing helmets and the lack of universal helmet laws, speed, and alcohol usage. The effectiveness of helmet laws, although usually found to have a significant effect on fatality rates, has been questioned. This study makes use of a rich data set to establish the impact, not only of helmet laws on motorcycle fatalities, but also the effects of speed, cell phone use, alcohol, and suicidal propensities after adjusting for a whole host of socioeconomic and driving related factors. In addition, the paper differentiates between the effects of a universal helmet law and a partial helmet law. The analysis is conducted using a panel data set for the period 1980 to 2010 by state with a classical fixed effect model and with the use of Extreme Bounds Analysis and Bayesian Model Averaging as well as a ranking scheme for variable importance.

Determinants of vessel-accident damage severity and injuries of ferry and cruise vessel accidents are investigated using probit analysis and Poisson regression analysis, respectively. Vessel-accident damage severity is hypothesized to be a function of the type of vessel, type of vessel accident, cause of accident, vessel characteristics and operating conditions of the vessel. Crew vessel-accident injuries are hypothesized to be a function of vessel-accident damage severity, Passenger vessel-accident injuries are hypothesized to be a function of vessel-accident damage severity and crew injuries. The empirical results indicate that the vessel-accident damage severity for ocean cruise and river cruise vessels is greater than that for ferry vessels, all else held constant. Also, the number of injured crew in a vessel accident has a positive effect on the number of passenger injured in a vessel accident for ferry vessel accidents. The latter result has not appeared heretofore in the literature.

Inequality in the rich countries is inextricably bound to the continuing impoverishment and the growing polarization in the Third World that is exacerbated by a pattern of consumption and foreign investment that extend poverty and environmental devastation. Picketty’s focus on conditions within the richer countries deflects attention from the mechanisms within the world system that exacerbate the process, reproducing the same dynamics within the Global South.

Thomas Piketty’s immensely successful recent book on Capital in the Twenty-first Century has focused attention on the explosion of income inequality that has occurred since the post-war golden age came to an end in early 1970s. Piketty contends that the rise of inequality is an embedded feature of the normal functioning of capitalism: the post-war episode, in which both labor and capital shared in the benefits of productivity growth, was an exception, unlikely to be repeated in the foreseeable future. Private wealth tends to accumulate faster than the rate of growth of the economy; as a consequence the share of income from property (in particular profits) will tend to rise relative to the wage share. Furthermore, the share of property income itself will tend to become increasingly concentrated in the hands of a small elite segment of the population. This paper will assess Piketty’s argument from a radical political economics perspective, paying particular attention to his critique of neoclassical accounts of income distribution.

This paper discusses how Piketty’s results on increasing inequality might be altered and strengthened by accounting for the historical growth of wealth in tax havens, as well as accounting for the use of tax haven entities to further exacerbate wealth inequality in a variety of ways. It explores more deeply other mechanisms by which inequality is perpetuated, and explains ways in which Piketty’s analysis and findings strengthen, elaborate on, or contradict traditional Marxist analysis.

Piketty’s prescription for the future of capitalism assumes that the inner dynamic of the system generates rising inequality akin to that produced over the past 30-odd years (he sees the previous, postwar decades as an anomaly due to unique circumstances that are unlikely to be repeated). In this sense, he revives a grand vision of the dynamics and direction of capitalism unseen since the writings of Marx. His work has already generated a great deal of discussion. Is there indeed a systemic tendency for profits to grow relative to labor income? Can global taxation for a capitalist world economy reverse the current tendency toward rising inequality? Are Piketty’s policy prescriptions meaningful or utopian? This presentation will seek to draw out the implications of Piketty’s analysis and contribute accordingly to the ongoing debate.

Credit union cooperatives are the most common financial institution in the U.S. Using a unique data set on all credit unions, commercial banks and savings institutions in the U.S. for the last twenty years, the success of the credit unions in generating jobs relative to other intermediaries is explored. The “natural experiment” created by Hurricane Katrina will be the micro area examined, using the national data on all institutions as a comparison. Ten years after one of the most devastating natural disasters in U.S. history is also a good time to report on the continued success of the relatively little known struggle for democratic financial institutions.

The history of workers’ cooperatives in the United States has shown mixed results for them. While workers’ co-ops have displayed a remarkable record of social entrepreneurship, they have also faced problems in finding sources of finance capital that would enable them to remain under the control of those who work in the organization. This paper explores the use of non-voting preferred stock as a means of overcoming this problem, with examples of its use by several contemporary cooperatives.

Evergreen in Cleveland, OH is an innovative approach to economic development which has arisen as a project of the Greater University Circle Initiative, a multi-anchor model. The mission of Evergreen is to leverage resources from anchor institutions to create wealth building opportunities through worker-ownership. Our paper looks at the evolution of the Evergreen project since its inception and evaluates its achievements and limitations. We achieve this through the application of the Future Economy Analytical Framework which emphasizes the social justice, environmental, and egalitarian aspects of economic initiatives.

This paper reviews, categorizes, and evaluates various theories on why worker owned/managed firms have remained peripheral in modern capitalist economies, in order to inform further research and strategy for the development of worker ownership/management. Rather than an exhaustive treatment of the entire literature, this paper situates various theories into broad groups that can be meaningfully evaluated. Theories on the relative absence of worker ownership/management are categorized by the location of the limiting agent of the worker owned/managed firms, in three broad genera: (I) Firm Efficiency – worker owned/managed firms are peripheral because they are inherently inefficient, and lose out to efficient capital owned/managed firms in the long run. (II) Institutional Relationships – worker owned/managed firms are peripheral because institutional relationships systematically inhibit their growth and development (III)The Structure of Capitalism – worker owned/managed firms are peripheral because the structure of capitalism either competes them out or turns them into capital owned/managed firms. This paper then evaluates each category. The first genus, firm efficiency, is not a sufficient answer to the relative absence of worker owned/managed firms, due to empirical evidence and logical flaws of the genus. The next two categories present difficulties for empirical verification. However, the third genus, the structure of capitalism, contains qualitative premonitions about the structure of the firm that could be avoided, particularly with a shift in institutional relationships explored in the second genus, institutional relationships. This paper finds the most convincing answer to the question of the paucity of worker ownership/management is that certain types of institutional relationships have systematically held back worker ownership/management. The implication is that the growth and development of worker ownership/management is possible by focusing on key institutional relationships that define worker ownership/management and its environment.

Economic exchange theory focuses on commodity/commodity exchanges. However, much of what we exchange is relational goods whose values are created in relationships. Failing to distinguish between commodities and relationships can lead to ineffective policies which are designed to encourage/discourage certain types of exchanges. This paper distinguishes between commodities and defines three kinds of relational goods: social capital, socio-emotional goods, and attachment value goods. Then this paper describes the processes in which commodities are converted into relational goods (decommodification) and relational goods are converted into commodities (commodification). Continuing, we describe the conditions required for and the benefits and costs associated with commodity and relational good exchanges. Finally, we describe some criteria for discouraging (encouraging) some kinds of commodity and relational good exchanges.

In economic models of behavior consumers are assumed to value the goods and services they purchase based on stable preferences over externally identifiable attributes such as quality. These models predict that consumers will respond to changes in price in a way that is independent of the source of the price change. Yet research in the behavioral sciences indicates that consumers that are emotionally attached to a consumption good or other behavior might respond with resistance when policies threaten their consumption or behavior. Moreover, policies that in fact validate some emotional attachments can stir a stronger preference for the good or behavior. Reviewing both survey and experimental data from the literature, we demonstrate how such emotional responses can create hidden costs to policy implementation that could not be detected using standard welfare economic techniques. Building upon Rabin’s work on fairness in games, we propose a partial equilibrium model of emotional response to policy whereby preferences are endogenous to policy choices. In accordance with evidence both from our own analysis and the field, we propose that confrontational policies (such as a sin tax) increase the marginal utility for a good, and that validating policies (such as a subsidy) also increases the marginal utility for a good. A social planner that ignores potential emotional responses to policy changes may unwittingly induce significant dead weight loss. Using our model, we propose a feasible method to determine if emotional deadweight costs exist, and to place a lower bound on the size of these costs.

Prior research on recycling behavior has focused on how policy variables (such as variable pricing, curbside collection), demographic factors (age, gender, education) and attitudes (towards recycling and other environmental activities), affect recycling rates and frequency. This article draws on the emerging social capital theory and hypothesizes that social capital motives such as self-respect, goodwill, belongingness, and caring influence recycling behavior. The hypotheses are empirically tested using survey data from 782 occupants of 66 buildings on a University campus. Results support the hypothesized relations and indicate that variations in recycling rates at both individual and building level can be explained by variations in social capital motives even after controlling for traditional policy, demographic and economic factors.

We first generate descriptive statistics that characterize business networks between U.S. firms and their foreign suppliers. These statistics are constructed using customs records from the U.S., China, and Colombia, matched to establishment-level panel data from each of these countries. They include copula-based summary measures of association between buyer characteristics and seller characteristics, the distribution of numbers of buyers across sellers, the analogous distribution of numbers of sellers across buyers, and the transition probabilities with which individual buyers and sellers move through these distributions. Using these statistics as targeted moments, we next estimate a simple continuous-time model of international buyer-seller networks. The model describes equilibrium matching patterns between heterogeneous buyers and sellers with two-sided search. Among other things, it allows us to study the relationship between search frictions and buyer-seller network structures. It also provides a basis for counter-factual experiments that add or subtract a particular type of producer from one side of the market. In this respect it provides a new perspective on the implications of integrating Chinese exporters into U.S. buyer-seller networks.

Empirical studies of firms within industries consistently report substantial heterogeneity in measures of performance such as size and productivity. This paper explores the consequences of joint heterogeneity on the supply side (sellers) and the demand side (buyers) in international trade using a novel transaction-level dataset from Norway. Domestic exporters as well as foreign importers are explicitly identified in each transaction to every destination. The buyer-seller linked data reveal a number of new stylized facts on the distributions of buyers per exporter and exporters per buyer, the matching among sellers and buyers and the variation of buyer dispersion across destinations. The paper develops a model of trade with heterogeneous importers as well as heterogeneous exporters where matches are subject to a relation-specific fixed cost. The model matches the stylized facts and generates new testable predictions emphasizing the importance of importer heterogeneity in explaining trade patterns.

There is growing evidence that manufacturing activities in developing countries exhibit higher variance in productivity and management performance. We use what we believe are the most detailed, within-firm, daily production data from about 75 large factories to analyse productivity dispersion in the ready-made garment sector in Bangladesh. The sector has grown at rates of around 15 percent per year for the past decade, and accounting for around 80 percent of Bangladeshi exports and 13 percent of GDP. A typical factory in Bangladesh has around 1000 workers organised on 20 production lines. Using output and quality data at the level of the production line, we first show that there is substantial productivity dispersion even within factories. That dispersion remains even after controlling for the buyer and style being produced on the line. Initial analysis indicates a 90/10 ratio of around 1.65 – that is, on a typical production floor containing 10 lines, the most efficient line is two-third again as productive as the least efficient line. We then examine the role of supervisory management in determining the level of productive efficiency and quality defects. We use data from two interventions which provided training to line supervisors, the lowest level of management in the factories. The first intervention trained sewing machine operators to be line supervisors, and the second provided training to existing line supervisors. The detailed production data provided by the participating factories is matched with surveys of operators, supervisors and higher-level managers. The survey data allow us to identify mechanisms for changes in productivity. We also exploit transaction-level trade data which allow us to rank buyers by adjusted unit prices. Initial analysis shows that the productivity of lines increases with the the quality of the buyer for whom the output is being produced, and that this relationship holds even within factory.

This paper examines the mechanism behind matching of exporting firms and importing firms. From transaction data of Mexican textile/apparel exports to the US, we report two new facts on exporter- importer matching at the product level. First, matching is approximately one-to-one. Second, in response to the entry of Chinese exporters into the US induced by the end of the Multi-Fiber Arrangement, US importers switch their Mexican partners to those with higher capability while Mexican exporters switch their US partners to those with lower capability. To explain these facts, we present a model combining Becker-type positive assortative matching of final producers and suppliers with the standard Melitz-type model. The model interprets the observed changes in matching as evidence for a previously undocumented source of gains from trade associated with firm heterogeneity.

Most health insurance uses cost-sharing to reduce excess utilization. Supplemental insurance can blunt the impact of this cost-sharing, increasing utilization and exerting a negative externality on the primary insurer. This paper estimates the effect of private Medigap supplemental insurance on public Medicare spending using Medigap premium discontinuities in local medical markets that span state boundaries. Using administrative data on the universe of Medicare beneficiaries, we estimate that Medigap increases an individual’s Medicare spending by 22.2%. We calculate that a 15% tax on Medigap premiums generates savings of $12.9 billion annually. A Pigouvian tax generates annual savings of $31.6 billion.

Quality measures are playing an increasingly large role in the reimbursement of medical providers in the U.S., despite concerns that quality measures may be confounded by patient selection. This paper aims to estimate the causal relationship between measured hospital quality, reimbursement, and patient outcomes. To compare similar patients across hospitals in the same market, we exploit ambulance company preferences as an instrument for patient assignment. Our primary measure of hospital quality is the hospital’s risk-adjusted mortality rate over the prior three years, and we find that this measure is significantly related to subsequent mortality, as well as hospital readmissions. Nevertheless, we find that high-reimbursement hospitals achieve lower mortality rates even conditional on these quality measures, suggesting that “reference pricing”—paying hospitals at rates set by the lowest-cost provider within quality groupings—may have negative implications for patient health. Meanwhile, we use this lens to compare hospitals that rely on different types of spending over the following 90 days after an acute episode. The results suggest that hospitals with higher-intensity treatments on an inpatient basis, and lower-intensity treatments outside of the hospital setting have better health outcomes. This is consistent with the current sentiment that efforts to coordinate care outside of the hospital hold the potential to lower costs and improve patient health.

We present a simple framework to illustrate the welfare gains from a health insurance policy that allows patients to pay the incremental price for more expensive treatment options, and contrast it with common alternative policies that require essentially no incremental payments for more expensive treatments (as in the United States) or require patients to pay the full costs of more expensive treatments (as in the United Kingdom). We provide an empirical illustration of this welfare analysis in the context of treatment choices among breast cancer patients, where lumpectomy with radiation therapy is a more expensive treatment with similar average health benefits to mastectomy. We use variation in distance to the nearest radiation facility to estimate the relative demand for lumpectomy and mastectomy. Extrapolating the resultant demand curve (grossly) out of sample, we are able to quantify the welfare gains from the efficient “top-up” policy which reimburses the cost of the mastectomy, but makes patients pay the incremental cost of lumpectomy, relative to the current US-type policy and relative to the UK-type policy. While we caution against putting too much weight on these specific estimates, this illustrative example underscores the potential welfare gains from moving to a more efficient reimbursement policy for medical treatments.

This paper develops a model of health insurance that incorporates behavioral biases. In the traditional model, people who are insured overuse low-value medical care because of moral hazard. There is ample evidence, though, of a different inefficiency: people overuse low-value care and underuse high-value medical care because they make mistakes. Such “behavioral hazard” changes the fundamental tradeoff between insurance and incentives. With only moral hazard, lowering copays increases the insurance value of a plan but reduces its efficiency by generating overuse. With the addition of behavioral hazard, lowering copays may both increase insurance value and increase efficiency by reducing underuse. Estimating the demand response is no longer enough for setting optimal copays; the health response needs to be considered as well. This provides a theoretical foundation for value-based insurance design: for some high-value treatments, copays should be zero (or even negative); and for some low-value treatments, copays should equal (or even exceed) cost. We show that ignoring behavioral hazard can lead to welfare estimates that are both wrong in sign and off by an order of magnitude, highlighting the importance of incorporating both moral hazard and behavioral hazard in evaluating insurance plan design.

We present a contract-based model of industrial organization that allows us to consider in a unified way both different information frictions (moral hazard, adverse selection, both) and a variety of market structures (monopoly, imperfect competition, various strategic interactions). We show how this method can be applied to the spread of the banking industry in emerging market countries, emphasizing observed transitions, namely the geographic locations of branches. Local collusive monopoly organizations and Bertrand-like competitive environments in location and utility space are considered alongside with frictions affecting the outcome, namely provincial spatial costs and the information structure. Mixed environments with fully informed local incumbents and entrants facing adverse selection are analyzed. Our larger goal, beyond calibrated numerical examples, is to develop a framework with an operational toolkit for empirical work.

We study the formation of counterparty relations among banks in the presence of the risk of financial contagion. Using the framework developed in our earlier work, which enables a characterization of the impact of the structure of the financial network on systemic risk, we derive a new financial externality: under natural contracting assumptions, even though banks take the effects of their lending, risk-taking and failure on their immediate creditors into account, they do not internalize the consequences of their actions on the rest of the network. We show how this network externality leads to socially inefficient network formation. Interestingly, the equilibrium network may be excessively or insufficiently dense relative to the socially optimal network, and we provide results on when the equilibrium network is likely to involve excessive connections.

In this paper we study the role of diversification of geographic risk in the branch location decisions of US retail banks between 1994 and 2006. Historically, the US banking industry has been much more fragmented than elsewhere, composed of many small, locally concentrated banks. A key factor in explaining this market structure is the history of stringent restrictions on banks' ability to expand geographically. The 1994 Riegle Neal Act (RN) laid the foundation for the removal of restrictions on interstate banking and branching. We propose an approach to measure banks' geographic risk and use this measure to present new empirical evidence on the possibilities for geographic risk diversification available to banks, on the effects that RN had on these possibilities, and on the extent to which banks took advantage of these opportunities for diversification before and after RN. We identify bank preferences towards geographic risk separately from the contribution of the costs of geographic expansion. Counterfactual experiments based on the estimated structural model reveal that the gains from additional geographic diversification are negligible for large banks but are an important determinant of network expansion for banks with medium and small size. However, for small banks, any concern for risk diversification is counterbalanced by economies of density and the costs of expansion. The smallest banks benefit most from geographic diversification, but these are the banks for which it is also the most costly to expand. Our results help to explain the rash of bank failures that have occurred since the beginning of the financial crisis. Many of the failures were single-state or single-county banks that were overly exposed to local risk without being geographically diversified. Our estimation results point out reasons why banks may not have taken advantage of the opportunities for diversification afforded them by RN.

We develop a quantitative dynamic general equilibrium model with heterogeneous banks to study the impact of a set of regulatory changes (minimum capital requirements and liquidity requirements) on bank risk taking, loan rates, commercial bank failure, and the bank size distribution. In our environment, a nontrivial size distribution of banks arises out of endogenous entry and exit, as well as banks’ buffer stocks of securities to smooth liability shortfalls. In our first counterfactual, we find that a rise in minimum capital requirements from 4% to 6% as proposed by Basel III leads to a substantial reduction in exit rates of small banks at the expense of higher interest rates and a more concentrated industry. In our second counterfactual, we analyze the effects of differential minimum capital requirements by bank size (as it is proposed in the latest Basel III). In particular, large banks (as measured by their asset size) or commonly defined as systemically important financial institutions (SIFI’s) are required to hold a capital surcharge of 2.5% above the minimum required to other banks. Finally, in our third counterfactual, we study the effects of introducing a minimum liquidity requirement (as it is also proposed in Basel III). This requirement is intended to ensure banks have an adequate stock of liquid assets to cover unexpected or infrequent losses.

The sum of foreign assets and liabilities over GDP has been proposed as a measure of de facto financial openness (Lane and Milesi-Ferretti, 2003, 2007). It has been widely used in empirical applications, both as dependent variable and covariate explaining, for instance, economic growth, crisis incidence or economic productivity. We propose an adjusted measure called private financial openness: It measures financial openness of an economy with respect to private capital by excluding official claims and liabilities. Large inflows of development aid or a central bank's accumulation of reserves do not stem from private investors' decisions and are excluded from this measure. In this sense, private financial openness quantifies private agents' willingness and ability to invest abroad and to incur foreign debt. We show statistically that our measure differs significantly from the standard one in developing countries and in emerging markets, in the latter especially since the 2000s. As an example, according to total financial openness China and Korea are similarly open since 1990. However, if we consider private financial openness China is much more closed than Korea. To highlight that the new index matters, we use a cross-country panel data set to estimate standard regressions of the relationship between financial openness and economic growth and show the both measures may lead to different conclusions.

We study the impact of corporate governance frictions on growth in an economy where growth is driven both by the foundation of firms that offer new products and by the in-house investment of incumbent firms. Managers can engage in tunnelling and empire building activities at the expense of firms' shareholders. Firm founders can monitor managers on behalf of all shareholders, but can shirk on their monitoring, damaging minority shareholders. We investigate the effects of these conflicts among firms' stakeholders and financiers on both the entry of new firms and the investment of existing firms. The analysis also characterizes conditions under which the effects of corporate governance frictions on growth boost or reduce welfare.

We investigate whether credit constraints facilitate the international propagation of financial shocks that originate from the United States. The US economy is modeled jointly with global macro and financial variables using a threshold vector autoregression. This model captures regime-dependent dynamics conditional on the tightness of credit market conditions, gauged by a risk premium on US corporate bonds. The economy switches from a regime of unconstrained access to credit to one characterized by tight credit whenever the bond risk premium exceeds a critical threshold. Our results reveal that US financial shocks lead to a tightening of global financial conditions and to a decline in global trade, which trigger a significant worldwide output contraction in periods when borrowers face stringent credit constraints.

This paper proposes a macroeconomic model with financial intermediaries (banks), in which banks face occasionally binding leverage constraints and may endogenously affect the strength of their balance sheets by issuing new equity. The model can account for occasional financial crises as a result of the nonlinearity induced by the constraint. Banks' precautionary equity issuance makes financial crises infrequent events occurring along with ``regular'' business cycle fluctuations. We show that an episode of capital inflows and rapid credit expansion, triggered by low country interest rates, leads banks to endogenously decrease the rate of equity issuance, contributing to a higher likelihood of future crises. Macroprudential policies directed at strengthening banks' balance sheets, such as capital requirements, are shown to lower the probability of financial crises and to enhance welfare.

Why do financial crises lead to very slow recoveries? First, I document that firms which are intensive in innovation are less able to engage in volatile external financing flows. The effect is primarily due to debt financing; equity financing acts as a partial substitute. Then, I develop a business cycle model with endogenous innovation that incorporates these facts in order to explain the short and medium-run effects of financial shocks. The increases in the cost of debt and venture capital financing during the Great Recession can explain an important part of the ensuing Great Deviation of output from trend, as the reduction in innovation amplifies persistence.

Management practices and participation in international trade vary substantially across firms and countries. We provide the first evidence on the links between managerial competence, export performance and import activity using detailed data on the management practices, balance sheets and customs transactions of 485 Chinese firms in 2000-2006. Better managed firm are significantly more likely to engage in exporting. Conditional on doing so, they have higher export revenues, trade more products, transact with more destination countries, and sell to richer markets. Unpacking management into various components, monitoring/targets management matters for all aspects of trade activity, while people management only for the choice of trade partner countries. Symmetric patterns hold for firms’ imports. Managerial quality is more important for export success in sectors that require more external finance, especially in Chinese provinces with less developed credit markets. By contrast, the role of management does not depend on sectors’ capital, skill, R&D and contract intensity. These results suggest that superior managerial practices enhance firms’ trade performance by allowing them to produce goods of higher quality, as well as to raise more external finance and/or use it more efficiently. Inferior managerial practices may thus be an important obstacle for developing nations that depend on trade for economic growth.

In the period since the early 1960s, the U.S. economy has undergone a major structural transformation, as employment has reallocated, both within manufacturing, and away from manufacturing to services. Yet we have relatively little evidence on the microeconomic processes through which such structural transformation occurs. To what extent does it occur within firms, within plants, and within versus across geographic regions? The relative importance of these margins informs the relative magnitude of adjustment costs, both within and across firms, and the extent of misallocation of resources from their most productive use. The relative importance of these margins also sheds lights on the dynamics of firm growth. We find an important role of within-firm relocation for aggregate structural transformation and find that a firm’s flexibility in reallocating resources plays an important role in addition to its productivity in determining its long-run success.

This paper develops a structural model of heterogeneous multi-product firms which enables a decomposition of the firm size distribution into the model's components of costs, qualities, product scope, and markups. We use detailed Nielsen barcode data to document that virtually all output in packaged goods industries is produced by multi-product firms, and these firms exhibit extreme heterogeneity in terms of sales. Taking our model to the data, we find that variation in firm quality explains 60-80 percent of the variation in firm sales depending on the specification. Cost, and therefore productivity, differences explain at most 20 percent of the US firm size distribution. The fact that firms that produce the highest quality output tend to have the lowest marginal cost tends to support a complementarity between between quality and productivity. Finally, we find that although the output of multi-product firms is differentiated, cannibalization is be quantitatively important for the largest firms.

We study how increased import competition from China affects domestic innovation in U.S. firms. On the one hand, foreign competition may increase innovation within industries by encouraging U.S. establishments to concentrate on product segments that are more intensive in R&D or to engage defensive innovation within existing segments. On the other hand, greater import penetration resulting from deepening supply chains in Asia may reduce overall U.S. presence in the key industries (computers, semiconductors, other electronics) where opportunities for innovation are most abundant. We examine firm and industry dynamics by combining data on patenting at the firm level with measures of trade exposure at the industry level.

In this paper we attempt to understand how policy interventions could improve the fuel economy of drivers without changing the vehicles they drive or the trips they take. To do this, we use high-resolution driving data to document the large variation in actual on-road fuel economy achieved by drivers of identical vehicles. We analyze this variation using a model that links driver behavior to vehicle fuel consumption. The physical vehicle model, estimated econometrically from data on acceleration and speed choices, predicts observed fuel consumption extremely well. We combine this physical model with a model of optimizing behavior by drivers, in which drivers trade-off higher fuel consumption for shorter trip times. Using the variation in value of time for the drivers in our data set, we simulate route choice and driving behavior on a stylized set of trips. We find that drivers have little incentive to change their driving behavior to improve fuel economy, since the time cost of driving more efficiently generally outweighs the value of fuel savings. This means that gasoline taxes, while internalizing environmental externalities, are not as effective at reducing overall fuel use as policies that allow for smoother traffic flow (fewer accelerations and decelerations) such as stoplight timing, infrastructure improvements, or the increased use of vehicle automation.

Greenhouse gas mitigation efforts in the electricity sector emphasize accelerated deployment of energy efficiency measures and renewable energy resources. Short-run benefits associated with incremental investments in energy efficiency or renewables manifest indirectly as reductions in the economic operating costs and emissions of marginal electricity generating units. We evaluate different renewable energy (RE) and energy efficiency (EE) technologies across regional power systems. Using standard social cost of carbon assumptions, our estimates of emissions-related benefits comprise a significant share of estimated returns on investment in some regions. On a per-MWh basis, regional variation in emissions displaced and costs avoided is more significant than variation across technologies within individual regions. This implies that the choice of location, more than the technology choice, determines the value generated by these investments. We also find that regional variation in avoided carbon benefits generates significant regional variation in the implied abatement costs associated with each technology. These results underscore the importance of designing policy incentives that accurately capture regional differences in emissions-related returns on RE and EE investments.

Electric vehicles offer the promise of reduced environmental externalities relative to their gasoline counterparts. We determine the spatial heterogeneity in these externalities and evaluate several spatially-differentiated policies to correct them. To do this, we combine a discrete-choice model of new vehicle purchases, an econometric analysis of the electric power industry, and the AP2 air pollution model. We find three main insights. First, there is considerable spatial variation in the environmental benefit of electric cars, ranging from a positive \$2144 in California to a negative \$2607 in North Dakota. Second, the vast majority of environmental externalities from driving an electric car in one place are exported to other places, implying that electric cars may be subsidized locally, even though they may lead to negative environmental benefits overall. Third, spatially differentiated policies can raise welfare, but the effect is much stronger for taxes on miles driven than for subsidies on vehicle purchases.

Many of the most important policies that aim to reduce greenhouse gas emissions and other environmental externalities do so by regulating the energy efficiency of energy-consuming durable goods. We document a hitherto unexplored connection between heterogeneity in the utilization of such durable goods and the economic efficiency of this class of policies. Inefficiency arises because products with the same energy efficiency rating have different lifetime utilizations, and hence different lifetime emissions, are given equal policy treatment. We develop a model that characterizes sufficient statistics for the deadweight loss from using these second-best policies in lieu of efficient Pigouvian taxes in the presence of such utilization heterogeneity. Most notably, under some plausible assumptions, the R2 from a regression of the lifetime emissions of products on their energy efficiency ratings is equal to the fraction of the first-best welfare gain that can be achieved by energy efficiency regulations that, like Corporate Average Fuel Economy standards, impose an (implicit) linear tax on energy efficiency. We explore the quantitative importance of heterogeneity for the case of automobile fuel economy regulations using data on vehicle mileage shortly before scrappage. We document significant dispersion in lifetime mileage of different types of vehicles that share a common fuel economy rating. We estimate that this heterogeneity implies that fuel-economy regulations can achieve only about one quarter of the welfare gain from an optimally designed policy.

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Rising household wealth may potentially impact both total fuel consumption and fuel-type composition, resulting in significant health and environmental implications. We explore the effects of a transfer program that provided poor, rural households with greater levels of assets and cash. The shift in household well-being that arose from the program increased total fuel consumption: a one standard deviation in household assets led to a 41 percent increase in fuel consumption. Households that experienced a rise in well-being shifted from using electricity rather than kerosene as their primary form of lighting, even though the total value of kerosene consumption also rose. In contrast, we did not observe a shift to cleaner cooking fuels.

We explore the effects of mandatory third-party review of mortgage contracts on consumer choice— including the terms and demand for mortgage credit. Our study is based on a legislative pilot carried out by the State of Illinois in a selected set of zip codes in 2006. Mortgage applicants with low FICO scores were required to attend loan reviews by financial counselors. Applicants with high FICO scores had to attend counseling only if they chose “risky mortgages.” We find that low-FICO applicants for whom counselor review was mandatory did not materially change their contract choice. Conversely, applicants who could avoid counseling by choosing less risky mortgages did so. Ironically, the ultimate goals of the legislation (e.g., better loan terms for borrowers) were only achieved among the population that was not counseled. We also find significant adjustments in lender behavior as a result of the counseling program.

We propose a new, data-based test of the presence of biased financial advice when household choose between Fixed Rate Mortgages (FRM) and Adjustable Rate Mortgages (ARM). If households are wary, the relative cost of fixed and variable rate mortgages should be a sufficient statistics for a household mortgage choice and the identity of the bank originating the loan should play no role, even if banks differ in the relative cost of originating the two types of mortgages. If households are naïve and rely on banks advice to guide their choice, banks may be tempted to bias advice in a direction that is most convenient to them. The relative cost of the two mortgages is no longer a sufficient statistic: characteristics of the bank, proxying for its relative advantage to originate fixed versus adjustable rate mortgages, play a role. We test this implication on a random sample of 2.4 million mortgages originated in Italy between 2004 and 2010 featuring information on the borrower, the originator and the price at origination. We find that the choice between ARM and FRM is systematically and significantly affected by banks’ characteristics especially at times when they cannot modify the relative price of the two mortgage types. This supports the view that banks are able to affect household mortgage choices not only through a price but also through an advice channel.

This paper studies the refinancing behavior of Danish households during a recent period of declining interest rates. Danish data are particularly suitable for this purpose because the Danish mortgage system imposes few barriers to refinancing, and demographic and economic characteristics of mortgage borrowers can be accurately measured. The paper finds that household characteristics affect both inattention (a low responsiveness of mortgage refinancing to financial incentives) and inertia(a low unconditional probability of refinancing. Many characteristics move inattention and inertia in the same direction, implying a high cross-sectional correlation of 0.76 between these two household attributes. Middle-aged and older households show greater inertia and inattention than young households. Education and income reduce both inertia and inattention, but the effect of education is greater among more educated households, while the effect of income is greater among poorer households. Housing and financial wealth have opposite effects on inertia, consistent with the view that households manage their mortgages more actively when housing is relatively more important to them.

This paper investigates the impact of lower mortgage rates on household balance sheets and other economic outcomes during the housing crisis. We use proprietary loan-level panel data matched to consumer credit records using borrowers' Social Security numbers, which allows for accurate measurement of the effects. Our main focus is on borrowers with agency loans, which constitute the vast majority of U.S. mortgage borrowers. Using a difference-in-differences framework that exploits variation in the timing of rate resets of adjustable rate mortgages with different fixed-rate periods, we find that a sizable decline in mortgage payments ($150 per month on average) induces a significant drop in mortgage defaults, an increase in new financing of durable consumption (auto purchases) of more than 10% in relative terms, and an overall improvement in household credit standing. We identify important heterogeneity in the ability of monetary policy to stimulate households' consumption: Low-wealth borrowers are especially responsive to reductions in mortgage payments, while credit-constrained households use more than 70% of their increased liquidity to deleverage, dampening their consumption response. These findings also qualitatively hold in a sample of less-prevalent borrowers with private non-agency loans. We then use regional variation in mortgage contract types to explore the impact of lower mortgage rates on broader economic outcomes. Regions more exposed to mortgage rate declines saw a relatively faster recovery in house prices, increased durable (auto) consumption, and increased employment growth, with responses concentrated in the non-tradable sector. Our findings have implications for the pass-through of monetary policy to the real economy through mortgage contracts and household balance sheets.

We study how a government should optimally disclose information about banks’ assets during a financial crisis. The government can also use its resources to stop runs and unfreeze credit markets. Disclosure improves welfare by reducing adverse selection, but it can also create runs on weak banks. A credible fiscal backstop mitigates these risks and allows the government to pursue efficient but risky strategies. A strong fiscal position makes it possible to provide a candid assessment of financial health while providing guarantees to banks that are run on. A weak fiscal position can make it optimal not to reveal too much information. We argue that our theory provides an explanation for the different choices that countries make in response to financial crises.

This paper analyzes the welfare implications of mandatory disclosure of losses at financial institutions when it is common knowledge that some banks have incurred losses but not which ones. We develop a model that features contagion, meaning that banks not hit by shocks may still suffer losses because of their exposure to banks that are. In addition, we assume banks can profitably invest funds provided by outsiders, but will divert these funds if their equity is low. Investors thus value knowing which banks were hit by shocks to assess the equity of the banks they invest in. We find that when the extent of contagion is large, it is possible for no information to be disclosed in equilibrium but for mandatory disclosure to increase welfare by allowing investment that would not have occurred otherwise. Absent contagion, mandatory disclosure cannot raise welfare, even if markets are frozen. Our findings provide insight on when contagion is likely to be a concern, e.g. when banks are highly leveraged against other banks, and thus when mandatory disclosure is likely to be desirable.

Governments intervene in firms’ lives in a variety of ways. However, efficient interventions depend on economic conditions, about which a government often has only limited information. Consequently, many researchers and policymakers call for the government to at least partially “follow the market” and make intervention decisions based on the information revealed by stock market prices. We analyze the implications of governments’ reliance on market information for market prices and government decisions, and show that the use of market information might not come for free. A key point is that price informativeness is endogenous to government policy. In some cases, it is optimal for the government to commit to limited reliance on market prices in order to avoid harming traders’ incentives to trade and the concomitant aggregation of information into market prices. For similar reasons, it is optimal for the government to limit transparency in some dimensions.

To end a financial crisis, the central bank is to lend freely, against good collateral, at a high rate, according to Bagehot’s Rule. We argue that in theory and in practice there is a missing ingredient to Bagehot’s Rule: secrecy. Re-creating confidence requires that the central bank lend in secret, hiding the identities of the borrowers, to prevent information about individual collateral from being produced and to create an information externality by raising the perceived value of average collateral. Ironically, the participation of “bad” borrowers, with low quality collateral, in the central bank’s lending program is a desirable part of re-creating confidence because it creates stigma. Stigma is critical to sustain secrecy because no borrower wants to reveal his participation in the lending program, and it is limited by the central bank charging a high rate for its loans.

A large theoretical and empirical literature explores whether politicians change their policy positions in response to voters' preferences. This paper asks the reverse question: do politicians affect voters' attitudes on important policy issues? However, the problems of reverse causality and omitted variable bias make this a difficult question to answer empirically. We study whether politicians affect public attitudes on nuclear energy and immigration in Sweden. We combine panel data for 290 municipal election units with attitudinal surveys measured at the municipality level. To identify causal effects, we take advantage of large non-linearities in the way seats are assigned. Using a regression discontinuity approach we compare otherwise similar elections where one party either barely wins or loses an additional seat. The presence of small, issue-focused parties in Sweden provides an ideal setting for this identification approach, as it is clear which attitudes might be affected. We estimate that a one seat increase for the environmental party reduces support for nuclear energy in that municipality by 16%. On the contrary, when anti-immigration politicians get elected, negative attitudes towards immigration decrease by 6%, which is opposite the party's policy position. The reason for this result is found in post-election media coverage being negative. These findings have important implications for both the theory and estimation of how voter preferences enter into political economy models. Our causal estimates indicate that politicians are not merely responding to voters' preferences, but that political representation has the power to mold and alter public attitudes on important policy issues. Forward-looking politicians should take this into account when calculating how to trade off preferred policy platforms and the probability of election. More broadly, our results point to the important influence those in positions of power have to change public opinion.

Initially, voting rights were limited to wealthy elites providing political support for stock markets. The franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the riskiness and financial returns from stock markets. Our panel data evidence covering 1830-1999 shows that tighter restrictions on the voting franchise induce a greater stock market development, whereas a broader voting franchise is more conducive towards the banking sector, consistent with Perotti and von Thadden (2006). Our results are robust to controlling for other institutional arrangements and endogeneity.

This paper explores why culture – not genes, geography, institutions, or policies – is the key to maximizing prosperity and freedom, and therefore best explains the differential success of societies. This is because only culture can overcome the most fundamental obstacle to human flourishing and advancement: rational self-interest undermining the common good. Prosperity requires large group cooperation but the larger the group, the more likely rational self-interest and tribalism undermine the common good. My central claim is that human flourishing requires a high trust society. This is because a high trust society is required for the development of crucial free market and democratic institutions. A key element of any high trust society is trust in the system. Trust in the system is having confidence that society's "rules of the game" will not be changed in arbitrary or self-serving ways. I explain why in a free market democracy trust in the system becomes increasingly harder to sustain the more successful a society becomes. This is because the democratic process becomes increasingly prone to facilitating redistributive and regulatory favoritism. Unfortunately, the larger a society is the more likely institutional safeguards will fail to keep voters from demanding ever more redistribution and regulation. I explain how culture uniquely circumvents this problem by aligning self-interest with the common good through moral beliefs that function pre-rationally and scientific beliefs that suppress tribalism. The earlier in life such beliefs are inculcated, the less susceptible we are to being persuaded by arguments that exploit tribalism for narrow political ends.

We study social network formation and social network influences over individual opinions and values in a natural experiment, where freshmen of a prestigious French college, of whom many will become future politicians, are assigned almost randomly into first-year study groups. We use an incentive-compatible network elicitation game to obtain the social network among same-cohort students. The randomly assigned common membership to a first-year study group is shown to be a strong predictor of reported friendships between two students. It is used as instrument to estimate first year friendships’ effects on outcome variables including political opinions, past electoral behaviors, and social norms and values. We then use an individual's total number of friends of friends within the study group as instrument for her own centrality in the whole social network, to estimate the effect of centrality on individual opinions and values. To our knowledge, this is the first attempt to identify social network effects (beyond peer effects) using a quasi-random experiment that could fully avoid homophily issues.

We study whether the diffusion of photovoltaic (PV) systems has led to an increase in the fraction of votes obtained by the German Green Party. Taking advantage of the logistic diffusion of PV systems and of the exogenous impact of solar radiation on PV adoption, we identify the effect of the adoption rate on the increment in green votes. We find that the diffusion of domestic PV systems caused 25 per- cent of the increment in green votes between 1998 and 2009. Our findings are confirmed with individual-level data where we observe that after adopting a PV system, the owner of a house is 70% more likely to change his attitudes in favor of the green party, but not the other way around. Similarly, we find no effect for non-household owners. We interpret our findings as evidence of cognitive dissonance.

We construct a new dataset using census, survey, and registry data from hundreds of sources to document a clear positive relationship between aggregate productivity and average establishment size in manufacturing across 134 countries. We rationalize this relationship using a standard model of reallocation among production units that features endogenous entry and productivity investment. The model connects small operational scales to the prevalence in poor countries of correlated distortions (the elasticity between wedges and establishment productivity). The model also rationalizes the finding in poor countries of low establishment-level productivity and low aggregate productivity investment. A calibrated version of the model implies that when correlated distortions change from 0.09 in the U.S. to 0.5 in India, establishment size and productivity fall by a factor of more than five, and aggregate productivity by a factor of three. These substantial size and productivity losses are large compared to the existing literature and more in line with actual data for the differences in size and productivity between India and the United States.

As crowdsourced digital goods become more widely available and more frequently used as key inputs by firms, understanding the impact they have on productivity becomes of critical importance. This study measures the firm-level productivity impact of one such good, non-pecuniary (free) open source software (OSS). The results show a positive and significant return to the usage of non-pecuniary OSS that has gone unmeasured in prior studies of the economics of IT. The study addresses the endogeneity issues inherent in productivity studies by using inverse probability weighting, an instrumental variable approach, and firm fixed effects to add support for a causal interpretation. Across firms, a 1% increase in the amount of non-pecuniary OSS used by a firm leads to a .073% increase in productivity. This translates to a $1.38 million increase in value-added production for the average firm in the sample. This effect is greater for larger firms and for firms in the services industry. These findings suggest that firms willing to take on the risks associated with non-pecuniary OSS reap benefits from collective intelligence and labor spillovers. Further, the results indicate that existing studies underestimate the amount of IT used at the firm.

Two puzzles about international productivity differences are (1) across countries, the difference in PPP output per worker is much larger in agriculture than in non-agriculture; (2) within a country, the difference in output per worker at domestic prices between agriculture and non-agriculture decreases systematically with income. This paper develops a model that is capable of explaining these two empirical facts that existing research have difficulty reconciling. The model augments the classic Roy(1951) model of occupational choice with employment risks that differ across occupations. Specifically, I consider a setting where risk-averse individuals decide to work in agriculture or non-agriculture, where there are employment risks in non-agricultureas as in HarrisTodaro (1970). The employment risks take the form of idiosyncratic shocks to income of individuals working in non-agriculture. I first analyze equilibrium self-selection under complete markets and incomplete markets. I show that individuals working in non-agriculture are more specialized in non-agricultural production in the incomplete market case. I then show that the difference in specialization is more pronounced when individual preferences are non-homothetic, i.e., there is a minimum consumption requirement. I use the model to study the productivity difference between rich and poor countries. I restrict my analysis to countries with available census data from IPUMS-International. I assume employment risks in each country has the same parametric form as the one calibrated to US data, but has country-specific distributional parameters. Then for each country, I pick their country-specific TFP and distributional parameter such that the model matches two moments in the data: (1) difference in GDP per worker between US and the base country and (2) the distribution of wage in non-agriculture in the base country. Then I assess the difference in labor allocation as well as real output per worker in agriculture and non-agriculture between the base country and the US.

Localized knowledge spillovers are a common explanation for the productivity advantages of agglomeration. Nevertheless if information can easily flow out of firms, the question of why the effects of spillovers are localized must be clarified. If knowledge is embedded in workers and diffuses when workers move between firms, the strong localized aspect of knowledge spillovers may arise at least in part from the propensity of workers to change jobs within the same local labor market. In this paper I present direct evidence on the role of firm-to-firm labor mobility in enhancing the productivity of firms located near highly productive firms. Using Social Security earnings records for workers matched to detailed financial data for their employers in Veneto, a region of Italy with many successful industry clusters, I first identify a set of highly productive firms. I then show that hiring a worker with experience at highly productive firms significantly increases the productivity of other (non-highly productive) firms. I do so using different techniques, including an instrumental variable strategy which exploits downsizing events at highly productive firms. Back-of-the-envelope calculations suggest that worker flows can explain around 10% of the productivity gains experienced by other firms when new highly productive firms are added to a local labor market.

This paper empirically investigates how organizational hierarchy affects the allocation of credit within a bank. Using an exogenous variation in organizational design, induced by a reorganization plan implemented in roughly 2,000 bank branches in India during 1999-2006, and employing a difference-in-difference research strategy, we find that increased hierarchization of a branch decreases its ability to produce “soft” information on loans. Specifically, we observe that increased hierarchy leads to increased standardization of loans and rationing of “soft information” loans. Furthermore, this standardization brings about a reduction in performance on loans: delinquency rates and returns on similar loans are lower in more hierarchical branches. We also document how hierarchical structures perform better in environments that are characterized by a high degree of corruption, thus highlighting the benefits of hierarchical decision making in restraining rent seeking activities.

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If politicians collected supporters by using both words and formal symbolic notation, they would not do math; they would give speeches resplendent in mathiness. The tell would be the junctures where formal statements buttress words that persuade by misleading. By tightly linking formal statements to natural language equivalents, mathematical theory restricts and sharpens natural language. In contrast, mathiness encourages slippage that lets natural language run free so it can be used for full persuasive effect. Two recent papers from different academic factions, Lucas-Moll (2014) and Piketty-Zucman (2014), show that mathiness enjoys broad acceptance in economic discourse about growth. This suggests that the incentives economists face do not encourage the convergence toward broad professional consensus that is characteristic of science. The rapid shift in the United States from coal to natural gas as fuel for generating electricity is just one example progress in the benefits that can come from technological progress. It is the most recent of many reminders that people can be optimistic about the scope for continued economic progress and about their ability to both speed up and direct progress. Nevertheless, under the prevailing incentives in academic economics, the same people should probably not be optimistic about scientific progress in the economic analysis of either abstract theories of growth or specific growth policies. One way to change these incentives might be to broaden the conversation about growth to include people who influence decisions about the trend in such variables as total annual emissions of greenhouse gases and inequality between nations in the per capita consumption of energy. We might have both better policy and more scientific progress in academic economics if growth theorists had to compete not just for supporters, but also for users.

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How does globalization affect economic growth? The modern growth literature has focused on knowledge accumulation as the engine of growth. We discuss theoretical mechanisms that link international economic integration to the incentives for knowledge accumulation and the efficacy of that process. Several mechanisms feature prominently in the literature. First, integration of peoples and cultures facilitates the flow of knowledge across national borders. Foreign ideas may be useful for inventing new products, for improving existing products, or for producing goods at lower cost. Second, integration of product markets via international trade affords those who invent or improve products a greater potential market on which to reap returns even as it subjects them to additional competition from foreign rivals. Third, the integration of world markets has general-equilibrium implications for input prices and relative output prices. These price changes affect the cost of innovation as well as the relative attractiveness of alternative directions for industrial research. Finally, international interactions affect not only the incentives for creation of new knowledge, but also those for technological diffusion, with analogous implications for productivity growth. Taken together, the literature offers many theoretical insights. Some progress has also been made on the empirical side, although data and methodological impediments have left assessment and measurement lagging behind.

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Our beliefs and even our preferences, and thus our behavior, are, in part at least, socially determined; they are affected by the beliefs, behavior, and preferences of those around us, and the position of an individual within society. This paper explores several aspects of the social determination of behavior. There can be social contagion, where the beliefs or behavior of one group cascades throughout the economic system. This in turn can give rise to multiple equilibria: there may, for instance, be a high consumption-low leisure equilibrium, and another low consumption-high leisure equilibrium. The paper explores some of the factors that might lead a society towards one or the other. In societies marked by high inequality, lower income individuals may attempt to emulate life-styles of the rich, leading to a high consumption society. The analysis suggests the possibility of policy interventions: by affecting the behavior of key individuals in society that are seen as role models, societal equilibria can be altered. Since individuals define themselves at least in part by their position vis a vis other individuals in society, the behavior of individuals (at the top, middle, and bottom) in societies with greater inequality may differ from those with lesser inequality—again leading to the possibility of multiple equilibria. This analysis sheds light on the marked differences in patterns of consumption and leisure that have opened up between US and Europe over the past 35 years. The analysis undermines conventional approaches not only to positive economics, but also to normative economics.

Achieving a society that works well requires a balance of economic and social motivations. Without sufficient economic motivation, the economic needs of the society will not be met. But without sufficient social motivation, individuals lose sense of purpose, which is a major determinant of well-being. Additionally, the discipline necessary for the maintenance of trust, which is a prerequisite for high levels of economic activity, also requires social motivation. A balance between economic and social motivation is optimal. These results will be demonstrated in a model which is an application of identity economics.

The paper presents a model of the reflexive interplay between individual decisions and social forces to analyze the evolution of cooperation in the face of social dilemmas. We begin from the premise that all economic decisions are motivated and that people have access to multiple, discrete motivation systems. We examine how these motivations serve their social interactions, characterized by strategic complementarities or substitutabilities. Our model allows for both trait- and state-based changes in motivation. Agents can choose their social interactions and can shape their identities in accordance with their social contexts. The identities and social contexts, in turn, affect their motivations. Changes in the frequencies of social contexts influence the evolution of identities. Policy interventions can affect the reflexive relation between microeconomic decisions and macro-social forces.

The private sphere is the locus of social transactions in civil society. The public sphere is the locus of social transactions that create, maintain, and transform the rules of the game that define society itself. The public sphere includes running for office, toppling a government, voting in elections, engaging in political information-gathering and exchange, and participating in collective action. Models of rational choice in the private sphere are predicated on the notion that agents treat choices as instrumental in achieving their private ends, be they self-regarding, other-regarding, or dictated by purely moral concerns. Behavior in the public sphere, by contrast, is largely non-instrumental because it is non-consequential: individuals as voters in large elections or participants in large collective actions have a vanishingly small effect on outcomes. We call agents whose behavior in the public sphere is non-consequential canonical participants. This paper extends the rational actor model to the behavior of canonical participants in the public sphere by locating such behavior in a multi-dimensional taxonomy of rational choice. We apply this model to explain why collective action is generally motivated by violations of principles of procedural justice and rarely motivated by the statistical distribution of social outcomes, such as poverty rates, growth rates, or coefficients of social inequality or intergenerational mobility.

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What type of businesses do unions target for organizing and when? A dynamic model of the union organizing process is constructed to answer this question. A union monitors establishments in an industry to learn about their productivity, and decides which ones to organize and when. An establishment becomes unionized if the union targets it for organizing and wins the union certification election. The model predicts two main selection effects: unions target larger and more productive establishments early in their life-cycles, and among the establishments targeted, unions are more likely to win elections in smaller and less productive ones. These predictions find support in union certification elections data for 1977-2007 matched with data on establishment characteristics.

Using administrative data matching individual worker earnings to employers in a regression discontinuity design based on close union representation elections, this study presents new evidence on the impacts of unionization on establishment and worker outcomes. The paper first shows evidence that close union elections are subject to nonrandom selection, with large discontinuities in pre-election characteristics at the majority threshold. Estimates accounting for this selection show, perhaps surprisingly, that unionization significantly and substantially decreases establishment-level payroll, employment, average worker earnings at the establishment, and the probability of establishment survival. Estimates show the decreases in payroll and earnings are driven by union impacts on the composition of workers at unionization establishments, with older and higher-paid workers more likely to leave and younger workers more likely to join or stay. Worker-level effects on the earnings of workers who stay are small. The distinction between the large negative establishment-level effects and small worker-level effects is interpreted in a model of employer and employee selection into union jobs.

It is well known that the organizing environment for labor unions in the U.S. has deteriorated dramatically over a long period of time, contributing to the sharp decline in the private sector union membership rate and resulting in many fewer representation elections being held. What is less well known is that, since the late 1990s, average turnout in the representation elections that are held has dropped substantially. These facts are related. I develop a model of union decision making regarding selection of targets for organizing through the NLRB election process with the clear implication that a deteriorating organizing environment will lead to systematic change in the composition of elections held. The model implies that a deteriorating environment will lead unions not only to contest fewer elections but also to focus on larger potential bargaining units and on elections where they have a larger probability of winning. A standard rational-voter model implies that these changes in composition will lead to lower turnout. I investigate the implications of these models empirically using data on turnout in over 140,000 NLRB certification elections held between 1973 and 2009. The results are consistent with the model and suggest that changes in composition account for about one-fifth of the decline in turnout between 1999 and 2009.

We analyze a labor market with search and matching frictions where wage setting is controlled by a monopoly union. Frictions render existing matches a form of firm-specific capital which is subject to a hold-up problem in a unionized labor market. We study how this hold-up problem manifests itself in a dynamic infinite horizon model, with fully rational agents. We find that wage solidarity, seemingly an important norm governing union operations, leaves the unionized labor market vulnerable to potentially substantial distortions due to hold-up. Introducing a tenure premium in wages may allow the union to avoid the problem entirely, however, potentially allowing efficient hiring. Under an egalitarian wage policy, the degree of commitment to future wages is important for outcomes: with full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, and in a Markov-perfect equilibrium, hiring is well below its efficient level both in the short and the long run, with endogenous real stickiness in the dynamics of wages.

The share of national income accruing to labor has been declining steadily over the 30 years. Despite much careful research, a large part of the decline in the labor share remains unaccounted for. To further understanding of labor share’s secular movement, we examine data at the state level, both for the state as a whole and for the manufacturing sectors within states. These rich, state- level micro-data afford comparisons that involve small differences in some salient characteristics, such as aggregate prices, institutions, and monetary policy, but large differences in labor shares and the underlying driving forces. We begin by documenting that the labor share in the manufacturing sector exhibits a secular decline very similar to the national decline. We then filter the state-level data by removing state and time fixed effects and document that the trend in the filtered labor share exhibits a great deal of heterogeneity across states. For example, economically dissimilar states such as Wyoming and Oregon have similar large trends, while economically dissimilar states such as Massachusetts and Idaho have similar small trends. Nearly all states have negative growth rates in the labor share. These results suggest the benefits of our micro/state approach to uncovering driving factors of the labor share. We are investigating their effects in two ways. First, we undertake a traditional panel analysis relating the labor share to several state-specific factors, such as capital income taxes, unions, globalization via trade flows, industrial competition via neighboring states, state fiscal policies, and political factors. Second, we use the state-level data on capital formation, capital tax data, and other state-level data to estimate structural production relations to quantify the role of capital augmented technical change in a nested-CES model similar to Greenwood, Hercowitz, and Krusell (AER, 1997).

A search and matching model, when calibrated to the mean and volatility of unemployment in the postwar sample, can potentially explain the unemployment crisis in the Great Depression. The limited responses of wages from credible bargaining to labor market conditions, along with the congestion externality from matching frictions, cause the unemployment rate to rise sharply in recessions but decline gradually in booms. The frequency, severity, and persistence of unemployment crises in the model are quantitatively consistent with U.S. historical time series. The welfare gain from eliminating business cycle fluctuations is large.

This paper adds two-sided ex ante heterogeneity and a production technology inducing sorting to the canonical Diamond-Mortensen-Pissarides (DMP) search and matching model. This modification considerably improves the model's empirical performance. Due to assortative matching, match-specific wages are non-monotonous in firm type, as illustrated by Eeckhout and Kircher (2011); that is, an optimal, wage-maximizing employer exists for every worker. In a frictional labor market, however, wage-maximizing matches are unlikely to materialize, resulting in mismatch and output loss compared to the first-best allocation of workers to jobs. A lower expected value of match-specific wages, in turn, provides additional incentives for firms to create vacancies in response to a favorable productivity shock. Thus, ex ante heterogeneity and sorting have important implications not only for the equilibrium but also for the dynamic properties of the model. Specifically, the modifications solve the problem that standard DMP models do not generate enough volatility in response to shocks, also known as the ''Shimer Puzzle'' (Shimer, 2005). The necessary amplification to overcome the volatility puzzle stems from an endogenously generated wage rigidity, which is of reasonable magnitude given empirical evidence from the U.S. labor market.

In standard production models wage volatility is far too high and equity volatility is far too low. A simple modification - sticky wages due to infrequent resetting together with a CES production function - leads to both (i) smoother wages and (ii) higher equity volatility. Furthermore, the model produces several other hard to explain features of financial data: (iii) high Sharpe ratios, (iv) low and smooth interest rates, (v) time-varying equity volatility and premium, (vi) a value premium, and (vii) a downward-sloping equity term structure. Pro-cyclical, volatile wages are a hedge for firms in standard models, smoother wages act like operating leverage, making profits and dividends more risky.

This paper studies the quality of employment and wage adjustments over the business cycle. We do this evaluating the two possible mechanisms that firms have to adjust their labor costs: worker flows and wage changes. The most distinctive feature of the impact of the current crisis on the labor market is the reduction in hirings and churning and the increase in wage cuts for continuing workers. We show that churning, the replacement of departing workers with new ones, has decreased substantially during the crisis and that hirings have a larger contribution to the Portuguese business cycle than separations. Low-quality firms dominate the reaction of the labor market to the economic conditions. The effect of increased unemployment is a reduction in hirings and separations, inducing a substantial reduction in churning. These adjustments are all concentrated in firms that pay lower wages. The observed halt in labor market flows was compensated by wage flexibility. There is a great deal of wage flexibility in Portuguese firms and there is no evidence that wage rigidity indicators increase with the business cycle. On the contrary, we show that high-paying firms reduce the share of minimum wage workers in recessions, while low-quality firms increase it. Our results show that in recessions jobs become stickier in low-quality firms, they reduce churning, and simultaneously there is a shift in employment towards high-paying firms. Thus, Portuguese recessions are characterized by a cleansing effect: the shedding in jobs in recessions is concentrated in low-paying firms, contributing to a positive impact of recessions in labor productivity and explains the counter-cyclical behavior of match quality.

We find that in rapidly changing, competitive product markets, CEO power has a positive impact on the value of the firm. Additionally, firms with powerful CEOs tend to invest and advertise more in these markets. In addition to whether the CEO also chairs the board and is the company founder, CEO “soft” power, as captured by the CEO’s connections to executives and the board of directors through appointment decisions, helps a firm react more efficiently to product market changes and threats. Our findings imply that product markets play an important role in affecting the benefits and costs of CEO power.

When a proxy contest is looming, the rate at which CEOs exercise options in order to sell (hold) the resulting shares slows down by 80% (accelerates by 60%), consistent with their desire to maintain or strengthen voting rights when facing control challenges. Such deviations are closely aligned with features unique to proxy contests such as the record dates and nomination status. Moreover, a contest triples the probability that an insider exercises options out-of-the-money, an irrational strategy under conventional models. The various distortions suggest that incumbents value their stocks 5%-10% higher than the market price when the voting rights embedded in the shares are valuable for defending control and preserving private benefits.

Using a sample of about 90,000 observations from 38 countries over the 2001-2012 period, we find evidence that following say on pay (SoP) laws, CEO pay growth rates decline and the sensitivity of CEO pay to firm performance improves. Further, the portion of total top management pay captured by CEOs is lower in the post-SoP period, which is associated with higher firm valuations. Overall, our results suggest that SoP laws are associated with significant changes in CEO pay policies.

We offer a novel explanation for the use of performance-based compensation in CEO contracts: the provision of competitive compensation to retain talent. Under mild assumptions regarding distribution of talent at the tail (Gabaix and Landier, 2008), the functional form of the pay-performance relation is approximated with relative-performance evaluation (RPE) based on CEO performance rank relative to talent peers. We examine RPE terms in CEO compensation contracts and find support for these predictions: Firms converge to similar rank-based RPE contracts, RPE peers overlap with talent peers, and RPE prevails when CEO talent is transferable.

This paper examines the potential influence of Moody's ownership structure on its rating policies. During the ten years following Moody's IPO in 2000, Moody's had two stable large shareholders, Berkshire Hathaway and Davis Selected Advisors, who collectively own about 23.5% of Moody's. We document that Moody's ratings on corporate bonds issued by important investee firms of these two large shareholders were more favorable relative to S&P's ratings on the same bonds. We also find favorable treatment by Moody's towards its owners in their ratings on commercial mortgage backed securities (CMBS). The results cannot be explained by issuer characteristics or by greater informativeness of Moody's ratings. Lastly, indirect ownership by an institution through a large shareholding in McGraw-Hill, S&P's parent, does not affect S&P's ratings. The evidence suggests that direct and stable large shareholders affect the ratings process. These findings are consistent with regulatory concerns about the public ownership of credit rating agencies.

SEC regulations in 1975 gave select ratings agencies increased market power by increasing barriers to entry and increasing reliance on ratings for regulations. We test whether these regulations led to lower ratings quality. We find that defaults and other negative credit events are more likely for firms given the same rating if the rating was assigned after the SEC action compared to before. The default likelihood is also stronger for smaller firms, as these firms are less visible and less likely to harm reputational capital. These results indicate that the market power derived from the SEC led to ratings inflation.

Policy-makers and managers often turn to experts when in need of information: because they are more informed than others of the content and quality of current and past research, they should provide the best advice. I show, however, that we should expect experts to be systematically biased, potentially to the point that they are less reliable sources of information than non-experts. This is because the decision to research a question implies a belief that research will be fruitful. If priors about the impact of current work are correct, on average, then those who select into researching a question are optimistic about the quality of current work. In areas that are new, or feature new research technologies (e.g., data sources, technical methods, or paradigms), the selection problem is less important than the benefit of greater knowledge: experts will indeed be experts. In areas that are old and lack new research technologies, there will be significant bias. Furthermore, consistent with a large body of empirical research, this selection problem implies that experts who express greater confidence in their beliefs will be, on average, less accurate. This paper provides many empirical implications for expert accuracy, as well as mechanism design implications for hiring, task assignment, and referee assignment.

We analyze whether bond investors price tail risk exposures of financial institutions using a comprehensive sample of bond issuances by U.S. financial institutions. Although primary bond yield spreads increase with an institutions' own tail risk (expected short-fall), systematic tail risk (marginal expected shortfall) of the institution doesn't affect its yields. The relationship between yield spreads and tail risk is significantly weaker for depository institutions, large institutions, government-sponsored entities, politically-connected institutions, and in periods following large-scale bailouts of financial institutions. Overall, our results suggest that implicit bailout guarantees of financial institutions can exacerbate moral hazard in bond markets and weaken market discipline.

I develop a continuum of new nonparametric bounds. They stem from the solution of an optimization problem that is complementary to the Hansen and Jaganathan (1991) approach and are shown to complete the nonparametric bound universe the literature has so far discovered. Through the lens of these bounds, I estimate rare event distributions using index option returns. Standard disaster models and their perturbations are shown unable to meet the bounds implied by simple static option trading strategies. My results suggest more sophisticated modeling of disaster models in order to reconcile with the index option data.

We propose a new method of testing asset pricing models that does not rely on prices and returns but on quantities (flows) instead. Under the assumption that capital markets are competitive and investors rational, an asset pricing model can only be correct if investors are using it in their capital allocation decisions. Therefore, any investment opportunity that the model identifies as having a nonzero alpha must be accompanied by capital flows of the same sign as the alpha. We use the data on active mutual funds to identify such flows, and find that the recent alternatives to the Capital Asset Pricing Model do not improve upon the original model.

Whether fund managers can generate positive alpha and do so persistently are key questions in the mutual fund literature. We propose a new economic force that limits persistence in alpha: competition from other funds that cater to similar segments of investor demand. We make three contributions. First, we use new spatial methods to identify the dynamic competition faced by funds. Second, we develop a new measure of fund manager skill, viz., the ability of a fund to beat its spatially close rivals. The skill measure predicts alphas for at least four quarters ahead. Finally, we show that alpha is persistent only when a fund has few rivals. This new persistence is not driven by diseconomies of scale, is economically large, and lasts up to four quarters. Thus, besides the scale diseconomies emphasized by Berk and Green (2004), competition between funds is a potent force that limits the persistence of alpha.

Historically, low-beta stocks deliver high average returns and low risk relative to high-beta stocks, offering a potentially profitable investment opportunity for professional money managers to “arbitrage” away. We argue that beta-arbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of relatively little activity, the beta-arbitrage strategy exhibits delayed correction, taking up to three years for abnormal returns to be realized. In stark contrast, in times of relatively-high activity, short-run abnormal returns are much larger and then revert in the long run for the stocks in question. Importantly, we document a novel positive-feedback channel operating through firm-level leverage that facilitates these boom and bust cycles. Namely, when arbitrage activity is relatively high and beta-arbitrage stocks are relatively more levered, the cross-sectional spread in betas widens, resulting in stocks remaining in beta-arbitrage positions significantly longer with short-run abnormal returns more than tripling in value. Our findings are exclusively in stocks with relatively low limits to arbitrage (large, liquid stocks with low idiosyncratic risk), consistent with excessive arbitrage activity destabilizing prices.

Using a comprehensive sample of cross-border mergers, we find that acquirers from countries experiencing large currency appreciations realize higher abnormal announcement stock returns during both the announcement period and the post-merger period. Importantly, this shareholder wealth creation effect mainly comes from those acquirers in countries with strong shareholder rights and those acquirers with better corporate governance. We further find that acquirers from countries with weak shareholder rights tend to overpay a foreign target following a currency appreciation. Collectively, this evidence suggests that the interaction of currency appreciation and agency conflicts plays an important role in acquirer shareholder value creation.

We propose and test an efficiency explanation for why firms deploy takeover defenses using IPO firm data. Takeover defenses bond the firm's commitments by reducing the likelihood that an outside takeover will change the firm's operating strategy and impose costs on its trading partners. This bond, in turn, encourages the firm's trading partners to invest in their business relationship with the firm. Consistent with this hypothesis, we find that IPO firms deploy more takeover defenses when they have customers, suppliers, or strategic partners that are vulnerable to changes in the firm's operating strategy. An IPO firm's valuation and subsequent operating performance both are positively related to its use of takeover defenses, particularly when it has dependent customers, suppliers, or strategic partners. Share values at the IPO firm's large customers are affected by the IPO announcement, and the effect is positively related to the IPO firm's use of takeover defenses. We also find that the IPO firm's use of takeover defenses is positively related to the longevity of its business relationships, indicating that defenses do in fact help to bond the IPO firm's commitments to its business partners. These results indicate that takeover defenses are one mechanism by which IPO firms can ameliorate the hold-up problem that arises when firms develop close working relationships with customers, suppliers, and strategic partners.

We show that in many cases target shareholders would obtain higher prices if their company was sold via a negotiation, rather than an auction. Accounting for the endogenous determination of the size and composition of the bidder pool, we show that possible bidders in takeover auctions face substantial uncertainty prior to their entry into an auction and that fewer than half of invited potential acquirers choose to participate in competitive bidding for the target. We find that higher pre-entry uncertainty encourages participation in competitive bidding, thus making auctions preferable when uncertainty is high. In negotiations, uncertainty reduces the effectiveness of upward bid-shading to deter potential competitors, so negotiations are preferable when the selling company is relatively opaque to potential bidders. Our results call into question claims that target directors violate their fiduciary duty by selling a company via a negotiated transaction, even in the absence of a formal market check.

We provide new evidence on the responsiveness of real interest rates and inflation to monetary shocks. Our identifying assumption is that the increase in the volatility of interest rate news in a 30-minute window surrounding scheduled Federal Reserve announcements arises from news about monetary policy. Nominal and real interest rates respond roughly one-for-one several years out into the term structure at these times, implying that changes in expected inflation are small. At longer horizons, the response of expected inflation grows. Accounting for "background noise" in interest rates on FOMC days is crucial in identifying the effects of monetary policy on interest rates, particularly at longer horizons. We show that in conventional business cycle models with nominal rigidities our estimates imply that monetary non-neutrality is large. We also find evidence that FOMC announcements provide the public with information not only about monetary policy but also about the evolution of exogenous economic fundamentals.

We present a dynamic heterogeneous-agent asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk tolerant agents (banks) borrow from risk averse agents (depositors) and invest in risky assets subject to a reserve requirement. By varying the nominal interest rate, the central bank affects the spread banks pay for external funding (i.e., leverage), a link that we show has strong empirical support. Lower nominal rates result in increased leverage, lower risk premia and overall cost of capital, and higher volatility. The effects of policy shocks are amplified via bank balance sheet effects. We use the model to implement dynamic interventions such as a "Greenspan put" and forward guidance, and analyze their impact on asset prices and volatility.

We study private sector expectations about the short-term interest rate. We uncover persistent differences between the ex-ante real rate perceived by agents in real-time and its full-sample counterpart estimated by the econometrician. Entering recessions, agents systematically overestimate the real rate, and underestimate future unemployment and the degree of monetary easing. These forecast errors induce persistence in identified monetary policy shocks and cause the econometrician to overstate the variation in Treasury risk premia. Our evidence offers a new interpretation of the unspanned factors phenomenon in the yield curve, emphasizing the key role of information rigidities for the dynamics of real interest rates.

Previous macro-finance term structure models (MTSMs) imply that macroeconomic state variables are spanned by (i.e., perfectly correlated with) model-implied bond yields. However, this theoretical implication appears inconsistent with regressions showing that much macroeconomic variation is unspanned and that the unspanned variation helps forecast excess bond returns and future macroeconomic fluctuations. We resolve this contradiction--or "spanning puzzle"--by reconciling spanned MTSMs with the regression evidence, thus salvaging the previous macro-finance literature. Furthermore, we statistically reject "unspanned" MTSMs, which are an alternative resolution of the spanning puzzle, and show that their knife-edge restrictions are economically unimportant for determining term premia.

In this paper we investigate the utility of using a hedonic model to construct an index of yields on commercial mortgage loans. The use of a hedonic model represents an innovation in that this technique is never used in the creation of financial indexes. We utilize a large unique proprietary dataset of mortgage originations from CBRE Capital Markets from 2000Q3 – 2012Q4 to construct a hedonic model of yields as a function of loan characteristics as well as time effects. We deal with the inherent endogeneity of LTV’s as a loan characteristic by constructing an instrument variable that represents a lender’s average LTV profile and estimating the hedonic via 2SLS. We find that the loan characteristics play a significant role in the pricing of the loan and have the expected signs. We also find that the instrumented LTV has a positive effect on yields, which we interpret as evidence that the loan hedonic specification traces out the supply curve of loans. Comparing the estimates of the hedonic using OLS and 2SLS approaches, we find the bias from OLS to be small for practical purposes of index construction. In terms of term structure of loan yields, we find that while the yield curve on commercial loans generally follows the shape of the yield curve on Treasury bonds up until the start of financial crisis in 2007, this relationship breaks down post-crisis, with the loan term structure having a negative slope for yields on short-term loans. Next, we use the estimated model to construct an index of loan yields (thus controlling for variation in loan characteristics) and contrast it with a simplistic average of yields. Specifically, we utilize a battery of cointegration tests with various US debt yield indexes to test whether a hedonic index performs better in uncovering underlying equilibrium relationships with other yield variables than a simple average of yields. We find evidence that is strongly in favor of a hedonic index. We confirm the validity of our cointegration tests by building a VECM model between a hedonic index and a Bank of America Merrill Lynch Bond Yield index. Taken together, our findings offer strong evidence for the superiority of hedonic indexes over simplistic averaging techniques in both tracking the movement of mortgage of yields over time, as well as in uncovering the underlying equilibrium relationships between mortgage yields and related economic variables.

This paper provides a new estimation and flexible solution method for a generalized class of sorting hedonic models that incorporates heterogeneity in preferences. The models deliver hedonic pricing functions with a consistent connection in equilibrium between house values and rents, incorporating the investment and consumption motives for housing consumption. We take into account the difficulty of measuring complete housing quality and treats it as latent in their estimation. As application, we carry out empirical analysis using household level datasets in several metropolitan areas in the US. We use clustering techniques to learn categorization of households into types using data on age and number of children, and use the estimates to contrast preferences for overall quality in each type. Alternatively, we define household types as households with and without children, and obtain the robust result that the presence of children lowers the preference for housing quality as well increases the sensitivity to changes in income and price, supporting that children further raise the relative desired levels of non housing consumption. Obtained price functions al- low us to construct more refined price indices that measure change across time and metropolitan areas and all quality levels. Also, these methods are of interest to those concerned with making welfare evaluations of policies that affect housing markets differently for households with different demographics.

This paper investigates how sensitive sales prices are to online price estimates in the real estate market. With our preliminary national and MSA-level analysis, we fail to reject the null hypothesis that online price estimates do not affect actual transaction prices. This macro-level evidence is followed by microeconometric analysis using house level data. To account for correlated house specific unobservables, we use the differences between listing prices and online price estimates as proxies to form a partial linear model. To account for correlated neighborhood specific unobservables, we use neighborhood first differencing. Using house price estimates and sales prices collected from Zillow.com, we find that the elasticity of sales price with respect to the Zillow estimate is one, controlling for the aforementioned unobservables as well as observed house attributes. Our results imply that online price estimates can have a large impact on real estate price dynamics.

The property value hedonic model, which has been used extensively in the environmental and urban literature, has long been considered the "workhorse" model of amenity valuation. Derived using the household's first-order conditions associated with choosing where to live, this model is both intuitive and straightforward to estimate. However, a recognized drawback of the existing literature is that the model assumes a static framework (i.e., it assumes that there are no costs associated with moving and that agents do not look to the future when choosing where to live today). This is clearly an unrealistic assumption; real estate fees alone usually stand at six percent of a property's sales price and households typically have strong emotional ties to both their home and neighborhood. Facing such high costs, households will behave dynamically when choosing where to live today (and when choosing how much of each housing amenity to consume). In this paper, we develop the first approach that incorporates dynamic behavior into the traditional Rosen-style hedonic model of demand. In an application, we use this dynamic model to estimate the willingness to pay to avoid violent crime and air pollution and find evidence of significant bias in the static model.

This paper explores the role of structural transformation and the induced rural-urban migration in the recent housing boom in China. This process fosters an ongoing increase in urban housing demand that combined with a relatively inelastic supply (land and entry restrictions) raises housing and land prices. This is analyzed using a multi-sector dynamic general-equilibrium model with rural-urban migration and housing. Our quantitative findings suggest that this process accounts for two-thirds of housing and land price movements in the entire urban area. The performance of the model calibrated to the two largest cities improves substantially, indicating the essentiality of market fundamentals.

Abstract: This paper explores whether different types of knowledge experience greater returns to agglomeration. We posit that some kinds of knowledge are harder to exchange remotely and thus certain workers benefit more from close physical proximity to others. We first present a theoretical framework in which individuals randomly search for partners to exchange ideas, but that the returns to finding a partner are heterogeneous. In particular, some knowledge is more dependent on interpersonal exchange and most productive when shared with similar individuals. In this manner, we propose that agglomerative environments favor individuals with knowledge that is typically associated with “soft skills” where creativity and informal networking are important. We test this prediction using the most recent sample of the American Community Survey (ACS) in which college graduates are asked about their undergraduate major. Controlling for demographic and regional productivity effects and instrumenting for city size, we find that the urban wage premium varies considerably across majors. In line with the predictions of our model, the highest wage premiums are observed in majors linked to soft skills. This finding is consistent with the notion that large cities are particularly good at facilitating informal networking and promoting creativity whereas majors typically associated with “hard” skills tend to experience a smaller urban wage premium. We also study how the urban wage premium varies by terminal degree. Our estimates imply that the largest urban wage premium is associated with a master’s degree. In the spirit of our results for majors, terminal degrees associated with the mastery of any existing cannon of knowledge such as a JD or MD experience a smaller urban wage premium.

Recent research has related variation in the labor force composition of cities to the cost of housing. First, workers with more human capital tend to locate in cities with high housing costs (income elasticity effect). Second, households with low demand for housing also select into expensive cities (housing preference effect). This paper applies both effects to the location patterns of Hispanic versus non-Hispanic white workers across U.S. cities. Skill intensity in the labor force of both groups is expected to increase with the cost of housing according to the income elasticity effect. However, a number of low skill Hispanics are not permanent, long-term residents of cities and hence have relatively low demand for housing. This suggests an inverse relation between Hispanic skill intensity and house price based on the housing preference effect. Empirical tests show that skill intensity varies positively with house price for non-Hispanic white workers as expected, and negatively for Hispanics (housing preference effect dominates income elasticity effect). The dominance of the housing preference effect means that the location patterns of Hispanic households by skill level are significantly different than those of non-Hispanic households. The results challenge models that assume homothetic or homogeneous preferences over housing, and show that the two effects together can explain the changing distribution of Hispanic households across U.S. cities.

An important insight in Gyourko, Mayer and Sinai (American Economic Journal: Economic Policy 5(4), 2013), that rising aggregate demand, rather than diverging local productivity, accounts for the widening house price dispersion across US cities after WWII, rests on the assumption of idiosyncratic location preferences and asymmetric housing supply elasticity across cities. Under such assumptions, cities with inelastic housing supply are “superstar” cities—they get more expensive, hence more exclusive to high-income households, as aggregate demand increases. We sharpen and extend this insight by presenting a model where “superstar” cities emerge from the interaction between increasing returns to local demand for differentiated non-traded services and non-homothetic preferences, instead of idiosyncratic location preferences and asymmetric housing supply elasticity. We consider an economy with heterogeneous workers differentiated by skill level, who earn income from employment either in the traded-good sector, where worker productivity depends on skill but not location, or in the non-traded-service sector, where worker productivity depends on local demand but not skill. A fixed cost is required for each variety of local service, giving rise to increasing return to local demand, which is income elastic. In equilibrium, high-skill workers share the location with a greater variety of local services and higher land rent, middle-skill workers prefer the location with less variety of local services and lower land rent, low-skill workers, who specialize in non-traded sector, are indifferent between locations. The model can also account for skill dispersion within cities, rising non-traded sector employment share, and a U-shaped welfare change across skill spectrum, as a result of increased skill disparity in the economy.

This paper studies the timing of tort reform enactments on liability over between 1971 and 2005. Using discrete time survival analysis, we find the level of litigation activity, as measured by incurred liability insurance losses and number of lawyers at the state level, and tort cases commenced at the national level, to be the most important and robust determinant of tort reform adoption. Political-institutional factors and regional effects---such as 1) Republican control of the state government and 2) single party control of the legislature and governorship---are also associated with quicker reform adoption. Beyond this, however, we do not find evidence of the expected influence of interest groups---such as doctors, and insurance industry professionals---on tort reform adoption.

We argue that we should see a negative relationship between the share of risky assets in the default fund of a defi…ned contribution (DC) pension plan and the average plan member age if trustees design the default fund in line with predictions from the life-cycle portfolio choice theory. Adoption of the default fund should be low in DC plans with high member age dispersion if default funds are indeed designed for the average plan member and members become aware of this. From analyzing a panel dataset of Australian DC pension plans, we obtain results that are consistent with both hypotheses.

We use data from a large US life expectancy provider to test for asymmetric information in the secondary life insurance—or life settlement—market. We compare the average difference between realized lifetimes and estimated life expectancies for a sub-sample of settled policies relative to the entire sample. We find a significant positive difference indicating private information on mortality prospects. Using non-parametric estimates for the excess mortality and survival regressions, we show that the informational advantage is temporary and wears off over five to six years. We argue this is in line with adverse selection on an individual’s condition, which has important economic consequences for the life settlement market and beyond.

Life insurers use accounting and actuarial techniques to smooth reporting of firm assets and liabilities, seeking to transfer surpluses in good years to cover benefit payouts in bad years. Yet these techniques been criticized as they make it difficult to assess insurers’ true financial status. We develop stylized and realistically-calibrated models of participating lifetime annuities, an insurance product that pays retirees guaranteed lifelong benefits along with variable nonguaranteed surplus. Our goal is to illustrate how accounting and actuarial techniques for this product shape policyholder wellbeing as well as insurer profitability and stability. We show that smoothing adds value to both the annuitant and the insurer, so curtailing smoothing could undermine the market for long-term retirement payout products.

Previous work has demonstrated the adverse consequences of CEO overconfidence and has separately shown that information about a firm’s directors’ and officers’ (D&O) liability insurance coverage can provide insight into a firm’s governance and risk-taking. In this paper, we develop a theoretical model to show how CEO overconfidence impacts D&O insurance decisions and find that firms with overconfident CEOs have a lower demand for D&O insurance. The CEO overestimates his/her own decision-making ability and thereby underestimates the need for D&O insurance. Using an options-based measure for CEO overconfidence, we then test this model and find that over the 2000-2006 period, firms with overconfident CEOs have a lower demand for D&O liability insurance. We find this effect even when controlling for litigation risk, CEO characteristics, firm characteristics, and corporate governance. These findings shed light on the different mechanisms underlying the demand for D&O insurance, including a combination of CEO overconfidence and corporate governance channels. Additionally, as D&O insurance is seen as a proxy for corporate risk, this work gives further insight into the impact of CEO overconfidence upon corporate risk, which has implications for shareholders.

Paul Volcker, Governor Bill Janklow, and Citibank all played prominent roles in the dismantling of usury ceilings in South Dakota in 1980 and 1981. Three decades later, the wake of those policy decisions continues to influence both the banking and fringe banking industries. According to the Center for Responsible Lending in 2010, South Dakota was home to 118 payday lenders originating over $150 million in short-term high interest rate loans. A recent Pew study confirms that South Dakota—because of its unregulated interest rates—is one of the most expensive places in the nation take out a payday loan. Lenders there charge an average annual rate of interest of 575%. That rate is almost four-and-half-times higher than Colorado’s 129%. Drawing on historical documents, interviews, loan application documents, and court records, the authors explain the history, economic impact, and adverse effect payday lending has had on South Dakota borrowers, charitable agencies, and the broader community. Opponents of predatory lending have proposed an initiated measure for the 2016 election cycle to cap payday loan rates at 35%. The paper concludes with a brief analysis of this proposal.

Using the economy of Ukraine as illustration, this paper argues that economic class, defined in relation to its actual control over the economy’s productive assets, and thus, over social organization of surplus, is the most useful lens for exposing the neoliberal nature of the social provisioning process in post-Soviet transition and making clear that only ownership empowerment of propertyless working class can democratize the current oligarchic and corrupt Ukraine. Beginning with a historical overview of primitive capital accumulation in Ukraine, the paper clarifies that even at the start of transition, control over assets, in fact, belonged to an elite group of bureaucrats and former enterprise directors, while the labouring class remained propertyless and alienated. As a result of neoliberal reforms of 1996-2005 in the context of a highly concentrated industrial structure, privatization of large-scale state property has resulted in highly concentrated private equity ownership dominated by oligarchic groups. Meanwhile, the increasing impoverishment of a weakened working class resulted in the absence in modern Ukraine of an influential Left capable of altering established social standing. Consequently, to restructure Ukraine’s social provisioning along more equitable and inclusive lines, comprehensive restructuring of large-scale oligarchic companies must be conducted, not through forced division into smaller companies, but first through their nationalization and then through a progressive reformation of large-scale state property to include shared ownership and worker participation in economic decision making. To secure equitable sharing of surplus, new property in social investment should also be generated through state-guaranteed jobs and state-funded social benefits.

At the very extreme edge of commodification is the commodification of waste. Countries such as Bangladesh, India, and China are leaders in processing global waste. The Bangladeshi coast just north of Chittagong is where ships from all over the world are breached and dismantled. This Bangladeshi coastline of mangroves have been completely cleared to create ship breaking yards which employ the youngest and poorest people from that region. China’s Guangdong province has long been the region known for recycling and processing electronic waste that cannot be processed in developed countries due to prevailing environmental regulations and standards. Entire domestic regional economies in low income and some middle income countries become the drivers for growth and the primary markets for what this paper calls the commodification of waste. Polanyi argued that traditional economics becomes the logic of economizing and thus attached the words “logical” or “formal”. But he also attached “substantive” to economics. In the context of countries that are commodifying waste, the work of Polanyi helps explore the contextual meaning of provisioning with respect to the prevailing socioeconomic structures of accumulation and global class hierarchy. This paper discusses Polanyi to understand the provisioning role of markets albeit in a perverse context -- the commodification of waste in a global context and the reproduction of social structures of accumulation as the conceptual framework. This paper thus brings together Polanyi and the social structures of accumulation to study the commodification of waste and questions the nature of the provisioning mechanism therein.

Heterodox economics offers radical insights to the understanding of the capitalist social provisioning process. Radical in that heterodox economics is critical of the status quo and the vested interests of the ruling class. Central to heterodoxy is thus the recognition of both social classes and social agency that lend themselves to the transformation of capitalism. However social classes and social agency are often absent or treated as secondary in some heterodox theories and models. This paper examines this particular issue focusing on the approaches framed by institutionalists and Marxist-radical political economists. In particular, the social surplus approach, the social fabric matrix approach, the social accounting matrix approach, and the systems of provision approach are compared and contrasted with the aim of advancing a more relevant heterodox approach in an integrative manner.

Economic class and social class are two of the processes within social provisioning. The article discusses the importance of making an analytical distinction between both and the implications for theorizing unpaid household activities in social provisioning under capitalism. The first section presents a brief overview of the contested landscape of unpaid household work, including some terminological issues. The second section explains why the distinction between economic and social class ought to be made; and why both need to be developed in a social provisioning framework. The third section discusses the implications for analysis of unpaid household activities. One of those implications is the nexus between unpaid household work, conspicuous consumption/leisure/waste, and recreation. The article argues that within a social provisioning framework the processes of economic and social class reveal avenues to critically analyze unpaid activities on equal footage with monetary production. This means that both the invidious and transformative potentials of unpaid activities ought to be theorized. The transformational potential of unpaid domestic activities then depends on the ways that these are cultivated – for the purpose of invidious distinction (based on gender, race, and social class for example); or for the purpose of non-invidious recreation of community based on the life-process.

When unemployed workers were lining up for bread during the Great Depression of the 1930s, the writer Clarence Day proposed a policy that could have shortened those bread lines. The unemployed should be eaten, he proposed. Eating the unemployed could eliminate unemployment while providing food for others, Day argued. A similar policy was famously if only modestly proposed by Johnathan Swift at a time when the poor of Ireland were unable to provide for themselves or their children. Swift proposed that the poor should sell their children to the rich as food. Under such an arrangement, the rich would receive a meal in return for some of their riches, the poor would be relieved of a burden while receiving some income, and the children who were sold would be spared from a life of squalor. Despite their similarities, Day's proposal is nevertheless different than Swift's. Whereas Swift's proposal can be seen as a way to confront t he Malthusian trap from which most societies have escaped, Day's proposal confronts the problem of unemployment, which still persists in even the most advanced economies, especially today in the aftermath of one of the greatest recessions since the Great Depression. There is however an obvious problem with Day's proposal. The proposal lacks proper micro-foundations. We therefore provide micro-foundations for Day's proposal while pointing out strengths and limitations of his proposal within that framework. In doing so, we explore the commodification of labor and the ethical principles that guide the exchange of that "commodity."

Trade policy can be viewed as a framework establishing the rules of engagement regarding the exchange of commodities between countries. Trade policy can shape and even promote the processes that contribute to the commodification of goods and services, depending on the incentives a given policy promotes. Over the past decade, an interest in fair trade has been revived in the USA—not principally by activists or heterodox economists, but by policymakers in Washington D.C. The abrupt turn in trade policy, coupled with shifting ideas among leading trade economists, opens up for debate an urgent set of theoretical and policy questions, such as: What objectives should fair trade policy seek to achieve? What ethical principles should guide the fair trade? And what kind of new international trade architecture might best promote fair trade? This paper pursues a fair trade policy thought experiment that engages these questions and presents the Social Index Tariff Structure (SITS) regime, an alternative fair trade regime that seeks to promote strong labor and environmental standards and other initiatives that engender human development, equality, and sustainability. Consistent with this year's theme of the ASE sessions at the ASSA, our paper encourages dialogue regarding alternative means of exchange at the macro-level, the ethical principles that guide this policy architecture, and the incentives that the policy creates.

Much research on gender equality has focused on integrating women into the workforce, but in so doing, women’s source of dependence partially shifts from their partner to the marketplace—it does not disappear. Although in many cases access to personal income is associated with greater bargaining power in the household, we cannot assume that engaging in paid labor increases female empowerment. This depends on job quality, social policy/protection, and the gender division of unpaid labor, among other factors. The recent focus on female entrepreneurship as a source of female empowerment illustrates this dichotomy, given the difference between informal sector-based necessity entrepreneurship (which is not associated with upward mobility) and formal sector-based opportunity entrepreneurship (which is). One response has been the growing popularity of social entrepreneurship, which focuses on the creation of social value, not wealth. This paper will discuss the evolution of social enterprise in China and India (from both domestic and international sources) and discuss the ways these businesses have impacted women’s employment opportunities and experiences in these countries, particularly in the informal sector.

Microfinance refers to financial services that help low-income individuals become self-supporting entrepreneurs. Most studies focus on the effects of microfinance on borrowers; a few studies investigate the factors that affect lending decisions of existing lenders (the suppliers’ side). In our project, we develop a novel lab experiment in which we use a free-standing web interface to study the factors that affect the lending decisions of potential lenders, including (1) how financial incentives affect lending decisions; (2) how factors such as borrower and lender ethnicity and gender affect choice of borrowers; and (3) whether the choice of borrower will change based on financial incentives. A virtue of our design is that the subject pool includes many who may have been unlikely to seek out participation in microfinance programs or in philanthropy directed to the global poor. In addition, we include tasks to generate controls for ris k aversion and time preference. Tentative results of the data we currently have show that financial returns do not discourage lending, but the magnitude of how it matters decreases when lenders recognize that the loan would go to borrowers in developing countries. The results also show that a needy borrower would be ranked higher than a less needy borrower, especially when lenders would not get repayments from borrowers. Finally, we find that a less risky borrower would be ranked higher than a riskier borrower, especially when lenders would get repayments from borrowers.

A serious deficiency of the mainstream human capital (HC) concept is that it does not help one gain an adequate understanding of how human capacities develop or fail to develop during an individual’s lifespan. To remedy this, this paper proposes to integrate the concepts of HC and human development (HD). This allows one to appreciate that much of HC formation is psychological, social, and emotional in nature.. Existing HC theory not only neglects this important noncognitive development but neglects very important brain development. A key feature is that HD is represented as a three-sided pyramid. Each triangular side represents a major developmental pathway. The three interdependent developmental pathways are: 1) educational and cognitive development, 2) psychosocial, biological development, and 3) brain (or neuro) development. Humans developing along the pathways may get stuck or partially stuck at certain developmental stages and may fail to develop further without special developmental interventions (investments in HC). Four main noneducational situations are examined: 1) adverse early childhood experiences often involving trauma, 2) blockage of body and brain network pathways, 3) failure to develop important emotional competencies, 4) failure to develop needed personality traits. Integrating HC with HD has important implications for HC strategy. This integration should lead to more rational and efficient decision making with respect to HC as well as to decisions that are more caring.

Recent research (Wydick, Glewwe, and Rutledge, 2013) finds positive and statistically significant impacts on adult life outcomes from child sponsorship, including large impacts on schooling outcomes, the probability and quality of employment, occupational choice, and community leadership. This paper uses data from two countries to explore whether these impacts may be due not only to a relaxation of external constraints, but also to higher aspirations among sponsored children. We use survey data from Kenya and Indonesia, and psychological data from Indonesian children’s self-portraits, to test whether sponsorship significantly affects psychological variables in children that are likely to foster better economic outcomes in the future. We exploit an eligibility rule setting a maximum age for newly sponsored children. We use a child’s age at program rollout in his or her village as an instrument for sponsorship to establish a causal link between sponsorship and higher levels of self-esteem, as well as educational and occupational aspirations. We find a causal link between child sponsorship and large increases in educational and vocational aspirations among children in Kenya, and higher levels of happiness, self-efficacy, and hopefulness based on children’s self-portrait data from Indonesia.

Previous laboratory and field experiments suggests increased levels of generosity when donor identities are revealed. We add to this by studying a unique "natural" field experiment. We explore a panel of religious donors tracking 1,597 households over 335 weeks from 1994-2000 in Zagreb, Croatia. Donations were solicited at each Sunday mass in order to fund the construction of a new church. Individual donations were publicly announced for the first 117 weeks, posted on a publicly visible board for the next 106 weeks, and finally announced in cumulative total for the final 112 weeks. We exploit this unique setup to present evidence about the role of publicity and complementarity in preferences for altruism. We find strong evidence that individuals are more inclined to donate when donation is publicized more loudly, is associated with positive information about the individual's donation history, and simultaneously with other individuals in the same reference group. Our results are well explained by a model of individual preferences over warm glow and social comparison.

Although several studies document a strong correlation between religious participation and pro-social behavior, there is no consensus about the direction of causality. We provide novel evidence by examining variations in religious participation induced by the Catholic-clergy abuse scandals in the United States. To estimate the causal effects of the scandals on various outcomes, we conduct an event-study analysis that exploits the fine distribution of the scandals over space and time. First, we show that a scandal causes a significant and long-lasting decline in religious participation in the location where it occurs. Second, we test whether the decline in religious participation translates into a decline in pro-social beliefs and behavior. On the one hand, we find a long-lasting decline in charitable contributions. Indeed, this drop in charitable giving is an order of magnitude larger than the direct costs of the scandals to the Catholic churches (e.g., lawsuits). On the other hand, the scandals do not have a significant effect on religious beliefs, pro-social beliefs, and other forms of pro-social behavior.

Biblical texts support the conclusions of theories of ancient political economies. Given the nature of the Iron Age II monarchy, peasants in ancient Israel are believed to have been impoverished. Archaeological finding do not support this prediction. There is ample evidence that markets and peasants were thriving all the way up to the Babylonian conquest. This paper suggests that a possible way of reconciling biblical text and models of ancient political economies, on the one hand, and archaeological evidence, on the other hand, is to look at the rational economic strategy undergirding Old Testament laws. There was an underlying principle of restoration in these practices whereby the goal was to maintain the viability and cohesion of extended families as independent entities. Thus, the disparity between the archaeological evidence and the predictions of theories of ancient political economies may turn out to be indirect evidence that the nation Israel was observing the economic norms of the Old Testament Law.

The Hebrew Scriptures and the legal codes in the scriptures require that the rights of the poor be considered and honored in Israelite society. There are questions as to whether Israel,in practice, honored these laws or not. This question is examined in detail by appeal to both scripture, economic analysis, and archaeological evidence.

The New Testament's "household codes"--passages dealing with household relationships among husband, wife, slaves and children--are all references to the default economic text of first-century Mediterranean culture, the household codes that derive from Aristotle. The household was taken to be the natural basic element of the economy, and its proper ordering was a fundamental economic and moral issue. By reading the New Testament documents in this cultural context, a fresh alternative to interpreters who find in the New Testament codes an oppressive patriarchy can be provided. Since the most fully developed New Testament code is found in I Peter, A close paragraph-by-paragraph reading of the epistle's code, in parallel with Aristotle's code is offered. Peter's code emerges as something of a satire on Aristotle. This satire offers wisdom for issued surrounding gender and race that have deeply divided the Christian community.

In his book, MARKETS AND PROPHETS, Morris Silver argues that the Hebrew prophets who argued that Israel was failing to fulfill God's law because the poor were exploited by the rich, and the land was increasingly held by a small group of landowners. They argues God's judgment was coming unless Israel repented and engaged in reform. Silver argues that the government responded to the messages of the prophets, engaged in land reform, and this resulted in economic inefficiency that made Israel more vulnerable to the major powers of the region--first Assyrian and then Babylon. We examine the evidence Silver cites, as well as more recent archaeological evidence and literary evidence, to determine whether Silver's controversial argument is supported or not.

Governments around the world provide direct capital subsidies for solar energy technology adoption to lessen the externalities associated with fossil energy consumption. This paper analyses the efficiency of the largest customer-oriented program in the U.S., the $2 billion California Solar Initiative. An analytical model identifies limited conditions in which the program’s declining rebate rate is preferred to a single, one-shot subsidy. Further, by exploiting exogenous changes in rebate levels over time, we estimate a rebate elasticity of approximately 0.4, suggesting a public cost per additional watt of more than half the total cost, and a cost per avoided ton of carbon of about $200. Using high resolution satellite imaging and ground-level weather data, we further identify rebate responsiveness by exploiting exogenous variation in subsidy amounts based on exogenous solar irradiance and weather that the subsidy program used in calculating payouts. This radiance data is then used to estimate that suboptimal siting of the program’s installed solar capacity sacrifices 15-25% efficiency. These results indicate that greater emissions reductions could be achieved by public funding of optimally sited utility-scale solar projects.

This paper investigates the extent to which technology used to automate household responses to time-of-use pricing for electricity leads to higher energy savings than simply providing households with information on current prices and quantities. Using a large randomized field trial, we find that informed households with “smart” thermostats achieve impressive reductions in consumption during on-peak periods of up to 60%, but also engage in substantial load shifting to off-peak hours. While this reduces the cost of supplying electricity, it may have negative environmental consequences, since marginal CO2 emissions during the off-peak hours are larger, thereby offsetting the reductions achieved during on-peak hours. We also document the extent to which household responses to time-of-use pricing are heterogeneous and vary significantly by demographics, weather, and across the conditional consumption distribution.

This paper evaluates the effect of information disclosure and benchmarking laws for commercial properties on energy expenditure. Information failures may be a major factor in explaining the “energy efficiency gap”, particularly for buildings. Building owners are unlikely to fully understand the factors that affect the energy use of their buildings, may only have partial information about how to make cost-effective improvements and may have difficulty communicating building energy performance to prospective renters and buyers. Energy disclosure and benchmarking laws may lead owners to become more attentive to energy use and increase the rents and sales prices for more efficient buildings. Using building level panel data on utility expenses, this paper shows that these laws led to a meaningful reduction in utility expenditures, all else equal.

This paper reports the results of a large scale field experiment which we designed to parse the effects of different social comparison frames and subsidies for electricity use, uptake of in-home energy audits and energy efficient durable good installations. Households were randomized into treatments in which they received letters comparing their electricity usage to their neighbors. We used three comparison frames: relative electricity usage in KWhs, relative monthly expenditures in dollars and relative CO2 emissions from electricity usage in tons. In addition, we randomized the price of an in-home energy audit. We find that frames which affected electricity use did not affect audit uptake, and vice versa. Mean use effects varied significantly by household type, as measured by political affiliation. We price out the value of a social comparison at $40. Our results have several implications for the mechanisms driving how households' electricity consumption patterns respond to non-pecuniary signals.

This paper develops a structural model of international trade with variable mark-ups. Using this model, we estimate welfare gains from trade of China's entry into WTO. The welfare gains are decomposed into a productive efficiency component, a terms-of-trade markup level effect, and allocative efficiency component. The first component corresponds to the ACR statistic (Arkolakis, Costinot, Rodriguez-Clare 2012), and the second and third components captures the effects of the level and dispersion of mark-ups, respectively. In our quantitaive exercise, pro-competitive effect (the two components of markups combined) accounts for 33.8% of the total gains from trade, whereas allocative efficiency accounts for 18.2%.

We examine Chinese-US trade flows over the 1994-2012 period, and find that, in line with the conventional wisdom, the value of China’s exports to the US responds negatively to real renminbi (RMB) appreciation, while import responds positively. Further, the combined empirical price effects on exports and imports imply an increase in the real value of the RMB will reduce China’s trade balance. The use of alternative exchange rate measures and data on different trade classifications yields additional insights. Firms more subject to market forces exhibit greater price sensitivity. The price elasticity is larger for ordinary exports than for processing exports. Finally, accounting for endogeneity and measurement error matters. Hence, the purging the real exchange rate of the portion responding to policy, or using the deviation of the real exchange rate from the equilibrium level yields a stronger measured effect than when using the unadjusted bilateral exchange rate.

Despite fast economic growth in the past thirties year, Chinese real exchange rate does not exhibit a persistent and stable appreciation since 1990s. This seems to be puzzling and inconsistent with theories. This paper document several stylized facts during the economic transition and argue that faster TFP growth in export sector than import sector and excess supply of unskilled labor may help explain the Chinese real exchange rate dynamics. We construct a small open economy model with H-O trade structure. Our simple model shows that, due to heterogeneous skilled labor intensity in export and import sector, faster TFP growth in export sector than import sector will lead to the decline of the return to capital and the rise of skilled wage. Therefore, the decrease of the return to capital and the persistent low unskilled wage, which is caused by excess supply of unskilled labor, inhibit the rise of relative price of non-traded goods to traded goods and the appreciation of real exchange rate. To accounts quantitatively for Chinese real exchange rate, we develop a dynamic model with Eaton-Kortum framework, and show that the model does fairly well in explaining Chinese real exchange rate and other stylized facts in the economic transition.

This paper investigates the determinants of trade disputes, with the focus on the impacts of free trade agreements (FTAs) on trade disputes between FTA member countries. To this end, we collect a comprehensive and unique dataset on trade disputes between countries from 1995 to 2007. The dataset covers 121 countries and 1130 trade disputes. We find that the incidences of trade disputes between two countries are positively associated with their economic size, economic growth and trade share. These findings lend support to the “power hypothesis” and “capacity hypothesis”. More importantly, we obtain that FTA between two countries reduces the occurrences of trade disputes. Finally, we observe that FTAs relying on the WTO dispute settlement mechanisms further reduce trade disputes between their members, compared to FTAs without provisions on trade dispute settlement, whereas FTAs with their own dispute settlement mechanisms have the opposite effect. The above results hold for both primary trade disputes and WTO trade disputes. The main results are robust to the controlling for possible measurement error and endogeneity problem.

Most research on social and economic mobility follows a two-generation approach, studying the correlations between the socioeconomic status of, for example, fathers and sons. Much less attention has been given to transmissions of status beyond two generations. This issue is of considerable relevance both for our understanding of societal openness and the stability of class structures. In this paper we look at socio-economic mobility across three generations in Sweden in the period 1813-2010. Using longitudinal micro-level data from the Scanian Economic-Demographic Database, we identify three-generation genealogies (grandfather, father, son) that we are able to observe in their prime working ages. We examine the multigenerational transmission of socio-economic status according to three different dimensions; social class, occupational status, and earnings, through estimated lifetime earnings, the HISCLASS scheme, and the HISCAM scale. We find clear associations between grandparental class and occupational status and grandchildren’s outcomes, when controlling for the associations between fathers and sons. These associations are remarkably stable over time, and do not appear to be contingent upon close interaction between grandfathers and grandchildren. For earnings, on the other hand, we find no association at all between grandfathers and grandsons, regardless if we are looking at grandparental influence on the paternal or maternal side, or both sides combined

Using city-of-birth data from the 100-percent sample of the 1880 Census merged to city-level fatality counts, I estimate the effect of early-life yellow fever exposure on adult occupational status. I find that in utero, neonatal, or postnatal yellow fever exposure decreased adult occupational status for white males with foreign-born mothers, whereas white males with US-born mothers were relatively unaffected. For example, whites with immigrant mothers born during the 1853 epidemics were 8.5 percentage points less likely to enter professional occupations. Furthermore, I find no evidence that epidemics 2 to 4 years after birth affect adult occupational status.

We study immigrant self-selection using data on Italians entering the United States between 1907 and 1925. Exploiting the relationship between average stature and living standards, we test for self-selection by comparing the heights of migrants to the height distributions of their respective birth cohorts and provinces of origin. We find that the average Italian immigrant was shorter than the average Italian of the same birth cohort---suggesting negative self-selection at the national level---but taller than the average Italian of the same birth cohort and province of origin---indicating positive self-selection at the local level. This difference is driven by positive self-selection in shorter provinces and birth cohorts, which were primarily located in south Italy, and which were the origins of a disproportionately large share of immigrants. We also find evidence consistent with positive self-selection being driven by liquidity constraints that can be moderated through chain migration.

Intergenerational mobility in Norway, 1865-2011 * * * Using a novel data set of 835,990 linked census records, this paper documents a large increase in intergenerational occupational mobility in Norway between 1865 and 2011. Long-run changes in mobility are found to be most pronounced outside farming; in this way Norway is different from the United States. The changes did contribute to equalization of the distribution of economic welfare across families; however, in this respect, changes in the income distribution appear to be quantitatively more important than changes in occupational mobility. There are no indications of major contributions from convergence between Norwegian regions to the increase in mobility. No long-run estimates of social mobility have so far been available for any European country outside Great Britain, and the present study is the first to show massive increases in social mobility in a data set covering the entire transition from a predominantly agricultural society to a modern economy. The high occupational persistence documented for nineteenth-century Norway shows that high mobility need not be present at the beginning of a development path leading to a modern welfare state.

After reaching the effective lower bound for the federal funds rate in late 2008, the Federal Reserve turned to two unconventional policy tools—quantitative easing and increasingly explicit and forward-leaning guidance for the future path of the federal funds rate—in order to provide additional monetary policy accommodation. We use survey data from the Blue Chip Economic Indicators to infer changes in private-sector perceptions of the implicit interest rate rule that the Federal Reserve would use following liftoff from the effective lower bound. Using our estimates of the changes over time in private expectations for the implicit policy rule, and estimates of the effects of the Federal Reserve’s quantitative easing programs on term premiums derived from other studies, we simulate the FRB/US model to assess the actual economic stimulus provided by unconventional policy since early 2009. Our analysis suggests that the net stimulus to real activity and inflation was limited by the gradual nature of the changes in policy expectations and term premium effects, as well as by a persistent belief on the part of the public that the pace of recovery would be much faster than proved to be the case. Our analysis implies that the peak unemployment effect—subtracting 1¼ percentage points from the unemployment rate relative to what would have occurred in the absence of the unconventional policy actions—does not occur until early 2015, while the peak inflation effect—adding ½ percentage point to the inflation rate—is not anticipated until early 2016.

We study the macroeconomic effects of the 3-year long-term refinancing operations (LTROs) introduced by the ECB in December 2011 with the aim of reducing the obstacles to credit supply through the mitigation of liquidity and funding risks in the euro area banking system. Therefore, we interpret the measure as a credit supply shock, which is identified both recursively and with sign restriction methods using the euro area Bank Lending Survey (BLS). The size of the shock due to the LTROs is computed using both the April 2012 BLS and the special ad-hoc questions on the LTROs conducted in February 2012. The counterfactual exercises suggest that the 3-year LTROs lifted prospects for real GDP and loan provision to non-financial corporations over the next two-to-three years, thereby avoiding a major credit crunch.

We build an exceptionally rich set of data on individual firms and banks operating in France to assess whether the 3-year Long-Term Refinancing Operations (LTROs) implemented by the Eurosystem in December 2011 and February 2012 had a positive impact on banks' supply of credit to firms. We control for firms' demand and risk factors by looking at firms which borrow at least from two banks and we also control for risk factors at the level of banks. We find that (i) LTROs had a positive impact on loan supply in France: on average, everything else being constant, one billion euros borrowed translated into 95 millions of additional bank credit to firms; (ii) the transmission took place with the first round of the LTROs to which financially more constrained banks were more likely to bid; (iii) the opportunity to swap short-term central bank borrowing for long-term one was instrumental in this transmission; and (iv) this increase in loan supply did not benefit to small firms, but only to the top decile of the largest borrowers.

We develop a regime-switching SVAR (structural vector autoregression) in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. QE (quantitative easing) is one such regime. The model incorporates the exit condition for terminating QE. We apply it to Japan, a country that has experienced three QE spells. Our impulse response analysis shows that an increase in reserves raises output and inflation and that exiting from QE can be expansionary.

This paper introduces and axiomatizes a new class of representations for incomplete preferences called confidence models. Confidence models describe decision makers who behave as if they have probabilistic uncertainty over their true preferences, and are only willing to express a binary preference if it is sufficiently likely to hold. Confidence models are flexible enough to model behavior on a variety of domains, and they are general enough to nest the popular multi-utility models of incomplete preferences. Most importantly, they provide a natural way to connect incomplete preferences with stochastic choice. This connection is characterized by a simple condition that serves to identify the behavioral content of incomplete preferences.

Suppose an agent uses a set of criteria to build a choice function, which need not maximize a rational preference. For each pair of a criterion's categories, the agent has to decide whether one of the categories is superior and, if so, which one. The cost of the entire set of criteria is given by the total number of these decisions. Agents in practice use coarse criteria that use only a few categories, seemingly due to their cognitive limitations. But coarse criteria turn out to be more efficient: it is always cheaper to use coarser criteria even though the agent, in order to maintain the same number of choice distinctions, will then have to use a longer list of criteria. The most efficient criteria are therefore the binary criteria that use only two categories each. Decision-making efficiency frequently therefore leads to rational choice: for many procedures, binary criteria generate choice functions that maximize rational preferences.

Fix a Pareto optimal, strategy proof and non-bossy deterministic matching mechanism and define a random matching mechanism by assigning agents to the roles in the mechanism via a uniform lottery. Given a profile of preferences, the lottery over outcomes that arises under the random matching mechanism is identical to the lottery that arises under random serial dictatorship, where the order of dictators is uniformly distributed. This result extends the celebrated equivalence between the core from random endowments and random serial dictatorship to the grand set of all Pareto optimal, strategy proof and non-bossy matching mechanisms.

We model the joint distribution of choice probabilities and decision times in binary choice tasks as the solution to a problem of optimal sequential sampling, where the agent is uncertain of the utility of each action. The resulting optimal policy better matches the observed correlation between decision time and choice probability than does the classical drift-diffusion model, where the agent is uncertain which of two actions is best but knows the utility difference between them.

Can reconciliation generate social cohesion and economic development within societies emerging out of civil war? We conduct a randomized controlled trial of a community-based reconciliation intervention in post-conflict Sierra Leone. The program provides a forum for villagers to air war-time grievances, and also forges institutions designed to improve conflict resolution and build social capital. We find that individuals in treatment villages are more forgiving and charitable in their views of ex-combatants. In addition, they display greater satisfaction with conflict resolution and participate more actively in community organizations. However, there is no impact on overall levels of trust or social network formation. Most strikingly, psychological health, measured by depression, anxiety, and post-traumatic stress disorder deteriorated. Our study holds clear implications for the design of transitional justice programs, as well as programs that aim to promote institutional change.

We study how political mass killings affect later economic performance, using data from the Rwandan Genocide. To establish causality, we build on Yanagizawa-Drott (2012) and exploit village-level variation in reception of a state-sponsored radio station (RTLM) that explicitly, and successfully, incited killings of the ethnic Tutsi minority population. Our results show that households in villages that experienced higher levels of violence induced by the broadcasts have higher living standards six years after the genocide. They own more assets, such as land, livestock and durable goods. Output per capita from agricultural production is higher, and consumption levels are greater. These results are consistent with the Malthusian hypothesis that mass killings can raise living standards by reducing the population size and redistributing productive assets from the deceased to the remaining population. However, we also find that the violence affected the age distribution in villages, raised fertility rates among female survivors, and reduced cognitive skills of children. Together, our results show that political mass killings can raise living standards among survivors in the short run, but that these effects may disappear in the long run.

This study exploits within-state variation in drought severity to identify how insurgency during the Mexican Revolution, a major early 20th century armed conflict, impacted subsequent government policies and long-run economic development. Using a novel municipal-level dataset on revolutionary insurgency, the study documents that municipalities experiencing severe drought just prior to the Revolution were substantially more likely to have insurgent activity than municipalities where drought was less severe. Many insurgents demanded land reform, and following the Revolution, Mexico redistributed over half of its surface area in the form of ejidos: farms comprised of individual and communal plots that were granted to a group of petitioners. Rights to ejido plots were non-transferable, renting plots was prohibited, and many decisions about the use of ejido lands had to be countersigned by politicians. Instrumental variables estimates show that municipalities with revolutionary insurgency had 22 percentage points more of their surface area redistributed as ejidos. Today, insurgent municipalities are 20 percentage points more agricultural and 6 percentage points less industrial. Incomes in insurgent municipalities are lower and alternations between political parties for the mayorship have been substantially less common. Overall, the results support a view of history in which relatively modest events can have highly nonlinear and persistent influences, depending on the broader societal circumstances.

We derive a nonparametric test for constant (continuous) beta over a fixed interval of time. Continuous beta is defined as the ratio of the continuous covariation between an asset and observable risk factor (e.g., the market return) and the continuous variation of the latter. Our test is based on discrete observations of a bivariate Ito semimartingale with mesh of the observation grid shrinking to zero. We first form a consistent and asymptotically mixed normal estimate of beta using all the observations within the time interval under the null hypothesis that beta is constant. Using it we form an estimate of the residual component of the asset returns that is orthogonal (in martingale sense) to the risk factor. Our test is then based on the distinctive asymptotic behavior, under the null and alternative hypothesis, of the sample covariation between the risk factor and the estimated residual component of the asset returns over blocks with asymptotically shrinking time span. Optimality of the test is considered as well. We document satisfactory finite sample properties of the test on simulated data. In an empirical application based on 10-minute data we analyze the time variation in market betas of four assets over the period 2006–2012. The results suggest that (for likely structural reasons) for one of the assets there is statistically nontrivial variation in market beta even for a period as short as a week. On the other hand, for the rest of the assets in our analysis we find evidence that a window of constant beta of one week to one month is statistically plausible.

We propose estimators for integrated spectral functions and in particular integrated eigenvalues of instantaneous covariance matrices with high frequency data. The estimators of eigenvalues, after bias-correction, achieve the desired asymptotic normality in the in-fill asymptotic setting, whether the eigenvalues are simple or repeated. Numerical simulations illustrate good finite sample performance despite the curse of dimensionality. Empirically, we apply principal component analysis to the constituents of Dow Jones Index. Our findings show that excluding variations of jumps, three factors on average explain around 50-60% of continuous variations of the stock returns, leaving 40-50% variations explained by idiosyncratic components. During crises, the first principal component can dominate up to 70% variations.

High frequency inference has generated a wave of research interest among econometricians and practitioners, as indicated from the increasing number of estimators based on intra-day data. However, we also witness a scarcity of methodology to assess the uncertainty -- standard error-- of the estimator. The root of the problem is that whether with or without the presence of microstructure, standard errors rely on estimating the asymptotic variance (AVAR), and often this asymptotic variance involves substantially more complex quantities than the original parameter to be estimated. Standard errors are important: they are used both to assess the precision of estimators in the form of confidence intervals to create ``feasible statistics" for testing, and also when building forecasting models based on, say, daily estimates. The contribution of this paper is to provide an alternative and general solution to this problem, which we call Observed Asymptotic Variance. It is a general nonparametric method for assessing asymptotic variance (AVAR), and it provides consistent estimators of AVAR for a broad class of integrated parameters. The spot parameter process can be a general semimartingale, with continuous and jump component. The construction and the analytics of the observed AVAR work well in the presence of microstructure noise, and when the observation times are irregular or asynchronous in the multivariate case. The edge effect -- phasing in and phasing out the information on the boundary of the data interval -- of any relevant estimator is also analyzed and treated rigorously. As part of the theoretical development, the paper shows how to feasibly disentangle the effect from estimation error and the variation in the parameter alone. For the latter, we obtain a consistent estimator of the quadratic variation (QV) of the parameter to be estimated, for example, the QV of the leverage effect.

In this paper, we consider bootstrap tests based on bipower variation, as originally proposed by Barndorff-Nielsen and Shephard (2006). Our aim is to improve the finite sample size while retaining good power. In order to do so, we generate the bootstrap observations under the null of no jumps, by drawing them randomly from a mean zero Gaussian distribution with a variance given by an efficient block multipower variation measure (Mykland, Shephard and Sheppard (2012)). A special case of this method is the local Gaussian bootstrap of Hounyo (2013), which relies on a block realized volatility to estimate the intraday returns variance. By appropriately selecting the exponents such that the maximum of any of them is less than two, we show that the bootstrap is able to mimic the null distribution of the jump test under both the null and the alternative hypothesis. Preliminary simulations show that the finite sample properties of the bootstrap are better than the asymptotic theory.

In this paper we characterize quantitatively the optimal mix of progressive labor income and capital income taxes as well as and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk. and incomplete financial markets. Progressive labor income taxes provide social insurance against idiosyncratic income risk and redistributes after tax income among ex-ante heterogeneous households. In addition to the standard distortions of labor supply progressive taxes also impede the incentives to acquire higher education, generating a non-trivial trade-off for the benevolent utilitarian government. The latter distortion can potentially be mitigated by an education subsidy. We find that the welfare-maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education. Both the degree of tax progressivity and the education subsidy are larger than in the current U.S. status quo.

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 examine the optimal formation of human capital in economies in which moral hazard generates credit constraints and shapes labor market risks, two of the main barriers to schooling. We consider a two-stage investment problem: In the first stage, during school, individuals with heterogeneous ability and wealth decide their investment, effort, and consumption. In the second stage, labor market participation, individuals must find and maintain jobs. The optimal program maximizes initial utility of each individual by allocating credit in the first stage and specifying repayment in the second. The optimal program links investments and effort to the initial ability and wealth of the individual; it also provides unemployment insurance and collects wage taxes for the employed. While credit limitations and reduced investments arise endogenously from limited incentives to exert effort during both stages, the optimal dynamic provision of insurance and incentives can greatly enhance the investments, income, and welfare of low wealth individuals relative to the conventional student loan programs.

More than half of the variation across U.S. school districts in real K-12 education expenditures per student is due to differences between, rather than within, states. I study the welfare implications of redistribution of education expenditures by the Federal government, using an analytically tractable model of human capital accumulation with heterogeneous agents and endogenous state policies. The net welfare effect of Federal redistribution depends on a trade-o¤ between the positive effect of redistributing resources toward poorer states and the negative effect resulting from misallocation of population across states. Federal redistribution increases welfare in a calibrated version of the model.

Do locational fundamentals such as coastlines and rivers determine town locations, or can historical events trap towns in unfavorable locations for centuries? We examine the effects on town locations of the collapse of the Western Roman Empire, which temporarily ended urbanization in Britain, but not in France. As urbanization recovered, medieval towns were more often found in Roman-era town locations in France than in Britain, and this difference persists today. The resetting of Britain’s urban network gave it better access to natural navigable waterways when this was important, while many French towns remained without such access. We show that towns without coastal access grew more slowly in both Britain and France from 1200-1800, and calculate that with better coastal access, France’s urban network would have been up to 20-30 percent larger in 1800.

This paper uses a novel natural experiment to explore the extent to which children from disagdvantaged households are more vulnerable to environmental lead exposure than those from advantaged households. In contrast to previous research, our approach allows us to isolate the long-term effects of lead and shows how early life exposure impairs later life economic performance. The natural experiment we exploit involves variation in the acidity of public water supplies.

Economists have long been interested in the implications of private versus public ownership for the provision of services and consumer prices. Empirically, the challenge is to disentangle the effect of ownership from other determinants of prices. In this paper, we use detailed data on retail electricity in the United States to identify the effect of private versus public ownership on prices. Our data include information on thousands of markets, which allow us to control for observed differences in demand and cost conditions. At typical consumption levels, we find that differences between public and private rates were negligible. This suggests the gains from changing ownership type were small in 1935. However, as new technology reduced minimum efficient scale and incentivized private entry into smaller markets, we show that markets switched from public to private ownership. We interpret these findings as evidence for the benefits of maintaining organizational or contractual flexibility and increasing the prospect of passing gains from technological progress on to consumers.

We use a longitudinal design, in which we follow participants through their first academic year at the university, to test and distinguish between selection based on preferences and a dynamic process of preference formation. We recruit incoming freshman to participate in three waves of an online experiment where we elicit subjects' social network using an incentive compatible mechanism and then measure subjects’ levels of altruism, willingness to take risks, and willingness to delay rewards (using common experimental protocols). Using this data we identify whether an individual’s generosity, risk preferences and impatience are (a) influenced by the preferences of others in their social network, and/or (b) influential in changes to their social network over time. We find that subjects' risk and time preferences are significantly positively correlated with the preferences of their friends. Additionally, we find that changes in subjects social networks are significantly influenced by social preferences. Subjects are more likely to add someone as a friend, and less likely to drop as a friend, the more similar their social preferences are.

We design an experiment to study how agents make use of different pieces of information in the lab, depending on how many others have access to them and the strategic nature of interaction. Agents receive signals about a payoff relevant parameter, and the information structure is represented by a non-directed network, whose nodes are agents and whose links represent sharing agreements. We compare the use of information in different information sharing networks, considering games in which strategies are substitutes, complements and orthogonal. We then study the incentives to share information across games by analyzing the scenario where subjects have the chance to modify the network prior to playing the game.

We study naive social learning in a model that incorporates uninformed agents by conducting a lab experiment. While some agents initially receive noisy signals about the state of the world, others do not. Agents are free, dynamically, to communicate their evolving beliefs to their neighbors and update their guesses about the state of the world. The precise, dynamic data allows us to estimate new features of the social learning process. Additionally, we develop a model in this environment to study the natural naive extension of one-period Bayesian updating. This new model, called Partial DeGroot learning (PDG), differs from the standard DeGroot models as the communication network evolves endogenously as agents become informed, which stems from the combination of percolation of information and averaging. We characterize the limit behavior and show that society keeps track of the mean but loses track of precision.

We conduct a field experiment in South Africa to analyze the role of social networks for hiring. We invite prospective applicants to (a) list their friends and (b) rank their friends in the order in which they would recommend them to the employment agency. We also vary whether referrers get no hiring incentive or a prize for every applicant who has a successful interview. We then use a deferred acceptance algorithm to invite one referred candidate for each referer. Our outcome measures for referrals include interview performance as well as completeness of the application materials. This allows us to measure to what extent referers have private information about applicants’ skills and whether referers actively help socially close friends in compiling the application materials.

The socialist calculation debate began almost 100 years ago when von Mises and Hayek argued that a socialist state could not determine marginal-cost prices and therefore could not allocate resources efficiently. Oscar Lange and Abba Lerner responded with the market socialist model, where a socialist planner in a government-ownership economy would adjust prices in response to excess demand and thereby achieve marginal cost pricing and allocative efficiency. There are mixed views on market socialism for an entire economy. (E.g Edmund Phelps is negative, while John Roemer is positive.) In this paper, we briefly review the debate and the market socialism response. Even among its supporters, market socialism is widely regarded as only an abstract idea. We disagree. We argue that market socialism exists, and is growing in importance, in major parts of modern economies—especially in health care and health insurance. In these sectors, prices are set centrally, while the ownership includes many state-owned, nonprofit, mutual firms. In this sector, we argue for applying market socialist principles to health care and health insurance policy. In particular, we argue that these principles imply that community rating of health insurance premiums is a source of major inefficiencies, harmful pressure on regulation and unnecessary difficulties in implementing the U.S. Affordable Care Act. We suggest moving in the market socialist direction—towards marginal cost pricing and therefore away from community rating. We suggest dealing with the desire for expanded coverage by explicit, politically transparent subsidies.

This research has three objectives: (1) Describe patterns of insurer participation and premiums at the state and local levels; (2) Quantify the roles of benefit design and provider networks in explaining premium variation; (3) Analyze the impact of state regulatory decisions and insurer and provider market competition on participation and premiums during the first two years of exchange operation. To pursue this research, the team has built a comprehensive data infrastructure to monitor outcomes and investigate the role of regulatory and market factors on insurer participation and premiums.

Forthcoming

The global economic and financial crisis that began in 2007 has renewed interest in Keynes’s analysis of whether the economic system is self-adjusting and of his proposals for ending depression. This analysis is complemented by Keynes’s more specific accounts of financial crisis, notably in his incisive “The Consequences to the Banks of the Collapse in Money Values” (in his Essays in Persuasion, 1931) and his Harris Foundation Lectures, a body of work that is much less well-known.

The wage-employment relationship is one of the central and most controversial issues in the General Theory. The beginning makes the assumption of a given money wage as a preliminary working hypothesis. “But this simplification, with which we shall dispense later, is introduced solely to facilitate the exposition. The essential character of the argument is precisely the same whether or not money-wages, etc., are liable to change” (JMK, CW VII, p. 27). Despite this clear statement Keynes has often been interpreted as assuming rigid money wages, a preliminary assumption with which he dispense in Chapter 19 “Changes in Money-Wages.” Here Keynes argues against the “classical doctrine” that a downward flexibility of money wages will systematically lead to full employment. The British wage debate arose after the return to the gold exchange standard in 1925 at the prewar parity, which was heavily opposed by Keynes. At the outbreak of the Depression, Keynes contributed an important but widely overlooked article “The Question of High Wages” (1930) in which he challenged the purchasing power theory represented by Maurice Dobb. Interestingly, Keynes advocated “squeezing the higher wages out of increased efficiency” (1930, p. 11), i.e. relative instead of absolute wage reductions to regain international price competitiveness, a proposal which is topical today. Finally, the more recent controversies over the Preface to the German language edition of the General Theory are based on only one passage which was added in the German translation to Keynes’s original English text. The additional text appears reasonable if one links it to an important distinction Keynes makes in Chapter 19 between democratic systems with decentralized wage bargaining and “highly authoritarian” systems for which the problem of destabilizing elastic price expectations in the process of deflationary wage policies does not exist (JMK, CW VII, p. 269).

James Meade (1907-1995), although Oxford-educated, was one of the very first Keynesians, a member of the Cambridge “circus” which met to analyze and criticize Keynes’s just published Treatise on Money in the early months of 1931. Not only did he use Keynesian ideas in his writings throughout his long career; he was a major player in the implementation of Keynesian policies in Britain during and immediately after World War II. My paper will discuss his encounters with Keynes and his use and development of Keynesian economics in his own academic and policy work.

Earlier studies by the authors and a small number of other works show evidence of labour market segmentation and wage differential between male and female adult workers in India. This paper focuses on the time trends and variation across states in occupational and wage discrimination against women for which there is a dearth of systematic work for India. The data for the study covers a period of about three decades and are drawn from the large (over 100,000 households) representative All India employment-unemployment survey data of the National Sample Survey Organisation from the quinquinnel rounds 1983, 1993/4, 2004/5 and 2011/12. Occupational segregation is examined based on dis-similarity (Duncan) and segregation indices and wage discrimination are analysed based on ordinary least squares and quantile regressions. The trends in wages and gender wage gap are also analyzed for the period 1983 to 2011-12. The empirical results show that occupational segregation is high and has increased over time, There is also substantial variation across states and employment categories. Our analysis of wages show that there has been a remarkable increase in wages in the past decade and female wage growth has been faster than male wag growth. We also examined the gender wage gap by age, education, sector, employment type, caste and religion. The unadjusted wage gap is decomposed using the familiar decomposition method. The estimates of wage functions not controlling for industry and occupation suggest that about 81% of the wage difference between males and females are unaccounted and could be due to discrimination and part of this may be due to difference in the choice of occupation and industry. d over time. Overall, the study reveals that discrimination against women has not reduced over the past three decades despite proactive policies. In fact occupational segregation has increased and this is a cause for concern and policy attention.

Few studies in the social sciences have explored the life experiences of transgender and transsexual individuals (henceforth “trans” people) and especially rare are quantitative analyses. Among the main challenges in studying this population are its very small size and condition of marginalization, as well as the conflicting views and lack of consensus on concepts and definitions relating to it. In the present study, we explore the agency, social exclusion, risk of stigma and discrimination of the trans population in Italy. We use data from an ad hoc sample, collecting information on trans individuals living in Southern Italy. We develop a synthetic index of social inclusion by aggregating several variables pertaining to the following domains: monetary poverty, labour market attachment, housing conditions, subjective well-being, and education. Next, we investigate the role of discrimination, social capital and trans people’s agency in affecting their social inclusion/exclusion. We document a strong negative role of stigma in determining trans people’s social inclusion, as well as a dramatically high frequency of discrimination episodes against trans people.

The purpose of the paper is to examine whether the Kuznets hypothesis of the inverted U-shape relationship between the level of income inequality and the level of gross domestic product per capita GDP per capita is also applicable on the relationship between gender inequality and the level of GDP per capita. The paper assumes that government intervention in the early stage of economic development is essential to reduce income inequality. The paper also assumes that government intervention especially via fiscal policy and public goods provision help to narrow the gender gap in education and health but not in employment and income. The paper looks for the evidence of Kuznets ‘hypothesis for gender inequality by examining the level of gender inequality in single countries over time and by looking at single points in time in a cross-section of countries with different level of income and economic development.

The paper contributes to the literature on labour supply effects of pension reforms from an unusual perspective. Epidemiological literature highlighted that perceived high strain at work and low social support are predictive of sick leaves (Moreau et al. 2004). In Mediterranean countries, like Italy, old age women are normally in charge of heavy tasks of informal care-giving towards grandchildren and elderly parents and many of them normally chose to retire early to better cope with these tasks. However, the pension reforms recently undertaken, significantly increased old age retirement age, especially for women in private employment. We indeed investigate whether old-age Italian women reacted to this mandatory postponement of retirement by increasing their resort to sick leaves. The analysis is based on a unique administrative data set provided by the Italian Social Security Institute.

One of the main missions of Microfinance Institutions (MFIs) is to improve the status of under-privileged people. However, MFI’s mission drift or enhancement can occur under adverse economic condition. In this paper, we investigate the direction of changes in supporting women borrowers who make up the majority of the poor by using the lending patterns of Latin American and Caribbean MFIs during the recent global financial crisis. P control chart is applied to detect assignable changes in the lending rate to woman over different MFIs. In order to identify related characteristics to the outlying MFIs identified from the P control chart, we perform logistic regression analysis. Our study results can contribute to understand MFI’s mission change in terms of supporting women borrowers and identify the related characteristics of MFIs.

This study examines whether working conditions at the end of workers' careers contribute to health disparities. The impact of occupation on health in the years leading up to retirement is not well understood, partly because it is difficult to untangle feedback effects between health and socioeconomic status over the life course from the health impacts of job demands at older ages. Dynamic panel and instrumental variable (IV) methods are used in conjunction with rich panel data to estimate more robust associations between health and workplace characteristics. Health and employment information from ten waves (1992-2010) of the Health and Retirement Study (HRS) is merged with expert ratings of job demands from the Occupational Information Network (O*NET) and mid-career earnings records from the Social Security Administration’s (SSA) Master Earnings File (MEF). Results indicate physical demands, environmental hazards, and conditions of the psychosocial work environment are all associated with health outcomes after age 50. In particular, there is a strong relationship between the degree of control and influence exercised on the job and improved self-reported health status, blood pressure, musculoskeletal conditions, cognitive function, and depression.

Using data from the HRS we test for duration effects of retirement on the probability of self-reporting good health. To control for the endogeneity of the retirement decision we exploit exogenous changes in retirement behavior over Social Security and private pension eligibility ages, as well as over the offering of early out windows. We find evidence of a positive effect of retirement on health that changes with time spent in retirement. Recent retirees experience a strong boost to self-reported health relative to non-retirees, with additional positive effects through the fourth year of retirement. The positive effect on health remains stable through the thirteenth year of retirement when the difference between the two groups disappears.

An important dimension of well being is access to time at the end of a one's working life. We identify retirement time as a resource employees consume after permanently exiting the labor market: the time between retiring and dying. There are large socioeconomic differences in retirement time and they appear to have grown over time. The growing inequality of longevity by SES, coupled with the increased labor market effort of lower-income older people has caused retirement time to become more unequally distributed between socioeconomic status groups. The study discusses implications of growing retirement time differentials for one major area of pension policy: the pension eligibility age and retirement incentives.

Recent work has found that retirement may lead to improvements in health, although the size and significance of this finding varies between studies and countries. However, the underlying mechanism for this health improvement has yet to be identified, making it impossible to draw conclusions about how policy can influence the positive relationship between health and retirement, or whether it is possible to achieve the health gains without leaving the labor force. This paper aims to identify the causal pathways through which health is improved with retirement. We distinguish between behaviors individuals have direct control over (physical activity, eating, drinking, smoking) and those at least partially governed by the health care system (visits to the doctor, preventative care). This paper uses panel data and instrumental variable methods, exploiting variation in statutory retirement ages, to assess how retirement causally affects health-related investments and behaviors using the Health and Retirement Study (HRS) (United States), the English Longitudinal Study of Ageing (ELSA) (England), and the Survey of Health Aging and Retirement in Europe (SHARE) (continental Europe). The findings suggest that the positive relationship between health and retirement is likely caused by a change in health behavior. In both the U.S. and Europe, where we find a positive relationship between health and retirement, we also find a significant increase in the amount of self-reported vigorous exercise for those retiring from non-physical jobs, and a decrease in doctor visits. In England, where we find a weaker effect of retirement on health, we also find no change in vigorous activity. Finally, for the U.S., the only place where information is available, we find that retirement has a positive effect on preventive care, separate from Medicare eligibility. These findings suggest that interventions targeted to get near retirees to exercise more,

By Pascal Petit (CNRS-CEPN , University of Paris Nord , pascal.petit@univ-paris13.fr ) Abstract: There is no proper Global Migration Governance scheme. Partial systems are dealing with migration of refugees and skilled migrations arrangements only concern a very specific and small part (mainly with tertiary education) of migration flows. Migrations are partly influenced by the situation of labor markets of host countries. The main determinants of migrations are country specific and tied with existing networks and attractiveness of social protection systems. To counter the backlashes of the present economic recession inducing populist movements to oppose migrations , the intermediation of CSOs engaged in promoting the rights and welfare of migrants at home and in host countries, is necessary and has t to be significantly supported. Global Skilled Migration Governance: On the Role of Civil Society Organizations

High Skills Immigrants in United States: An Approach on Their Professional Status and Migration Interest to United States

Regimes of Migration and the Changing Nature of Migration from MENA countries after the Arab Uprisings After analyzing migration dynamics between the major regions over the past three decades, this paper analyzes regional immigration regimes by using a theoretical model to estimate elasticities of migration by major regions. It focuses then, on the determinants and the destination of the skilled migration from MENA countries in a post-Arab Uprisings perspective. It shows that in the case of Arab economies, there is a "brain drain" more pronounced than in other regions comparable in terms of per capita income. The main flows associated with migration of highly skilled workers come from countries of North Africa to Europe. North America is increasingly attracting the most qualified. This paper proposes a political economy analysis of this abnormally high expatriation rate of skilled in the context of the Arab revolutions which has sanctioned a breaking away from the old implicit internal pact whereby the elites of the Nomenklatura had a protected place on the skilled job markets and where the educated elite of the poor and middle class were relegated to declassified employment in the domestic economy or to international emigration.

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I use data from the March Current Population Survey between 1990 and 2012 to evaluate the effect of minimum wages on the distribution of family incomes for non-elderly individuals. I find robust evidence that higher minimum wages moderately reduce the share of individuals with incomes below 50, 75 and 100 percent of the federal poverty line. The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels. For my preferred (most saturated) specification, the poverty rate elasticity is -0.24, and rises in magnitude to -0.36 when accounting for lags. I also use recentered influence function regressions to estimate unconditional quantile partial effects of minimum wages on family incomes. The estimated minimum wage elasticities are sizable for the bottom quantiles of the equivalized family income distribution. The clearest effects are found at the 10th and 15th quantiles, where estimates from most specifications are statistically significant; minimum wage elasticities for these two family income quantiles range between 0.10 and 0.43 depending on control sets and lags. I also show that the canonical two-way fixed effects model used most often in the literature insufficiently accounts for the spatial heterogeneity in minimum wage policies, and fails a number of key falsification tests. Accounting for time-varying regional effects, and state-specific recession effects both suggest a greater impact of the policy on family incomes and poverty, while the addition of state-specific trends does not appear to substantially alter the estimates. I also provide a quantitative summary of the literature, bringing together nearly all existing elasticities of the poverty rate with respect to minimum wages from 12 different papers. The range of the estimates in this paper is broadly consistent with most existing evidence, including for some key subgroups, but previous

Policymakers advocating increases in minimum wages often tout their ability to reduce poverty despite scant evidence of their poverty-alleviating effects. A wide body of scholarship has found that higher minimum wages have little effect on poverty rates because (i) many poor individuals do not work (Card and Krueger, 1995; Sabia and Nielsen 2014), (ii) minimum wages may cause adverse employment effects among low-skilled poor workers (Neumark and Wascher 2002; 2008), and (iii) poor target efficiency of minimum wages to the working poor (Burkhauser and Finegan 1996; Burkhauser and Sabia 2007; Sabia and Burkhauser 2010; Sabia and Nielsen 2014). Our new work draws data from the Current Population Survey and Survey of Income and Program Participation to explore the poverty effects of state minimum wages, with particular attention to poverty measurement and spatial heterogeneity. We will also explore the target efficiency of minimum wages over the business cycle.

Although an initial goal of the minimum wage was to provide a minimum standard of living, research on the effect of minimum wage increases on low income families has focused on the more limited issue of whether it lifts families above the poverty threshold. The current research uses the SIPP to investigate whether increases in the minimum wage affect the annual income of low income families and how far up the income distribution such effects, if they are present, reach. The SIPP is uniquely suited to this research because of the depth of its questions on income and household structure and because it s longitudinal structure allows following households through increases in the minimum wage. We embed measures of minimum wage change at the federal and state level into conventional models of household income to estimate the impact of the minimum wage on household earned income as well as any indirect effects on the receipt of other forms of income. The effect of the minimum wage on household income likely depends on the place of the household in the income distribution. While low income households income may be greatly affected by minimum wage increases, the minimum wage is likely to have little to no effect on the incomes of high income households. We allow for differences in effect by stratifying our sample into income quartiles and estimating our models with instrumental variable quartile regressions, selection corrected quartile regression, and recentered influence factor regression. Results from these estimates are contrasted with stratifications based on exogenous demographic characteristics such as education, age and gender. We also allow for the minimum wage to have lagged effects and for there to be scarring by state.

A common criticism of the minimum wage is that it expedites the technological substitution of labor due to changes in the relative prices of labor vis-a-vis capital. While there is anecdotal evidence that technology is replacing some low skill jobs (e.g. Bank Tellers and Cashiers), there has been no explicit attempt to understand the extent to which the minimum wage contributes to this process. In this paper, we use task data from the O*NET to proxy an occupation's substitutability by technology using the degree to which it includes routine tasks. We then examine the differential employment response (by the degree of routinization) to changes in the minimum wage using the Occupational Employment Statistics. To the extent that routinized occupations disappear when the minimum wage increases, we examine the individual employment response to this change using the Survey of Income and Program Participation. Principally, we are interested in the ability of these workers to find new jobs, what type of jobs they find, and the wage effects of this reorganization in the labor market.

Latent Earning Capacity is the difference between earning capacity and expected earnings. This paper with both theoretical and practical applications defines latent earning capacity and explores the circumstances under which latent capacity will exist and the evidence for such existence.

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This session is intended to further the discussion about earning capacity growing out of having the first Ward/Piette Research Award given to the paper by Stephen Horner and Frank Slesnick, "The Valuation of Earning Capacity: Definition, Measurement and Evidence," Journal of Forensic Economics, Vol. 12, No., 1, 1999. I will provide a treatment of how earning capacity seems to be defined by some major Pennsylvania court decisions and also, examine the relationship between earning capacity and part-time employment.

Entrepreneurship as a component of economic growth is increasingly the subject of research by economists. This paper examines how the factors of skill and gender are related to entrepreneurial outcomes in Africa.

Applying panel fully modified OLS model to data for 87 countries from Africa and the Americas, this paper investigates the long-run relationship between remittances and financial services development. We find that the index of financial services deepening, index of risk improvement, exchange rate stability, and the host country GDP per capita have positive and significant impact on remittances. A policy implication of the study is that financial services deepening in terms of domestic credit expansion by the banking industry plays an important role for the continuation of a steady inflow of remittances to Africa and the Americas.

This paper analyzed drivers of foreign direct investments (FDI) to West Africa using a panel dataset from 1970 to 2010. OLS and GMM techniques are used for the estimations. The main results indicate that there is a U-shaped relationship between economic development and FDI inflows to West Africa. In summary, (i) The quadratic element of real per capita GDP, domestic investment, trade openness, first year lag of FDI, natural resources (oil and metals) endowment and exports, and monetary integration have positive and significant effect on FDI inflows to West Africa; and (ii) there is a negative relationship between FDI inflows to the sub-region and second-year lag of FDI, economic growth, level of economic development (real GDP per capita), and life expectancy.

The financial crises of 2008-2009 resulted in changes in market structure and sectoral concentration of credit in many economies. This paper uses bank data from Zambia to explore the implications of recent changes in market structure and sectoral concentration.

This paper presents new empirical evidence on recent changes in the use of trade finance in Africa. Of particular interest are analyses of new data and constraints faced by African banks.

We embed resource insecurity into a Ricardian model in order to examine the consequences of trade openness for conflict. Our analysis features a terms-of-trade channel through which arming influences world prices and that feeds back into the countries' incentives to arm, thereby rendering security policies trade-regime dependent. Specifically, we demonstrate that trade between countries reduces their incentive to arm as compared with autarky. Thus, in the spirit of the classical liberal argument, we find that trade ameliorates conflict and promotes peace, bringing with it not only the familiar gains from trade but also a reduction in the amount of resources diverted to conflict. Our central findings are robust to the presence of trade costs. However, when the two adversarial countries do not trade with each other but instead with a third (friendly) country, a move from autarky to trade intensifies conflict between the two adversaries. If the added security costs are sufficiently large, then such a move can lower the countries' payoffs.

In a model of evolution driven by conflict between societies more powerful states have an advantage. When the influence of outsiders is small we show that this results in a tendency to hegemony. In a simple example in which institutions differ in their exclusiveness we find that these hegemonies will be inefficiently extractive in the sense of having inefficiently high taxes, high compensation for state officials, and low welfare. The theory also predicts that they are most likely overthrown by fanatic bands who maximize power ignoring incentive constraints.

How do the outcomes of international wars affect domestic social change? In turn, how do changing patterns of social identification and domestic conflict affect a nation's military capability? We propose a "second image reversed" theory of war that links structural variables, power politics, and the individuals that constitute states. Drawing on experimental results in social psychology, we recapture a lost building block of the classical realist theory of statecraft: the connections between the outcomes of international wars, patterns of social identification and domestic conflict, and the nation's future war-fighting capability. When inter-state war can significantly increase a state's international status, peace is less likely to prevail in equilibrium because, by winning a war and raising the nation's status, leaders induce individuals to identify nationally, thereby reducing internal conflict by increasing investments in state capacity. In certain settings, it is only through the anticipated social change that victory can generate that leaders can unify their nation; and the higher anticipated payoffs to national unification makes leaders fight international wars that they would otherwise choose not to fight. We use the case of German unification after the Franco-Prussian war to demonstrate the model's value-added and illustrate the interaction between social identification, nationalism, state-building and the power-politics of interstate war.

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The paper analyzes three risks that cast doubts about the future of the Eurozone. The first risk arises from the legacy of the Euro crisis, i.e. unsustainably large government debt levels in a number of periphery countries. This calls for debt restructurings that will be difficult to organize as a result of strong political objections in the Northern Eurozone countries. The second risk follows from the recent ruling of the German constitutional court that may lead to an erosion of the ECB’s OMT-program. If the European court does not unambiguously support OMT, future sovereign debt crises are inevitable. The third risk arises from the fact that the monetary union is not embedded in a fiscal union. This will continue to make the Eurozone a fragile construction.

Thee key ingredients are needed to reduce the risk of a renewed crisis of the euro. First, the countries with high ratios of debt to GDP are vulnerable to a rise in the interest rate that they must pay on their government debt. This source of a new euro crisis can be eliminated by reducing the primary deficits (or shifting to a primary surplus). Second, the risk of deflation can be reduced and the rate of GDP growth increased by devaluing the euro. This can be done by unsterilized intervention by the ECB. Third, the banking system needs to be strengthened. The stress tests being carried out now may be sufficient or more may be needed.

Germans cannot agree to unlimited bailouts of profligate euro members. On the other hand, if they had insisted on the founding principles (fiscal constraints, “no bailout clause,” and low inflation as the sole goal of the ECB), the euro would not have survived the post-2009 crisis. It is especially important to recognize that the (predictable) impact of fiscal austerity has been to raise debt/GDP ratios among periphery countries, not lower them. The ECB began to take more effective actions in 2012. But neither the short-run problems nor the long-run problems have been adequately addressed. Fiscal policy has been pro-cyclical. The eurozone will endure, but through a lost decade of growth. It would help if the ECB further eased monetary policy, which it could do by buying US treasury bonds rather than eurozone bonds. Still missing is a long-run fiscal regime that addresses the now-exacerbated moral hazard problem. Two worthwhile ideas are the red-bonds/blue-bonds proposal and the delegation of forecasting to independent fiscal agencies.

In 1999, neither proponents or opponents of the new euro system recognized the potential serious interaction between sovereign risk and banking risk. True, sovereign risk was recognized as a serious problem, and the Maastricht Accord and follow-up Growth and Stability Pact both placed limits on government debt and deficits. (But Greece violated these accords by massive fudging of its national income accounts.) However, unlike American financial markets where government bond holding is disbursed among insurance companies, pension funds, bond funds, and so on, European countries’ national debts are heavily concentrated in that country’s commercial banks. With the loss of monetary power to the ECB, individual European central banks can no longer support their commercial banks facing either sovereign risk from fiscal deficits or banking risk from unwise lending. Thus, no clear end is in sight for the euro crisis.

The euro area suffers from two great defects. One is that there are 17 banking systems in the euro area, and the other is that there are 17 nations with treasury bills and bonds. The Eurozone crisis will end when its two defects are corrected. Correction of both defects requires a shift of sovereignty from the nation-states toward the centre. The creation of a unified banking system toward Europe is moving would result in substantial increases in efficiency and productivity. The other reform needed is the creation of eurobonds and eurobills. Euro area bills and bonds would give Europe a potential supply of international capital from central banks that are or will soon be overweight in dollars. The rest of the world would be a willing lender and happy to shift from other assets to those denominated in euros.

The degree of offshore outsourcing in the high-tech industries has increased rapidly in past decades. Because of this trend, economists have been debating whether offshore outsourcing is hollowing out U.S. high-tech firms’ core competencies in intangibles. To contribute to the debate, I first develop a forward-looking profit model and use Compustat dataset to measure the capital stock and depreciation rate of R&D and organizational capital for major U.S. R&D-intensive industries. Then, I use the estimates to analyze whether industries with a higher degree of offshore outsourcing exhibit a different investment pattern in intangibles. In general, I find that industries with more intangibles are more competitive in the global market. Even in R&D intensive industries, the estimated size of organizational capital is larger than that of R&D assets. Moreover, in industries with a lower degree of offshore outsourcing, R&D assets and organizational capital are complementary. Lastly, industries with a higher degree of offshore outsourcing invest less in both R&D and organizational capital but have higher productivity growth.

The recent financial crisis has created a significant deviation between real world and existing business cycle theories. Some economists have argued that the deviation is smaller when intangibles are incorporated into the business cycle analysis. In the U.S., the rate of business investments in intangibles has increased significantly and the estimated spending scale by Corrado et al. (2005) has reached to 13.1% of GDP by 2000. However, because of measurement difficulties, current business cycle models have not incorporated R&D assets and organizational capital jointly yet. To fill in the gap, we develop a modified neoclassical business cycle model and use a newly constructed time series on R&D assets and organizational capital to conduct our analysis. Our empirical analysis supports the argument by McGrattan and Prescott (2014) that intangibles are large and cyclically important. Moreover, both intangibles are not only complementary to production capacity but also complementary to each other.

The measurement of intangible investment is a fundamental challenge in both sources-of-growth analysis and national accounting practice. Following the seminal work of Corrado, Hulten and Sichel (2005), major research efforts were undertaken to measure aggregate business sector intangible investment (CoInvest; INNODRIVE), and to develop an harmonized measurement framework (INTAN-Invest). At the same time, country specific estimates of intangibles have emerged. As overall business intangible investment is large and growing in advanced countries (Corrado et al 2013) the development of harmonized methods and measures of intangible capital for the Public as well as the Business sector at an higher level of industry detail is essential for a deeper understanding of economic growth and for the design of macroeconomic policies aimed at stimulating sustained growth, competitiveness and sustainable development. In this paper we present a theoretical framework for the capitalization of intangibles in the Public and non-profit sectors as developed under the SPINTAN project. We combine the project’s newly developed measures of “public” intangibles with INTAN-Invest’s new industry-level estimates and review their implications for the rate and trajectory of total, tangible, and intangible investment in the EU and US in recent years. We also evaluate econometrically the joint/disjoint role of public and business sector intangibles as sources of growth in a sample of EU15 member countries plus the US over the period 1995-2012. Finally, we evaluate how economic policy settings can be readjusted to favor intangible investment (where appropriate) and to stimulate efficient reallocation of resources to new sources of growth.

Using sectoral intangible investment data we confirm that intangible capital is a significant determinant of labour productivity growth. The sectoral setting further allows us to identify the differential impacts of intangible capital across industries with varying degrees of ICT intensity. Intangible capital appears to be significantly more productive in ICT-intensive sectors than in those that use little ICT. This finding remains robust across various alternative industry ICT intensity measures and aligns with the prior firm-level studies that place emphasis on the complementary role of intangible assets in ICT investment.

The aim of this paper is to examine the evolution of market potential over the long run. On the theoretical side, we exploit the structural gravity model to derive closed-form expressions for existing measures of market potential. We are therefore able to express market potential as a function of observable variables. This allows us to compare countries' market potentials not only in the cross-section but also over time. On the empirical side, we collect a large data set of bilateral trade flows for 614 country pairs covering 53 countries over the period from 1910 to 2010 including new observations for World War I and World War II. We find that countries such as France and Japan experienced drastic declines in market potential in wartime but quickly reverted back to trend.

In this paper, we estimate the effects of the implementation of a regional transit system that substantially streamlined administrative processing of trade flows. In so doing, we use a unique dataset that consists of the entire universe of El Salvador’s export transactions over the period 2007-2013 and includes information on the transactions channeled under the new transit regime established with neighboring countries over the same period. Results suggest that this new transit system has been associated with decreased order servicing costs and variable trade costs in general and accordingly with increased firms’ exports, particularly of time-sensitive goods.

Ocean transportation costs did not decrease much despite containerization. Using a previously unused dataset of U.S. import freight costs, I show that flat freight rates are not an artifact of the poor data available. Data from major U.S. ports show that labor costs did not fall much despite enormous labor productivity gains. Market power in ports meant that dramatic productivity gains did not translate into dramatically lower freight rates.

Seaborne transportation handles 90% of the volume of international trade and accounts for about 73% of the value of goods and services traded internationally. This study looks at the effect of varying front-haul and back-haul rates on the demand for containerized cargo transportation between major trading regions while accounting for the endogeneity of freight rates. It finds that front- and back-haul rates depend negatively on one another, while the trade imbalance has varying effects on freight rates across the defined markets. Further, the fairly robust estimates show negative price elasticities of demand for determining the impact of freight rates on the demand for containerized shipments.

This paper will explore the question of productive and unproductive labor through the lenses of the concept of "value" as a social (capitalist class process) construction. The paper will review and criticize existing concepts of productive/unproductive labor as being too wedded to a concept of "value" as a property of "labor" in itself. It will explore the analytical conditions and political implications of the productive/unproductive distinction in light of Marx's criticism of the Classicals' (Smith's Ricardo's) naturalist concept of value.

I first review how demand affects value and exchange value in a post-structuralist framework and how the monetary expression of value is defined using this approach. I then develop a macro model of simple reproduction and use it to illustrate how a change in aggregate demand from one period to the next redistributes value between periods. Finally, I critique two existing attempts to define the monetary expression of value – the monetary expression of labor-time (MELT) developed by Foley and the labor expression of money offered by Fine, Lapavitsas and Saad-Filho. I end by discussing implications for further research.

The New Interpretation of Marxian value theory has a well-developed theory of money and price but is not a response to important critiques of Marxian value theory. Conversely the approach developed by Roberts and others, sometimes referred to as a ‘single system’ interpretation, is a comprehensive theory of value and price of production on a labor time standard, but is underdeveloped with regards to monetary phenomena. Both approaches use the principle of the conservation of value and the corollary that the price system distributes labor time. These are complimentary approaches and integrating them provides a labor theory that rigorously addresses value and price in an economy using commodity or state money. Roberts’s contribution is not well understood, and this paper clarifies aspects of the theory that are consistently misinterpreted. It concludes that modern approaches to Marxian value theory are characterized by large areas of agreement and convergence rather than rivalry.

Since the 1980s, Chinese Marxian scholars present several new interpretations and solutions of the transformation problem, which are still unfamiliar to the Western literature. This paper provides an in-depth summary of four major Chinese transformation studies, followed by critical comments focusing on problems regarding methodology, implication and self-consistency. These studies are also compared with the Western literature in order to better understand their significance and limitations.

Foreign Direct Investment (FDI) flows to and from developing countries (i.e. the South) have reached $790 and $482 billion in 2012, accounting for 58% and 35% of global flows, respectively. Equally impressive has been the fact that for the first time in 2010 Chinese outward FDI flows exceeded those of Japan. Furthermore, within aggregate flows to and from the South, South – South FDI flows reached 63% of all outflows from developing countries by 2010. The increasing importance of South – South FDI flows and rising assertiveness of developing country multinationals in cross-border investments have also created a controversy regarding their comparative effects on economic growth in the South. In this paper, using a hand-gathered bilateral FDI flows database for the period of 1990 – 2009, we address this issue by exploring empirically the growth effects of South – South FDI flows compared to those of North – South flows. Given their higher manufactures orientation and closer similarity in skill and capital intensity to host country production structures we expect South – South flows to have larger growth effects than those of North – South flows.

This paper examines the effect of a change in inequality on aggregate demand and growth in open less-developed economies by revisiting the debate on wage-led and profit-led growth. It examines how characteristics of less-developed countries – including the importance of non-traded goods sectors, informal sectors, and the nature of trade linkages – is likely to affect the likelihood of equality-led growth in open economies.

Is the ongoing economic slowdown in industrialized countries likely to impact Latin American growth negatively in the medium- to long-run? This paper considers various transmission channels that work through trade in goods and services, and finds econometric evidence suggesting that shrinking global imbalances may create problems for Latin America. Specifically, using panel data analysis, we find that the trade balance as a proportion of GDP is positively associated with Latin American economic growth over the period 1953–2009. We then develop a simple dynamic model to help explain our main finding through investment and saving behaviour.

Most developing countries suffer from some form of “original sin.” It is quite plausible, therefore, to assume that the typical low-income economy faces an external constraint in the sense that it cannot continuously borrow in foreign currency. The question, however, is: what factors loosen or relax this constraint? The Balance-of-Payments-Constrained Growth model (BPCG) assumes that the constraint originates from world demand for a country’s products. We identify potential problems with this approach, explore theoretical alternatives, and carry out a comprehensive econometric analysis in an attempt to identify the variables that tend to constrain developing country growth via the external accounts.

Migration patterns of agricultural workers in the U.S., large share of whom are undocumented, have changed in the last two decades. We document these changes across the six agricultural regions in the U.S. (California, Southwest, Midwest, East, Northwest, and the Southeast) using data from the confidential version of the National Agricultural Worker Survey work history files. Analyzing data from more than 55,000 agricultural workers and more than 250,000 job transitions (within a year) from 1989 to 2012, we show that agricultural workers have become increasingly more stationary across all six regions in the U.S. Worker migration probabilities have declined significantly – on average, the likelihood that a worker remains in the same region without migrating to other regions over the period of a year has increased over 10 percentage points over the sample period. Also, the likelihood of migrating to any other regions (during the year before the survey interview) has declined over the sample period. We investigate a number of potential reasons behind this phenomenon – for example, the changing demographic composition of the farm labor force and the more restrictive labor and immigration policies adopted across some states. The change in migration patterns may have led to a shortage of farm labor in some geographic areas, especially in high-value crops (fruits and vegetables). This may have led to a production shift towards field crops, which may alter existing U.S. agricultural trade patterns.

Migration patterns in Israeli agriculture have gone through different phases. Labor flowed into farming until the country became self-sufficient in terms of food supply. Then, self-employed farmers exited gradually while production continued to increase, destined for export markets. This process intensified considerably when foreign labor was allowed to enter the country. Traditional production theory predicts that migrant workers will drive local workers to lose their jobs, but the Israeli data show that the number of Israeli hired farm workers has actually increased since the arrival of foreign labor. This paper develops a modified theoretical model in which farm labor is heterogeneous, so that changes in the number of foreign and local hired workers are not necessarily opposite in sign. The results of the model are consistent with the observation that the availability of foreign labor has led to an increase in the production and export of labor-intensive horticultural products. Farms have become larger and more specialized, and this has led to labor specialization, with foreign workers performing the manual tasks and Israeli hired employees performing the managerial and professional ones. We conclude that the inflow of foreign workers has led to an irreversible structural change in Israeli agriculture. Surrendering to the popular demand to reduce the number of foreign workers for the benefit of local workers will actually lessen the demand for local farm workers.

As China’s economy begins the shift from middle to high income, the leadership is pushing pro-urbanization policies as a way to support the rapid development of the previous three decades. Policies are targeted at facilitating the transfer of land, water and labor from rural/agriculture to the city. At the same time as these resource transfers are expected to occur, food security concerns are rising. Since 2008, agricultural imports have exceeded exports. These two often in-conflict policy directions—urbanization and food security—are becoming the focus of concern to top policymakers. The overall goal of this study is to systematically evaluate the impact of urbanization in China on national food security. To meet this goal, we will have three specific objectives. First, we will assess the supply-side factors associated with urbanization that will affect China’s future production by examining the effect of urbanization (through water, land and labor) on the supply of agricultural production and trade. Second, we will examine the demand-side factors. Finally, we put it all together and assess the effect of urbanization on trade and food security. In this particular presentation, we will focus on the labor aspects of this issue.

This paper explores the relationship between migration and agricultural productivity in Ethiopia. Given that there are fairly significant returns to either rural-urban or international migration for labor in Ethiopia, it could be that credit constraints hindering migration start up are an unexplored constraint against migration. The paper primarily uses the Ethiopia Rural Household Survey panel and a migrant listing exercise completed after the 2009 survey round to explore whether past agricultural productivity (e.g. in 2004) explains later migration. It finds that among young migrants, there appears to be a positive, significant relationship between productivity and households sending out a migrant. This relationship holds even when proxies for credit are included in the model. However, the magnitude of this effect is small. The paper also considers feedback effects from migration to later agricultural productivity; this correlation is weaker suggesting that migration does not have negative productivity impacts.

Housing Choice Vouchers provide low-income households with additional income to spend on housing. The assistance provided by vouchers is substantial. As an example, the median voucher household with children has a family size of four, earns approximately $13,000 annually and lives in a unit that rents at $1,000 per month. For this family the voucher is equivalent to an increase in post-tax income of approximately $8,000 annually, increasing their income by 60 percent. Thus, vouchers have the potential to dramatically widen the neighborhoods -- and associated schools -- that low-income households can reach. However, existing research on this program finds that housing voucher holders do not live near to better schools than other households with similar incomes (Horn, Ellen and Schwartz, 2014). This project takes a closer look at these findings, and examines whether households with children use vouchers to move towards better schools. We observe the quality of the school in the neighborhoods where voucher holders live when they first enter the program and then as they spend more years in the program. We then follow households as their children age. In particular, we focus on the age of a household’s oldest child as a key factor influencing the salience of school quality in a household’s residential decision. We then examine whether households that change residence within the voucher program are more likely to move towards higher performing schools. We find evidence that voucher households do move towards better schools when they have school aged children.

Families’ Tiebout sorting into neighborhoods with better schools has been hypothesized as one factor that drives up housing prices in a school zone neighborhood. This study uses school relocation events and the unique 2 km home-school distance-based priority allocation rule to test the school zone capitalization effects in Singapore for the period from 1999 to 2009. We found significant school capitalization effects of 0.8% and - 0.6% for houses located in the new and the old school locations, after schools are relocated. We also find differential school capitalization effects between the private and public housing markets. The school relocation effects are reflected in housing price changes two quarters before schools are relocated. We also found significantly stronger price premiums of 1.1% and 0.9% in the private and the public housing units, if relocated schools are in the top 50 popularity ranking list. We also attempt to test for potential endogeneity of school proximity and home improvements effects using sample houses that are located in an overlapping zone where the priority allocation in this zone is not affected by the school relocation. We found positive price premiums in private houses located in the overlapping school zone. When the private housing samples in the overlapping zone are divided into different age groups, we found that houses of less than 15 years and houses above 20 years show positive school relocation effects in the post relocation periods. Our results could not rule out possible house-level changes, such as new furniture or replacing tiles during the school relocation periods.

Many areas in China experienced steeply rising house prices beginning in 2003. We test whether a nationally mandated change in local residency requirements that took effect in that year may have played a role in driving up house prices by tying access to Chinese universities to local homeownership status in the presence of a rising college premium. We generate a novel dataset that combines China university admission data with household and housing market data. We find evidence of capitalization effects and a sizable increase in the likelihood of homeownership in places with preferential access to China’s elite universities.

In 1994, Michigan enacted a comprehensive school finance reform that not only significantly increased state aid to low-spending districts, but also placed restraints on the growth of spending in high-spending districts. While a rich literature studies the impact of school finance reforms on resource equalization, test scores, and residential sorting, there is no literature yet on the impact of such reforms on resource allocation by school districts. This study begins to fill this gap. The Michigan reform affords us a unique opportunity to study the impacts of such reforms on resource allocation in districts located at different points of the pre-reform spending distribution, and we study this both theoretically and empirically. We find that the reform led the high spending districts to allocate a lower share of their total expenditure to support services and a higher share to instruction (relative to the low spending districts). To the extent that instructional expenditures are more productive and contribute to student achievement more than support services expenditures, these results suggest that the reform led to a relative increase in productivity in the high spending districts. This finding is robust in that it continues to hold in each of the seven years after the reform we analyze, is not sensitive to alternative specifications and controls, and survives a series of sensitivity tests. This finding has important policy implications, and this evidence of resource re-allocation by districts facing school finance reforms should be taken into account in the design of any school finance policy.

We use a dynamic model to study the effects of technology and learning on the long run economic growth rates of a leading and a lagging region. New technologies are developed in the leading region but technological improvements in the lagging region are the result of learning from the leading region’s technologies. Our analysis sheds light on four salient questions. First, we determine the long run growth rate of output per human capital unit in the leading region. Second, we define a lagging to leading region technology ratio, study its stability properties, and then use this ratio to ascertain the long run growth rate of output per human capital unit in the lagging region. Third, for specific parameter values, we analyze the ratio of output per human capital unit in the lagging region to output per human capital unit in the leading region when both regions have converged to their balanced growth paths. Finally, we discuss the policy implications of our analysis and then offer suggestions for extending the research described here.

The recent phenomenon of rising outward foreign direct investment (OFDI) flows has raised serious policy concerns about its effects on the domestic investment and capital formation in the source countries. Does OFDI stimulate domestic investment or does it crowd it out? The concern arises because OFDI activities could shift not only some of the production activities from home to foreign destinations but also could possibly threaten the availability of scarce financial resources at home by allocating resources abroad. All this have the potential to reduce domestic investment, thus lowering the long run economic growth and employment of the home economies. The central goal of this paper is to empirically explore the evidence of the macroeconomic relationship between OFDI and levels of domestic capital formation in the BRIC economies. Our study reveals that OFDI has both short run and long run positive causality with domestic investment and thus figures out to be a significant factor affecting domestic investment in the BRIC nations. It becomes imperative, therefore, that the BRIC countries make special effort to promote their OFDI through the designing of appropriate OFDI policies that would help stimulate their domestic investment and economic growth now and in the future.

This paper investigates a perception in the political debates as to what extent poor countries get affected by price movements in the global commodity markets. To test this perception, we establish in a standard SVAR model that global food prices influence Indian aggregate prices and Indian food prices. To further analyze these empirical results, we specify a small open economy model including oil and food prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors of the inflationary pressure in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks and thereby achieve higher growth.

Trade data reveals that firms often exit existing export and import relationships and then reestablish or recover the same relationships after a period of time. Nair-Reichert (2014) has documented the dynamics of trade gaps and the heterogeneity in recovery of dormant trading relationships or the recovery margin of trade in US imports. This paper focuses on the dynamics of Indian exports, and compares the features of new trade relationships with trade relationships that have recovered after an export gap. This analysis is important because both firms and the Indian government make large investments in promoting exports. A key to maximizing the value of such investments lies in understanding whether to spend the marginal dollar on new exports or in recovering a dormant export relationship. The preliminary results indicate that a viable strategy in the case of India is to help firms recover relationships that are in comparative advantage products, with markets where the country has a large export presence, and where exit from the export relationship is relatively recent (less than 2 years). Export relationships that have been dormant for more than 4 years appear to face no particular disadvantage or advantage as compared to similar new export relationships.

In the aftermath of recent global crisis, the issue of separation of monetary policy, fiscal policy and debt management has re-emerged. In many countries, during the period of crisis, scope of fiscal policy was expanded and debt to GDP ratios increased significantly. Consequently, debt management, in general, became difficult and coordination between monetary and debt management assumed significance. Historically, a number of countries with liberalized financial markets and high levels of government debt sought to adopt professional debt management techniques to save cost and to provide policy signals to the market. In India, traditionally, management of debt is diffused in different layers of different governments. The setting up of separate debt management office (DMO) will help to establish transparency, and assign specific responsibility and accountability on the debt manager. This could lead to an integrated and more professional management of all government liabilities, with a focused mandate to operate on sound economic and commercial principles. The strategy could ensure that resources are available to the government at competitive market rates of interest prompting expenditure prioritization and fiscal discipline in budget making.

Recent evidence on functional income distribution suggests that the shares of capital and labour in national income vary considerably both over time and across countries. Specifically, there seems to be a general reduction in the labor share around the world, in particular from the mid-1980s onwards. Using fixed effects regression methods on a panel data set covering 89 countries – both developing and developed – over the period 1970-2009, this study examines the mechanisms underlying the variability in the labor share. In particular, it focuses on the relationships between the labor share and measures of international trade and technological change. The results are robust across different specifications, for yearly data as well as 3- and 5-year averages, and after performing instrumental variable estimation. They suggest that trade openness and technological innovation have a positive and significant effect on the labor share. However, Foreign Direct Investments inflows and mechanization seem to be negative drivers. Moreover, other factors, such as the level of economic development, education, and the strength of the regulations in the labor market, seem to also significantly influence functional distribution of income.