Showing papers by "CEMFI published in 2014"
TL;DR: This article explored the evidence for this view among the IT-using US manufacturing industries and found that output contracts in IT-intensive industries relative to the rest of manufacturing, and that productivity increases, when detectable, result from even faster declines in employment.
Abstract: An increasingly influential "technological-discontinuity" paradigm suggests that IT-induced technological changes are rapidly raising productivity while making workers redundant. This paper explores the evidence for this view among the IT-using US manufacturing industries. There is some limited support for more rapid productivity growth in IT-intensive industries depending on the exact measures, though not since the late 1990s. Most challenging to this paradigm, and to our expectations, is that output contracts in IT-intensive industries relative to the rest of manufacturing. Productivity increases, when detectable, result from the even faster declines in employment.
192 citations
TL;DR: In this paper, a dynamic general equilibrium model for the positive and normative analysis of macro-prudential policies is developed, which shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance.
Abstract: We develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This “3D model” shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance. We apply it to the analysis of capital regulation.
178 citations
TL;DR: In this article, the authors studied the prevalence of informal caregiving to elderly parents by their mature daughters in Europe and the links between parental health, intense (daily) caregiving, and the employment status of daughters.
Abstract: We study the prevalence of informal caregiving to elderly parents by their mature daughters in Europe and the links between parental health, intense (daily) caregiving, and the employment status of daughters. We group data from SHARE into three country pools (North, Central, and South), which differ in the availability of public formal care services and female labor market attachment. There is a strong North-South gradient in the (positive) effect of parental ill health on the probability of daily caregiving. The loss of employment ascribable to daily informal caregiving seems negligible, except in southern countries. We use a time allocation model to provide a link to an empirical IV-treatment effects framework and to interpret our findings.
129 citations
TL;DR: The authors showed that the body of appointed officials that a new democracy inherits from the previous regime is a key determinant of the extent of electoral fraud and clientelistic spending in new democracies and developed a model that predicts that appointed officials have stronger incentives to influence voters during national level elections because of their career concerns.
Abstract: This paper shows that the body of appointed officials that a new democracy inherits from the previous regime is a key determinant of the extent of electoral fraud and clientelistic spending in new democracies. I develop a model that predicts that appointed officials have stronger incentives to influence voters during national level elections because of their career concerns. I test the implications of the model using data from Indonesia’s transition to democracy. Both the pattern of alignment of electoral results between village and district levels and the pattern of subsequent turnover of appointed village heads corroborate the predictions of the model.
125 citations
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TL;DR: In this article, the authors reviewed key theories with implications for urban growth and related these theories to empirical evidence on the main drivers of city growth, drawn primarily from the United States and other developed countries.
Abstract: Why do cities grow in population, surface area, and income per person? Which cities grow faster and why? To these questions, the urban growth literature has offered a variety of answers. Within an inte- grated framework, this chapter reviews key theories with implications for urban growth. It then relates these theories to empirical evidence on the main drivers of city growth, drawn primarily from the United States and other developed countries. Consistent with the monocentric city model, fewer roads and restrictions on housing supply hinder urban growth. The fact that housing is durable also has important effects on the evolution of cities. In recent decades, cities with better amenities have grown faster. Agglomeration economies and human capital are also important drivers of city growth. Although more human capital, smaller firms, and a greater diversity in production foster urban growth, the exact channels through which those effects percolate are not clearly identified. Finally, shocks also determine the fate of cities. Structural changes affecting the broader economy have left a big footprint on the urban landscape. Small city-specific shocks also appear to matter, consistent with the recent wave of random growth models.
109 citations
TL;DR: In this article, the authors used data from the Trends in International Mathematics and Science Study (TIMSS) to show that traditional and modern teaching practices promote different cognitive skills in students, and that traditional teaching practices increase students' factual knowledge and their competency in solving routine problems, but have no significant effect on their reasoning skills.
84 citations
TL;DR: In this article, the authors developed a new methodology to compute differences in the expected longevity of individuals of a given cohort who are in different socioeconomic groups at a certain age, by decomposing the longevity differences into differences in health at age 50, differences in evolution of health with age, and differences in mortality conditional on health.
Abstract: We develop a new methodology to compute differences in the expected longevity of individuals of a given cohort who are in different socioeconomic groups at a certain age We address the two main problems associated with the standard use of life expectancy: (1) that people's socioeconomic characteristics change, and (2) that mortality has decreased over time Our methodology uncovers substantial heterogeneity in expected longevities, yet much less heterogeneity than what arises from the naive application of life expectancy formulae We decompose the longevity differences into differences in health at age 50, differences in the evolution of health with age, and differences in mortality conditional on health Remarkably, education, wealth, and income are health-protecting but have very little impact on two-year mortality rates conditional on health Married people and nonsmokers, however, benefit directly in their immediate mortality Finally, we document an increasing time trend of the socioeconomic gradient of longevity in the period 1992-2008, and we predict an increase in the socioeconomic gradient of mortality rates for the coming years
78 citations
TL;DR: In this article, a span-of-control model is extended into a multisector setting to quantify the aggregate productivity costs of the small-scale reservation laws (SSRL) in India.
75 citations
TL;DR: This paper found that an extra year of education has a large and significant protective effect on mental health; the probability of suffering depression decreases by 6.5 percentage points, as measured by word recall, and explored whether heterogeneity and selection play a part in the large discrepancy between OLS and IV (LATE) estimates of the effect of education on depression and cognition.
70 citations
TL;DR: In this paper, the authors study how new imported inputs aect the introduction of new domestic products and show that new products sell at higher prices compared to existing goods, and possess higher quality.
68 citations
TL;DR: In the context of medieval Venice circa 800-1600, a small group of particularly wealthy merchants blocked political and economic competition: they made parliamentary participation hereditary and erected barriers to participation in the most lucrative aspects of long-distance trade as mentioned in this paper.
Abstract: International trade can have profound effects on domestic institutions. We examine this proposition in the context of medieval Venice circa 800–1600. Early on, the growth of long-distance trade enriched a broad group of merchants who used their newfound economic muscle to push for constraints on the executive, that is, for the end of a de facto hereditary Doge in 1032 and the establishment of a parliament in 1172. The merchants also pushed for remarkably modern innovations in contracting institutions that facilitated longdistance trade, for example, the colleganza. However, starting in 1297, a small group of particularly wealthy merchants blocked political and economic competition: they made parliamentary participation hereditary and erected barriers to participation in the most lucrative aspects of long-distance trade. Over the next two centuries this led to a fundamental societal shift away from political openness, economic competition, and social mobility and toward political closure, extreme inequality, and social stratification. We document this oligarchization using a unique database on the names of 8,178 parliamentarians and their families’ use of the colleganza in the periods immediately before and after 1297. We then link these families to 6,959 marriages during 1400–1599 to document the use of marriage alliances to monopolize the galley trade. Monopolization led to the rise of extreme inequality, with those who were powerful before 1297 emerging as the undisputed winners. JEL Codes: D02, F10, N43.
TL;DR: In this paper, the authors suggest a scheme that regulators could use to solve the problem that insolvent banks continue lending to insolvent borrowers, in order to hide losses and gamble for resurrection, even though this is socially inefficient.
Abstract: Because of limited liability, insolvent banks have an incentive to continue lending to insolvent borrowers, in order to hide losses and gamble for resurrection, even though this is socially inefficient. We suggest a scheme that regulators could use to solve this problem. The scheme would induce banks to reveal their bad loans, which can then be dealt with. Bank participation in the scheme would be voluntary. Even though banks have private information on the quantity of bad loans on their balance sheets, the scheme avoids creating windfall gains for bank equity holders. In addition, some losses can be imposed on debt holders.
TL;DR: The authors analyzes the welfare implication of the two rules abstracting from implementation and practicability considerations and shows that ad-valorem royalties tend to lead to lower prices, particularly in the context of successive monopolies.
Abstract: There is considerable controversy about the relative merits of the apportionment rule (which results in per-unit royalties) and the entire market value rule (which results in ad-valorem royalties) as ways to determine the scope of the royalty base in licensing negotiations and disputes. This paper analyzes the welfare implication of the two rules abstracting from implementation and practicability considerations. We show that ad-valorem royalties tend to lead to lower prices, particularly in the context of successive monopolies. They benefit upstream producers but not necessarily hurt downstream producers. When we endogenize the investment decisions, we show that ad-valorem royalties improve social welfare when enticing upstream investment is optimal or when multiple innovators contribute complementary technologies. Our findings contribute to explain why most licensing contracts include royalties based on the value of sales.
TL;DR: In this article, the authors characterize a variation of the incremental value rule for defining fair, reasonable, and nondiscriminatory that accounts for both investment and participation incentives, and find that even in contexts where this rule is efficient from an ex-post point of view, it induces important distortions in the decisions of firms to innovate and participate in standard setting organizations (SSO).
Abstract: Formal, cooperative standard setting continues to grow in importance for the global economy. And as standards become more pervasive, the stakes rise for all participants. It is not surprising then that many standards are covered by intellectual property rights, that battles over the licensing of those rights have reached a fevered pitch in several industries, and that competition agencies around the globe are seriously weighing whether and how to intervene in the standard setting process. One suggestion for such an intervention is the imposition of a licensing cap, referred to as the incremental value rule. We evaluate this proposal and find that even in contexts where this rule is efficient from an ex-post point of view, it induces important distortions in the decisions of firms to innovate and participate in standard setting organizations (SSO). Such a rule reduces the R&D investment that a firm makes in relevant technologies and lowers the probability that it will join the SSO. We characterize a variation of the incremental value rule for defining fair, reasonable, and nondiscriminatory that accounts for both investment and participation incentives.
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TL;DR: In this paper, the authors present a model of the maturity of a bank's uninsured debt and characterize the conditions under which short-term and long-term debt are feasible, and show circumstances under which only short-short debt is feasible and under which both are feasible.
Abstract: We present a model of the maturity of a bank's uninsured debt. The bank borrows funds and chooses afterwards the riskiness of its assets. This moral hazard problem leads to an excessive level of risk. Short-term debt may have a disciplining effect on the bank's risk-shifting incentives, but it may lead to inefficient liquidation. We characterize the conditions under which short-term and long-term debt are feasible, and show circumstances under which only short-term debt is feasible and under which short-term debt dominates long-term debt when both are feasible. Thus, short-term debt may have the salutary effect of mitigating the moral hazard problem and inducing lower risk-taking. The results are consistent with key features of the common narrative of the period preceding the 2007-2009 financial crisis.
TL;DR: This article examined the effect of village elections on public good expenditures, income distribution, and land use in rural China and found that elections significantly increased public goods expenditure and reduced the amount of village land that the village government leases to enterprises, which mainly benefitted village elites.
Abstract: We examine the eects of introducing village elections on public good expenditures, income distribution and land use in rural China. We construct a large panel data set by combining village administrative records with contemporaneously collected villageand household-level economic data and we use these data to document the history of political reforms and economic policies for over two hundred villages. We exploit the staggered timing of the introduction of village elections to find that elections significantly increased public goods expenditure and reduced the amount of village land that the village government leases to enterprises, which mainly benefitted village elites. Consistent with a reduction in cronyism, we also find a reduction in the relative income of rich households. These results suggest that local ocials
TL;DR: In this paper, the authors analyze the distribution of central transfers to municipal governments for the period between the 1993 and the 2005 electoral reforms using a panel of Italian municipalities and find evidence that being the birth town of a Member of Parliament results in an increase in yearly transfers per capita paid to a municipal administration of roughly 2 percent.
Abstract: We analyze the distribution of central transfers to municipal governments for the period between the 1993 and the 2005 electoral reforms using a panel of Italian municipalities. We find evidence that being the birth town of a Member of Parliament results in an increase in yearly transfers per capita paid to a municipal administration of roughly 2 percent. Controlling for town fixed effects and concentrating on politicians who are member of economic commissions we confirm that the effect is driven by an active behavior of the politician and not by unobserved town-level characteristics. Using a feature of single member district systems we are able to conclude that these actions are not driven by the desire of being re-elected in Parliament, the standard explanation for pork-barrel spending in the literature. Instead, our results suggest that those extra transfers may be a way for a politician to prepare the ground for a post-congressional career in local government.
TL;DR: It is found that when patented technologies must be weighed on numerous factors, and not simply one-dimensional cost-savings, there is unlikely to be a single incremental value that can be agreed upon by all relevant parties.
TL;DR: In this paper, the authors present an application to nonlinear permanent-transitory models of household income using data from the Panel Study of Income Dynamics (PSID), but the empirical approach is more generally applicable.
Abstract: The purpose of this paper is to review newly developed identification and estimation tools that are relevant for the analysis of dynamic dependence structures of income risk. I present an application to nonlinear permanent‐transitory models of household income using data from the Panel Study of Income Dynamics (PSID), but the empirical approach is more generally applicable. Household income processes are of interest because the size of shocks, the nature of their persistence, and crosshousehold heterogeneity are all important to understand how income inequality varies with age and cohort and how it translates into consumption inequality. I argue that going from an econometrics of autocovariances to an econometrics of flexible distributions is feasible and has the potential to reveal richer aspects of risk—for example, nonlinear persistence of unusual shocks. (JEL: C23, D31, D12)
TL;DR: In this article, the authors analyse the dependence between sovereign bonds' and banks' asset return distributions with a large panel of European data from 2001 to 2013 and identify nonlinear contemporaneous and lagged dependence.
Abstract: We analyse the dependence between sovereign bonds' and banks' asset return distributions with a large panel of European data from 2001 to 2013. Using quantile regressions, we identify nonlinear contemporaneous and lagged dependence. As a result, shocks to crisis-hit sovereign bonds have contemporaneous effects on the whole distribution of banks' returns, as well as a persistent impact in the tails. Our results offer relevant insights about the relationship between banking and sovereign crises. In particular, during the recent financial crisis, banks' asset return distributions have lower means and fatter tails than in the absence of a simultaneous sovereign crisis.
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TL;DR: The authors argue that the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital, so unemployment insurance is most valuable to them, while moral hazard is mild.
Abstract: We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.
TL;DR: In this paper, the authors show that, in a Heckscher-Ohlin model with a continuum of goods, a Southern (Northern) trade surplus leads to an increase in the average skill intensity of exports, in the relative demand for skills and in the skill premium in both countries.
Abstract: We study, both theoretically and empirically, how trade imbalances aect the structure of countries'exports and wage inequality. We show that, in a Heckscher- Ohlin model with a continuum of goods, a Southern (Northern) trade surplus leads to an increase (reduction) in the average skill intensity of exports, in the relative demand for skills and in the skill premium in both countries. We provide robust support for the mechanism underlying these predictions using a large panel of countries observed over the past 30 years. Our results suggest that the large and growing North-South trade imbalances arisen over the last three decades may have exacerbated wage inequality worldwide.
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TL;DR: In this article, the authors investigate whether consumer welfare will be increased if a patent holder's ability to license multiple parties along a production chain is restricted, and whether a policy that restricts licensing to upstream manufacturers constitutes appropriate public policy.
Abstract: This paper investigates patent licensing in vertically disaggregated industries, where patent holders may license to upstream producers only, downstream producers only, or to both upstream and downstream producers. We consider whether consumer welfare will be greater if the patent holder's ability to license multiple parties along a production chain is restricted. We also analyse whether a policy that restricts licensing to upstream manufacturers constitutes appropriate public policy. These questions have significant policy implications. Under the legal doctrine of first sale, or patent exhaustion, a patent holder's ability to license multiple parties along a production chain is restricted. How and when such restrictions should be applied is a controversial issue, as evidenced by the US Supreme Court's granting certiorari in the Quanta case. Some commentators have even argued that refusing to license to upstream component manufacturers may constitute an abuse of dominance and thus infringe the competition laws. We find that under ideal circumstances how royalty rates are split along the production chain has no real consequence for social welfare. Even when we depart from ideal conditions, however, we still find no economic justification for restrictions of the patent holders' ability to license multiple parties or to license to downstream producers only.
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TL;DR: In this paper, an integrated treatment of the theoretical literature on urban land use inspired by the monocentric model, including extensions that deal with multiple endogenous business centres, various dimensions of heterogeneity, and durable housing, is provided.
Abstract: We provide an integrated treatment of the theoretical literature on urban land use inspired by the monocentric model, including extensions that deal with multiple endogenous business centres, various dimensions of heterogeneity, and durable housing. After presenting the theory and distilling its key empirical implications, we critically review the empirical literature on differences in prices and development across urban locations, patterns of location choices of heterogeneous households in cities, sprawl and residential decentralization, and employment decentralization.
TL;DR: In this paper, a model in which banks vulnerable to liquidity crises may receive support from the lender of last resort (LLR) is considered, and it is shown that this effect is positive (negative) when banks are ex ante perceived to be systemically important (unimportant).
Abstract: We consider a model in which banks vulnerable to liquidity crises may receive support from the lender of last resort (LLR). Higher liquidity standards, though costly to banks, give the LLR more time to find out the systemic implications of denying support to the banks in trouble. By modifying banks’ prospects of being supported in a crisis, liquidity standards affect banks’ adoption of precautions against a crisis. We show that this effect is positive (negative) when banks are ex ante perceived to be systemically important (unimportant). We analyze the implications of these results for the design of liquidity standards and LLR policies.
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TL;DR: The authors argue that the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital, so unemployment insurance is most valuable to them, while moral hazard is mild.
Abstract: We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.
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TL;DR: This paper analyzed the effects of a pension reform in Argentina that resulted in an unexpected and substantial increase in permanent income for around 1.8 million senior women (women 60 years and over), on outcomes arguably related to women's bargaining power within the household.
Abstract: Transfers to women may affect their bargaining power within the household and consequently their well-being. We analyze the effects of a pension reform in Argentina that resulted in an unexpected and substantial increase in permanent income for around 1.8 million senior women (women 60 years and over), on outcomes arguably related to women's bargaining power within the household. Our results imply that a 10 percentage-point increase in senior women's income share within the couple leads to a statistically significant decrease of 10% in the probability that they are the only person in charge of household chores and to a significant increase of 11% in their husbands' participation in household chores. Moreover, this large income shock significantly increased the probability of divorce/separation among senior women by 19%. Our results show that (permanent) transfers to senior women can have substantial effects on their situation in the household.