National Bureau of Economic Research

About: National Bureau of Economic Research is a nonprofit organization based out in Cambridge, Massachusetts, United States. It is known for research contribution in the topics: Monetary policy & Population. The organization has 2626 authors who have published 34177 publications receiving 2818124 citations. The organization is also known as: NBER & The National Bureau of Economic Research.

Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments

Abstract: Using data on the investments a large number of individual investors made through a discount broker from 1991 to 1996, we find that households exhibit a strong preference for local investments. We test whether this locality bias stems from information or from simple familiarity. The average household generates an additional annualized return of 3.2% from its local holdings relative to its nonlocal holdings, suggesting that local investors can exploit local knowledge. Excess returns to investing locally are even larger among stocks not in the SP but the wise man saith, “Put all your eggs in one basket and—watch that basket.” Mark Twain, 1894 THE FINANCE LITERATURE HAS YIELDED a large number of in-depth studies concerning the investments managed by professional money managers, yet historically, relatively little has been known about the individual investors’ money management, in no small part because of the shortage of high-quality data available for academic research. This is despite the fact that United States individual investors have been holding around 50% of the stock market in direct stock

Systemic Risk and Stability in Financial Networks

Abstract: We provide a framework for studying the relationship between the financial network architecture and the likelihood of systemic failures due to contagion of counterparty risk. We show that financial contagion exhibits a form of phase transition as interbank connections increase: as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small, more "complete" interbank claims enhance the stability of the system. However, beyond a certain point, such interconnections start to serve as a mechanism for propagation of shocks and lead to a more fragile financial system. We also show that, under natural contracting assumptions, financial networks that emerge in equilibrium may be socially inefficient due to the presence of a network externality: 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.

Using Geographic Variation in College Proximity to Estimate the Return to Schooling

Abstract: A convincing analysis of the causal link between schooling and earnings requires an exogenous source of variation in education outcomes. This paper explores the use of college proximity as an exogenous determinant of schooling. Analysis of the NLS Young Men Cohort reveals that men who grew up in local labor markets with a nearby college have significantly higher education and earnings than other men. The education and earnings gains are concentrated among men with poorly-educated parents -- men who would otherwise stop schooling at relatively low levels. When college proximity is taken as an exogenous determinant of schooling the implied instrumental variables estimates of the return to schooling are 25-60% higher than conventional ordinary least squares estimates. Since the effect of a nearby college on schooling attainment varies by family background it is possible to test whether college proximity is a legitimately exogenous determinant of schooling. The results affirm that marginal returns to education among children of less-educated parents are as high and perhaps much higher than the rates of return estimated by conventional methods.

The Gender Gap, Fertility and Growth

Abstract: This paper examines a novel mechanism linking fertility and growth. Household fertility is determined by relative wages of women and men. Increasing women's wages reduces fertility by raising the cost of children relatively more than household income. Lower fertility raises the level of capital per worker which in turn, since capital is more complementary to women's labor input than men's, raises women's relative wages. This positive feedback leads to the possibility of multiple steady-state equilibria. Countries with low initial capital may converge to a development trap with high fertility, low capital, and low relative wages for women.

Public Finance in Models of Economic Growth

Abstract: The recent literature on endogenous economic growth allows for effects of fiscal policy on long-term growth. If the social rate of return on investment exceeds the private return, then tax policies that encourage investment can raise the growth rate and levels of utility. An excess of the social return over the private return can reflect learning-by-doing with spillover effects, the financing of government consumption purchases with an income tax, and monopoly pricing of new types of capital goods. Tax incentives for investment are not called for if the private rate of return on investment equals the social return. This situation applies in growth models if the accumulation of a broad concept of capital does not entail diminishing returns, or if technological progress appears as an expanding variety of consumer products. In growth models that incorporate public services, the optimal tax policy hinges on the characteristics of the services. If the public services are publicly-provided private goods, which are rival and excludable, or publiclyprovided public goods, which are non-rival and non-excludable, then lump-sum taxation is superior to income taxation. Many types of public goods are subject to congestion, and are therefore rival but to some extent nonexcludable. In these cases, income taxation works approximately as a user fee and can therefore be superior to lump-sum taxation. In particular, the incentives for investment and growth are too high if taxes are lump sum. We argue that the congestion model applies to a wide array of public expenditures, including transportation facilities, public utilities, courts, and possibly national defense and police.