Showing papers in "Economic Inquiry in 2013"

Gravity redux: measuring international trade costs with panel data

Abstract: Barriers to international trade are known to be large. But have they become smaller over time? Building on the gravity framework by Anderson and van Wincoop (2003), I derive an analytical solution for time-varying and observable multilateral resistance variables. This solution gives rise to a micro-founded gravity equation from which bilateral trade costs can be directly inferred. This approach is easy to implement and obviates the need to impose arbitrary trade cost functions. As an illustration, I show that U.S. trade costs with major trading partners declined on average by about 40 percent between 1970 and 2000, with Mexico and Canada experiencing the biggest reductions.

Fiscal decentralization and economic growth: spending versus revenue decentralization

Abstract: I. INTRODUCTION Fiscal decentralization (hereafter: FD) is a political economy trend in both developing and developed countries. According to the World Bank (1999), some 95% of democracies now have elected subnational governments, and countries everywhere are devolving political, fiscal, and administrative powers to subnational tiers of government below the national level. In developed countries the United States, the United Kingdom, and Canada have revived debates on FD or devolution (Xie, Zou, and Davoodi 1999). In recent years, the U.S. Congress has been contemplating how to devolve more expenditure responsibility to State and local governments. FD has also become a key issue in Japan because the law for the promotion of fiscal decentralization was enacted in 1995. These efforts at devolution in a number of Organization for Economic Co-operation and Development (OECD) countries are accompanied by the emergence of a new top layer of government in the European Union (EU). Stegarescu (2009) finds that European integration has favored the fiscal decentralization process by increasing market size and the benefits of decentralized provision of public goods in accordance with comparative advantage and the inter-regional division of labor. The rise of the regional level of government in Spain, Belgium, Italy, France, and the United Kingdom are examples of this decentralization process in the EU. The movement toward FD is often justified by the widespread belief that it is an effective tool for increasing the efficiency of public expenditures and competition among subnational governments in delivering public services. This may also be a reaction to the failure of large centralized bureaucracies in developing and transitional countries (Martinez-Vazquez and McNab 2003). The World Bank (1999), for example, has argued that alongside globalization, localization--the increasing demand for local autonomy--is the main force shaping the world in the first decade of the twenty-first century. In this article, we focus on a specific debate in the FD literature--namely that it improves economic growth performance. We summarize a number of the relevant arguments in Section II, and then review the existing empirical evidence on the FD-growth relationship in Section III. We argue that the existing literature is deficient in a number of respects, for example by rarely testing simultaneously for revenue and expenditure decentralization. Section IV presents our data and empirical methodology, and Section V tests for an effect of FD on economic growth rates in OECD countries over the period 1972-2005. Section VI checks the robustness of our findings to alternative econometric techniques to deal with endogeneity, and alternative measures of fiscal decentralization. Section VII summarizes the main conclusions. II. ARGUMENTS FOR AND AGAINST FISCAL DECENTRALIZATION The basic argument in favor of fiscal decentralization is that it improves the efficiency of the public sector and promotes long-term economic development (Oates 1972). The mainstream theory of fiscal federalism, referred to by Oates (2005) as "first-generation" theory argues that decentralization enhances economic efficiency because local governments have better knowledge of local conditions and preferences in the provision of public goods than national governments due to their physical and institutional proximity. These informational advantages allow local governments to deliver public goods and services that better match local preferences and/or deliver the same public goods and services at lower cost. These arguments are reinforced where public good characteristics are local in nature (e.g., sharing economies or nonexcludability aspects are geographically restricted). The first-generation theory contends that if some local outputs can produce inter-jurisdictional spillover effects, then central governments should provide matching grants to decentralized government that would internalize the benefits. …

Happiness, growth, and public policy†

Abstract: I. INTRODUCTION Happiness as a measure of well-being is gradually becoming more accepted by economists and policy makers. (1) It seems appropriate, therefore, to examine some of its implications for public policy. I will address three specific questions: 1. Are economic growth policies sufficient in themselves to raise people's happiness, that is, their subjective well-being (SWB)? 2. Are there other policies that might raise SWB? 3. Can poorer countries afford policies to raise SWB? My approach, in answering these questions, is to draw on the available evidence, based partly on the happiness literature and partly on my own collaborative research. The answers suggested by the evidence are respectively, no, yes, and yes. Since Pigou's (1932) classic study "The Economics of Welfare," economists have typically assumed that income growth, as indexed, say, by real gross domestic product (GDP) per capita, raises well-being. A major policy implication is that promoting economic growth advances human welfare. The introduction of happiness measures into the discipline (Easterlin 1974) made it possible for the first time to test this proposition, and the result was surprising--in cross sectional data, happiness and income were positively correlated, as expected, but over time happiness seemingly did not increase despite substantial economic growth. The subsequent four decades have seen an explosion of empirical studies on this paradoxical result as more happiness data have accumulated, and much debate, pro and con (Clark, Frijters, and Shields 2008). The most frequently cited recent work questioning the paradox is Stevenson and Wolfers (2008). Subsequently, this has been updated by Sacks, Stevenson, and Wolfers (2012) and the latter article, referred to from now on as S-S-W, will be the one subsequently discussed. S-S-W report a positive time series relationship of happiness and income not significantly different from the cross-sectional relationship. There is a substantial overlap in the basic data used by S-S-W and those reported on here. As will be seen, the difference in the results arises principally from the time spans studied. I use the longest period available for each country, while S-S-W confine their analysis to periods of about a decade in length. I take as the measure of economic growth real GDP per capita. Mean SWB is calculated here as the average of individuals' integer responses to survey questions of the type listed in Table 1. The terms SWB, happiness, and life satisfaction are used interchangeably; though not identical in concept, they are closely related (Easterlin 2010, 8-9, 103-04). Until recently, economists assumed that measures of an individual's external (observable) circumstances, especially one's income, were sufficient to assess well-being, and self-reports of subjective feelings were dismissed out of hand. (2) The 2008 Stiglitz-Sen-Fitoussi Report, commissioned by French President Sarkozy to propose more meaningful measures of well-being, is indicative of the sea-change that has taken place. After advocating the official collection of a variety of objective measures, the Report of the 25-member Commission (including five Nobel prize winners in economics) states: Research has shown that it is possible to collect meaningful and reliable data on subjective as well as objective well-being.... [T]he types of questions that have proved their value within small-scale and unofficial surveys should be included in larger scale surveys undertaken by official statistical offices. (Stiglitz, Sen, and Fitoussi, 2008, 16) The subjective measures used here are among the principal ones advocated in the report. For an excellent comparison of the various SWB measures and analysis of their meaningfulness, see Helliwell, Layard, and Sachs (2012, ch. 2). II. DOES GROWTH RAISE HAPPINESS? A. The Long-term Relationship The answer to this question is often based on the bivariate cross-section relation of happiness to real GDP per capita. …

Gender matching and competitiveness: experimental evidence

Abstract: I. INTRODUCTION Men and women hold different types of jobs and are employed in different occupations. They also tend to work under different incentive systems, with women being compensated by piece rate payment schemes more frequently. (1) Relatively few women hold top corporate positions, although in many countries women's educational attainment now exceeds men's. (2) Fewer women than men have started up their own business (according to the Global Entrepreneurship Monitor, in 2002 in the United Kingdom, 3.1% of the female population and 6% of the male population contributed to start-up activities; the same year in France, only 26% of start-ups were created by women--SINE survey, INSEE). Women are also less likely to run for elections, and they represent a low percentage of seats in national parliaments (according to the Inter-Parliamentary Union, in 2006 they represented 19.7% in the United Kingdom, 18.5% in France, and 16.3% in the United States). In order to explain these gender differences economists have considered supply- and demand-side explanations. Demand-side explanations focus on discrimination (see Altonji and Blank 1999 for a review of these theories, Neumark, Blank, and Van Nort 1996 or Goldin and Rouse 2000 for empirical evidence). Supply-side explanations usually emphasize the role of women in the family and its impact on human capital investment and career choices (Mincer and Polachek 1974; Polachek 1981). A more recent literature analyzes if there are gender differences in competitiveness, investigating both the effect of gender on the productive efficiency of incentives and the effect of gender on the selection of competitive incentives. Gneezy, Niederle, and Rustichini (2003) show that men, in contrast to women, perform better in competitive settings than when paid a piece rate. Niederle and Vesterlund (2007) reveal a different tendency of men and women to choose to be rewarded based on relative performance rather than on the basis of one's own performance only. Women tend to shy away from competition. The reasons behind these intriguing results are still poorly understood and they have inspired many other studies. In particular, they lead us to investigate the sensitiveness of women's competitiveness to the environment. In our laboratory experiment, participants also have to choose between a piece rate and a tournament payment scheme before performing a task. The novelty of our experiment is that we measure, conditional on a person's own gender, the impact of gender matching on the person's competitiveness. Compared to Niederle and Vesterlund (2007), we can measure how beliefs regarding potential competitors' choices influence individuals' decisions. There are several reasons why individuals in competitive situations may perceive other individuals' gender to be relevant. First, they may believe that the ability or payment scheme choices of men and women differ, which can lead them to condition behavior on other individuals' gender. Second, they may use their own and the other participants' gender as a coordination device (see Holm 2000; Knight 2002). Third, some individuals may, regardless of beliefs about underlying fundamentals and gender-based conventions, have preferences that induce them to treat men and women differently. Our experiment, while not designed to cleanly distinguish between these mutually nonexclusive explanations, is designed to analyze in the laboratory whether information on the gender of a potential competitor influences the decision to compete or not. An important experimental design choice was how to provide gender information. (3) We began by employing an indirect procedure: participants were given pseudonyms that corresponded to their gender, and they learned each other's pseudonyms before making decisions, but it was not made common knowledge to participants in the instructions that a pseudonym was male (female) if and only if the person in question was a man (woman). …

Demand for differentiated durable products: the case of the u.s. computer printer market

Abstract: I. INTRODUCTION This paper aims to provide a theoretical and empirical description of consumer behavior in a dynamic market for differentiated durable goods. The computer hardware industry serves as an example of the type of market we consider. Markets for computer systems and components, as well as for many other high-technology products, exhibit some striking similarities that are of particular concern for an empirical economist as follows: * Products are differentiated in multiple dimensions in addition to price. * Products are durable yielding consumption services over multiple periods. * Product quality rapidly improves over time. Empirical work on estimating differentiated product demand systems has been dominated by static discrete choice models with random utility (see Berry, Levinsohn, and Pakes 1995; Goldberg 1995; and Nevo 2001, among others). However, markets for durable goods exhibit several features at odds with their assumption of myopic consumer behavior. First, traditional static discrete choice models implicitly assume that consumers participate in the market every period, choosing one of the available products or an outside option. Thus, the fraction of consumers who do not buy any product in a given period could only be explained by the high value they assign to the outside alternative. For durable goods, however, purchases are made infrequently and result in a consumer's exiting the market for a significant period of time. Hence, the model needs to account for consumers' outflow from the market arising from their purchase decisions. Second, a static framework may give a misleading picture of the aggregate sales time pattern in a dynamic industry. In many markets for durable products it is not uncommon to see rapidly improving product quality and falling prices. Given any reasonable set of consumer preferences over the product characteristics space, static discrete choice models for such an industry will tend to predict an upward trend in aggregate sales. This fails to account for a variety of patterns commonly seen in the data. Third, the evolution of product quality leads to the possibility of intertemporal demand substitution. By forgoing a current purchase, the consumer retains the option to buy a potentially better product in the future. Hence, the decision of when to buy may be just as important for consumers as the decision of what to buy. This trade-off cannot be accounted for in the static framework. The purpose of this paper is to remedy these shortcomings of static discrete choice models in durable goods markets, with particular attention paid to technological change and the dynamics of new products adoption. The paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers' expectations of future product quality and consumers' outflow from the market that arises endogenously from their purchase decisions. In this model, the consumer faces a sequence of static discrete choice problems over a non-stationary choice set. We show that for a subclass of random utility models (which include the multinomial logit and the McFadden 1978 generalized extreme value [GEV] model) there exists a scalar-valued sufficient statistic that determines the value of the option to postpone the purchase. This allows us to model industry evolution over a vastly reduced state space and to formalize the consumer's decision of when to buy as an optimal stopping problem. A solution to that problem defines the hazard rate of product adoptions, while the nested discrete choice model determines the alternative-specific purchase probabilities. Integrating individual decisions over the population distribution generates rich dynamics of aggregate and product level sales. The paper proceeds to present Monte Carlo evidence that ignoring the time dimension of consumer choice will induce a downward bias in the estimates of consumer preferences over quality, sometimes reversing the sign of the coefficients. …

Living in two neighborhoods—social interaction effects in the laboratory

Abstract: I. INTRODUCTION It is a long-standing and fundamental problem of the social sciences to understand whether and in what way humans are influenced by the behavior exhibited by the members of the social group to which they belong. We speak of a "social interaction effect" if an individual changes his or her behavior as a function of his or her respective group members' behavior. Social interaction effects are economically important because they may be present in many decision domains. (1) From a theoretical viewpoint there are at least two potentially important sources for social interaction effects even in otherwise identical environments; both are studied in this paper. A social interaction effect can occur if the game that people play in their group has multiple equilibria which are because of the material payoff structure of the game. Behavior across groups can be different simply because different groups coordinate on different equilibria of the same game. A second and less straightforward source of social interaction effects concerns those interactions that operate via non-material psychological payoffs, such as conformism, social approval, fairness, reciprocity, or guilt aversion. These motives can induce players to adapt their behavior to that of others, even if the material payoff structure does not provide any incentive to do so. The identification of social interaction effects requires several problems to be overcome (Akerlof 1997; Manski 1993, 2000): (1) identifying the reference group for which social interaction effects are sought to be established, (2) circumventing the problem of self-selection of group members by investigating randomly composed groups, (3) controlling correlated effects that affect all group members in a similar way, and (4)controlling contextual effects such as exogenous social background characteristics of group members. In this paper we present the design of an experiment that circumvents these problems and therefore allows us to study the behavioral logic of social interactions. We argue that the experimental laboratory provides the researcher with a valuable tool to study social interactions because it guarantees more control than any other available data source (Falk and Heckman 2009). The ideal data set would observe the same individual at the same time in different groups or neighborhoods, which are identical--apart from different neighbors. Obviously, this is impossible in the field. In contrast, it is possible to come very close to this "counterfactual state" in the laboratory. In our experiment, we are able to observe decisions of the same subject at the same time in two economically identical environments. The only reason to behave differently in these two environments is the presence of social interactions, that is, the fact that a person is systematically and differentially affected by the behavior of his neighbors in the two environments. Our within-subjects two-group design circumvents the above-mentioned identification problems. Using the terminology of Manski (2000), in our study reference groups are well-defined; the setup avoids self-selection; subjects make simultaneous decisions in two economically identical environments, which controls for correlated effects, including experience; the decision problem is abstractly framed and decisions are taken anonymously, which avoids contextual effects. Moreover, our laboratory approach has the added advantage of eliminating measurement errors. We investigate social interaction effects in two experimental games, which represent the two broad classes of strategic situations mentioned above--a coordination game that possesses multiple equilibria in material payoffs and a cooperation game which has only one equilibrium in material payoffs. The coordination game we study is a version of the "minimum-effort game" (Van Huyck, Battalio, and Beil 1990; see Camerer 2003, chapter 7; Devetag and Ortmann 2007 for overviews). …

Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers

Abstract: We examine the incentives for firms to voluntarily disclose otherwise private information about quality attributes of differentiated products. In particular, we focus on the case of differentiated products with multiple attributes and consumers that are heterogeneous in their preferences over these attributes. We show that there exist certain configurations of consumer preferences under which a firm producing a high-quality product, even with zero costs of disclosure, may choose not to reveal the quality of its product. This failure of firms to voluntarily disclose the quality of their products will arise when providing consumers with more information results in more elastic demands for these products, which, in turn, triggers more intensive price competition and leads to lower prices and profits for all firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.

Food prices, wages, and welfare in rural india

Abstract: This paper considers the welfare and distributional consequences of higher relative food prices in rural India through the lens of a specific-factors, general equilibrium, trade model applied at the district level. The evidence shows that nominal wages for manual labor both within and outside agriculture respond elastically to increases in producer prices; that is, wages rose faster in rural districts growing more of those crops with large price run-ups over 2004-09. Accounting for such wage gains, the analysis finds that rural households across the income spectrum benefit from higher agricultural commodity prices. Indeed, rural wage adjustment appears to play a much greater role in protecting the welfare of the poor than the Public Distribution System, India's giant food-rationing scheme. Moreover, policies, like agricultural export bans, which insulate producers (as well as consumers) from international price increases, are particularly harmful to the poor of rural India. Conventional welfare analyses that assume fixed wages and focus on households' net sales position lead to radically different conclusions.

Measuring crack cocaine and its impact

Abstract: Numerous social indicators turned negative for Blacks in the 1980s and rebounded a decade later. We explore whether crack cocaine explains these patterns. Absent a direct measure, we construct a crack prevalence index using multiple proxies. Our index reproduces spatial and temporal patterns described in ethnographic accounts of the crack epidemic. It explains much of the 1980s rise in Black youth homicide and more moderate increases in adverse birth outcomes. Although our index remains high through the 1990s, crack's deleterious social impact fades. Changes over time in behavior, crack markets, and the user population may have mitigated crack's damaging impacts. (JEL K42, J15, I30)

Is Dishonesty Contagious

Abstract: I. INTRODUCTION The importance of individual honesty and trustworthiness in economic interactions is well known. These attributes facilitate cooperative relationships, enable contracts, strengthen legal and regulatory institutions, and, as a result, promote economic growth (Guiso, Sapienza and Zingales 2004; Zak and Knack 2001). Also well known are vast differences in these attributes across cultures and countries. Figure 1 illustrates these differences, showing proportions of world population and world economic activity (respectively) that derive from countries with high, medium, and low levels of corruption, as measured by Transparency International's 2005 corruption perception index (CPI). Without reading too much into these coarse numbers (which, of course, raise complex questions of cause and effect), we note a stylized fact: The distribution of corruption is largely bimodal, with the vast majority of both population and economic activity in either the low CPI (advanced developed) or high CPI (Third World and transition) countries. (1) In this paper, we explore a possible contributing explanation for this phenomenon that is rooted in individual preferences. Specifically, we conjecture that honesty is contagious in the following sense: If a majority of one's peers are perceived to be honest, an individual is likely to suffer a larger aversion penalty/disutility when behaving dishonestly. If so, honesty breeds honesty and dishonesty breeds dishonesty. Such responses can push countries and cultures toward either predominantly honest or predominantly dishonest behavior, once tipped in one direction or the other. They can thus help explain (or reinforce other explanations for) bimodal outcomes akin to those in Figure 1. (2) However, they do not tell us why one country or culture goes in one direction--why one culture is "more honest" and another "less honest." Moreover, they suggest that behavior is malleable in that, if perceptions of predominating behavior change (from dishonest to honest, for example), individual choices conform. As a result, the bimodal-type outcomes predicted by contagion are potentially fragile; if perceptions of behavior change, then behavior changes with them. [FIGURE 1 OMITTED] We study the contagion conjecture in the context of a simple deception experiment, wherein we stimulate different subject perceptions of the propensity for honesty in the overall group of experimental subjects. We then examine the resulting impact on an individual's choice between truthful and untruthful behavior. Our experiments mimic the original deception game designed by Gneezy (2005), who studied the effects of different payoffs on individuals' aversion to untruthful behavior. Unlike Gneezy (2005), we consider a single set of payoffs in each experiment and focus on the possibility of contagion. (3) Because a central motive for our inquiry is to study whether perceived norms of honesty or dishonesty among peers spur more truthful or less truthful conduct in societies that are alternately considered corrupt or not corrupt, we conduct our experiments in both a low CPI country (the United States) and a high CPI country (India). Broadly speaking, we find evidence for contagion in both countries. To our knowledge, the only study that (indirectly) addresses the question of contagion in honesty is Fisman and Miguel's (2007) famous paper on the tendency for diplomats to garner parking tickets in New York; they find that the immunity-protected foreigners take their home country propensities for lawlessness with them. While these results might be interpreted as evidence against contagion (because diplomats seem to ignore U.S. values in their behavior), we believe that such inferences are misplaced for two reasons. First, there is no ceteris paribus in this comparison; diplomats may well temper their lawless behavior, relative to what they would do if protected by immunity in their home countries. …

War of Attrition: Evidence from a Laboratory Experiment on Market Exit

Abstract: I. INTRODUCTION Young industries often undergo a process of shakeout (Gort and Klepper 1982 and Klepper 1996), attracting excess firms and gradually shedding them over time. More mature industries are likewise often forced to contract in the face of recession or product specific negative demand shocks. When an overcrowded industry is forced to shrink, which firms exit and which ones survive? The conventional answer in economics is that overcrowded industries tend to shed inefficient firms and retain efficient ones. We might call this "survival of the most efficient", a process analogous to natural selection that can adaptively improve the efficiency of industries over time (Nelson and Winter 1982). Fudenberg and Tirole (1986) model firms' exit decisions in overcrowded duopoly markets as wars of attrition and show that the intuition of survival of the most efficient has merit even if firms have little information regarding their costs relative to their competitors. However, the equilibrium of their game is complex, involving a solution to a system of differential equations. Since neither Fortune 500 chief executive officers in the naturally occurring markets nor undergraduate participants in laboratory markets deliberately solve differential equations when deciding whether or not to exit a declining market, it is an open question as to how well Fudenberg and Tirole's rational reconstruction of the exit decision corresponds to the facts of how people make such decisions. We report the results of a laboratory experiment designed to answer this question. Nearly 200 subjects in 16 sessions participated in a total of 3,800 wars of attrition based on Fudenberg and Tirole's model. At the beginning of each period, subjects were randomly paired and given a private cost draw that (usually) induced negative net per second payoffs in a shared market and positive net payoffs per second in monopoly. Subjects then decided in real time whether and when to exit the market, never to return. Monotonic equilibrium strategy functions predict higher cost (inefficient) participant exit at an earlier time than their lower cost competitor, that is, the relatively efficient competitor survives in the market. We find that Fudenberg and Tirole's model organizes our data surprisingly well, especially considering its complexity. We observe exit by the higher cost firm in 76% of cases. When differences between the costs faced by firms are substantial, the rate of efficient exit rises to nearly 100%. The data on exit times are likewise quite close to the point predictions, particularly in the crucial higher portion of the cost distribution that generally governs exit times. The median deviation from equilibrium exit times falls to zero by the end, and on average subjects earn payouts identical to those predicted in equilibrium. Our design permits tests of two other conjectures in Fudenberg and Tirole. First our data supports Fudenberg and Tirole's core comparative static prediction that a decrease in the ex ante likelihood of actually being in a war of attrition leads to an increase in the speed of exit. (1) Second, half of our sessions use costs framed as Fixed Costs (suffered while in the market) and half use costs framed as Opportunity Costs (earned by exiting the market). There is no evidence that this treatment variable affects exit behavior. This isomorphism between gains and losses, predicted by standard theory, stands in stark contrast to evidence from previous individual decision-making experiments suggesting asymmetries in how people react to potential losses and potential gains. Although wars of attrition have an important place in the game theoretic literature, there are surprisingly few experimental studies directly relating to them. (2,3) Bilodeau, Childs, and Mestelman (2004) study a three-player full information war of attrition (framed as a volunteer game) and report widespread failure of equilibrium predictions (the predicted volunteer in a subgame perfect Nash equilibrium only volunteers 41% of the time). …

The duration of firm-destination export relationships: evidence from spain, 1997–2006

Abstract: I. INTRODUCTION The traditional trade literature that investigates aggregate trade flows emphasizes the sizeable increase in trade relationships since World War II and the remarkable persistence of trade flows. However, recent microlevel studies point out that under the stable aggregate trade flows there is a rich dynamics at firm- and/or product-level with a high turnover. In fact, international-market presence is often a transitory and an uncommon phenomenon. At any period, only a small percentage of home-based firms participate in trade and exporting firms are different from non-exporters (larger, more productive, etc.). Moreover, there is much persistence in exporting status; being an exporter in one period raises the probability of being an exporter in the next period. (1) This article contributes to the recent literature on export dynamics by investigating the determinants of the duration of firm-country trade relationships: what factors help to explain the length of a spell of a regular exporting firm selling to a particular country. (2) Destination markets (countries) differ in several dimensions, such as market development, political stability, competitive conditions in markets, consumers' tastes, quality-standard legislation, trade policies. Therefore, the decision to export and to remain exporting should clearly differ by markets. Furthermore, different firm attributes may make them more suitable for some markets than for others. For example, the U.S. market is far more competitive than less-developed destinations, so firm efficiency may be more relevant to enter and stay in the former than in the latter. To our knowledge, this is the first study that investigates the determinants of survival in export markets using firm-destination data. While previous studies focus on the effect of country-of-origin characteristics on imports survival using product-level data, we focus on the effect of firm-level characteristics in explaining firm-country export relationships. In particular, Besedes and Prusa (2006a, 2006b), Besedes (2008), and Nitsch (2009) reach similar results for U.S. and German import trade. They find product-level trade to be rather short lived, with a median duration of 2 years. Esteve-Perez et al. (2007) use firm-level data to examine the survival of Spanish manufacturing firms that start exporting over the period 1990-2000 and report a median duration of 6 years for export spells, with 25% of the spells ending after the first year of service. The main contribution of this article is to use firm-level data in order to assess the role of destination country-risk on the duration of firm trade relationships. As pointed out by the gravity literature, red tape, corruption, and imperfect contract enforcement are found to be important hidden transaction costs that reduce international trade. (3) We classify countries according to the Organization for Economic Cooperation and Development (OECD) country-risk classification and examine whether the impact of firm attributes (size and productivity), and gravitational variables (country size and distance), on trade duration differs across country-risk groups. To preview the results, we find that firm-country export relationships are short lived, with 47% of spells ending after their first year (and a median duration of 2 years). Nevertheless, we find evidence of negative duration dependence, that is, the risk of failure of a firm-country trade relationship falls with the duration of that relationship. Heterogeneity across destination markets is remarkable, with low-risk countries facing far better survival conditions than their higher-risk counterparts. The econometric results lead to reject unobserved firm-destination heterogeneity as a relevant source of persistence. Rather, sunk costs, learning-by-exporting, and the different characteristics of both exporters and destinations seem to explain the observed differences in duration. …

Child labor and schooling responses to access to microcredit in rural Bangladesh

Abstract: Microcredit has been shown to be effective in reducing poverty in many developing countries. However, less is known about its effect on human capital formation. In this paper, we develop a model examining the relation between microcredit and child labour. We then empirically examine the impact of access to microcredit on children’s education and child labour using a new and large data set from rural Bangladesh. We address the selection bias using the instrumental variable method where the instrument relies on an exogenous variation in treatment intensity among households in different villages. The results show that household participation in a microcredit program may increase child labour and reduce school enrolment. The adverse effects are more pronounced for girls than boys. Younger children are more adversely affected than their older siblings and the children of poorer and less educated households are affected most adversely. Our findings remain robust to different specifications and methods, and when corrected for various sources of selection bias.

Labor supply differences between married heterosexual women and partnered lesbians: a semi-parametric decomposition approach

Abstract: I. INTRODUCTION Partnered lesbian women have substantially higher labor supply than married women (Leppel 2008; Tebaldi and Elmslie 2006). What might account for the sexual orientation gap in partnered female labor supply? Everyday conversation and casual empiricism suggests that partnered lesbian women have a stronger attachment to the labor market relative to married women because of their choice to have fewer children than their married counterparts; yet this has not been formally analyzed. The primary goal of this study is to determine the role observable characteristics, particularly children, play in explaining the differences in labor supply between partnered lesbian women and married women. While empirical research on the determinants of partnered lesbian women's labor supply is limited, (1) the determinants of married women's labor supply have been studied in great detail (see Blundell and MaCurdy 1999 for a survey of the literature). In general, married women's labor supply is found to be positively related to own wages, negatively related to spouse wages and nonlabor income, and negatively related to the presence of children, particularly young children, in the household. (2) Importantly, the same control variables are not found to have the same effect on married men's labor supply. In particular, men are not responsive to their wife's earnings and tend to have higher labor supply because of the presence of children. These findings are consistent with a traditional division of labor into market and household work which results in married men being viewed as the primary earners and married women being viewed as the secondary earners. (3) In particular, Becker (1981) argues that increasing returns from investments in specific human capital encourages a division of labor in market work and household work among household members. The sexual division of labor, however, arises from intrinsically different comparative advantages of men and women (e.g., in the production of children) which would determine the direction of the division of tasks by gender. This in turn leads to differences in specific human capital accumulation which reinforces the intrinsically different comparative advantages of men and women. Even in the face of rising female labor force participation, increased divorce rates, and lower fertility, male and female earnings would not be equalized (Becker 1985). Specifically, Becker argues that married women with household responsibilities (e.g., child care and food preparation) would expend less energy on market work, make lower investments in market-oriented human capital, face lower hourly earnings, and choose less demanding jobs/ occupations than married men (even when they work the same number of hours) because household responsibilities are time and effort intensive relative to leisure and other nonmarket uses of time by men. Moreover, married women would have lower labor force participation than their husbands because of the lower earnings they would face (because of less energy expended on market work and lower investments in market-oriented human capital) and a full equilibrium could involve complete specialization by married women in household production. Although married men have increased their time spent on child-care production, there is strong evidence that married women continue to spend more time on child-care production than their spouses (Bianchi, Robinson, and Milkie 2006; Drago and Lee 2008a, 2008b; Kalenkoski, Ribar, and Stratton 2005, 2007; Lundberg, Pabilonia, and Ward-Batts 2007). In addition, the sociology literature argues that married women are more likely to identify themselves in the context of family and market work while married men are more likely to identify themselves in the context of market work alone (see, e.g., Bielby and Bielby 1989). Finally, there is a large literature that tests the specialization hypothesis (Bardasi and Taylor 2008; Daniel 1992; Gray 1997; Hersch and Stratton 2000; Kenny 1983; Loh 1996; Stratton 2002). …

Simultaneous decision‐making in competitive and cooperative environments

Abstract: We experimentally investigate simultaneous decision-making in two contrasting environments: a competitive environment (a contest) and a cooperative environment (a voluntary contribution mechanism). We find that the cooperative nature of the voluntary contribution mechanism spills over to the contest, decreasing sub-optimal overbidding in the contest. However, contributions to the public good are not affected by simultaneous participation in the contest. There is a significant negative correlation between decisions made in competitive and cooperative environments, i.e. more cooperative subjects tend to be less competitive and vice versa. This correlation can be rationalized by heterogeneous social preferences towards inequality but not by bounded rationality theory.

Brain Drain In Globalization: A General Equilibrium Analysis From The Sending Countries' Perspective

Abstract: According to the economic literature, high-skilled emigration may either harm or benefit developing economies. Recent research highlighted several positive and negative channels through which the brain drain operates. This paper aims at evaluating the relative magnitudes of various brain drain channels and quantifying their global impact on migrants’ sending countries. For this purpose, we develop a 10-region general equilibrium model of the world economy characterized by overlapping-generations dynamics. Our findings suggest that the short-run impact of brain drain on resident human capital is extremely crucial, as it affects not only the number of high-skilled workers available to domestic production, but also the sending economy’s capacity to innovate/adopt modern technologies. This latter effect is particularly important in globalization, where capital investments are made in places with high production efficiencies. Hence, despite positive feedback effects, those countries facing prevalent high-skilled emigration are the most candid victims to brain drain.

New evidence on credit card borrowing and repayment patterns

Abstract: I. INTRODUCTION Credit cards have become a major factor in the economic life of American households. Credit card debt has been growing significantly since the 1990s, and revolving credit now stands at approximately $800 billion. (1) Problems stemming from the recent economic downturn have put a renewed focus on credit cards. New laws regulating the industry have recently gone into effect, and further legislative action is under consideration. Publicly available datasets have not previously contained information on payoff rates; therefore, typically only one side of credit card behavior (i.e., the borrowing side) has been examined. Here we use data from a new survey, the Consumer Finance Monthly (CFM), that contains complete payoff as well as borrowing information, and this allows us to capture both sides of consumers' credit card behavior. We first use these data to examine the debt and payoff of consumers by age category. While credit card debt has been rising for virtually all socioeconomic and demographic groups, there has been special concern about the rising debts of younger consumers. Specific measures aimed at young card users were enacted under the new Credit Card Accountability Responsibility and Disclosure Act of 2009. These provisions include prohibiting credit card banks from soliciting with giveaways within 1,000 feet of a college campus and requiring official parental permission for underage credit card holders. (2) Increased availability of credit and changing consumption patterns, as well as marketing efforts, have all played some role in the rising debt of younger cardholders (Wang and Xiao 2008). We also use the new data to examine the impact of raising minimum required payments. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act led to increases in minimum required payments, and this trend has accelerated during the recent economic downturn as banks have tightened credit conditions for many consumers. Our data allow us to estimate the percentage by which actual payoff rates increase when required minimum payment rates are changed. Consumer debt has traditionally been analyzed within the Fisher framework of consumption smoothing over the life cycle. This framework relies on the underlying assumption that consumers will indeed successfully repay over time the debt acquired earlier in life. However, the introduction of credit cards with the feature of flexible repayment may have changed the traditional patterns of consumption smoothing and debt repayment for many U.S. households, especially for younger households. Here we examine credit card behavior in a synthetic cohort approach which incorporates a time dimension to build profiles of these behaviors for different birth cohorts. A two-way fixed effect, pseudo-panel data model is used to characterize both the cohort effects and the time effects. The results show that younger American consumers are indeed borrowing more heavily and repaying at lower rates on credit cards than earlier generations. The accumulation of credit card debt is found to continue over the life cycle. If these trends persist, there would be a substantial buildup of credit card debt for the younger generations at a later period in their life. We also find that raising minimum required payments increases actual repayment rates more than proportionately. This latter finding provides useful information for issues of "anchoring" on minimum required payments that have been raised by previous researchers. The article proceeds as follows. Section II briefly reviews relevant previous research. Section III discusses the data and descriptive statistics. Section IV presents the econometric model and estimation procedure. Section V presents the empirical findings for debt and payoff rates and the impact of raising minimum required payments. Finally, Section VI summarizes and gives conclusions. II. PREVIOUS RESEARCH In the absence of payoff rate data, much of the previous research in this area has focused on the borrowing side of credit card behavior. …

International r&d spillovers and productivity trends in the asian miracle economies

Abstract: I. INTRODUCTION Recent developments in endogenous growth theories have led to an increased recognition of the role that domestic knowledge and international knowledge spillovers (IKS) play as the engines of growth in Organisation for Economic Co-operation and Development (OECD) countries. Empirical studies for these countries have shown that IKS through the channels of imports, exports, foreign direct investment (FDI), patent flows, geographic proximity, and through no specific channel are important for growth, as discussed in the next section and as reviewed in the survey by Keller (2004). Given the central role played by the Asian miracle economies in the literature on growth and development, it is surprising how little attention has been given to the joint effects of domestic and international research and development (RD Rodrik 1997). This opens up the possibility that knowledge spillovers through the channel of imports and exports are important for economic growth in the Asian miracle economies. This paper examines the effects on total factor productivity (TFP) of the domestic stocks of knowledge and IKS for six Asian miracle economies, including China, India, Japan, Korea, Singapore, and Taiwan, over the period from 1955 to 2006. The following six international knowledge transmission channels are examined: (1) imports (Coe and Helpman 1995; Coe, Helpman, and Hoffmaister 1997, 2009; Keller 1998; Kneller and Stevens 2006; Lichtenberg and van Pottelsberghe de la Potterie 1998; Madsen 2007, 2008a, 2008b; Vamvakidis 1998, 2003); (2) exports (Falvey, Foster, and Greenaway 2004); (3) inward FDI (van Pottelsberghe de la Potterie and Lichtenberg 2001); (4) flows of patents between countries (Eaton and Kortum 1996, 1999); (5) geographical proximity (Keller 2002); and (6) general knowledge spillovers that are not passing through any particular channel. This examination not only serves as a useful check on the importance of knowledge-driven growth in the Asian miracle economies, but also provides an assessment of the relative importance of the different channels through which knowledge is transmitted internationally. Almost all available studies of knowledge spillovers have focused exclusively on the mature OECD countries, whose growth has not come close to that of the Asian miracle economies over the last few decades. (2) Trade, inward FDI, and patent flows have grown markedly in the Asian miracle economies since World War II (WWII). Furthermore, variations in the growth in TFP, domestic knowledge, and IKS are substantially larger among these economies than in OECD countries, thus yielding much more identifying variation in the data. The Asian miracle economies, therefore, provide an important testing ground for discriminating between various channels of knowledge transmission. This paper proceeds as follows. Section II reviews the literature and provides a discussion of the analytical framework that underlies our empirical modeling strategy. …

Vouchers, public school response, and the role of incentives: evidence from florida

Abstract: I. INTRODUCTION The concern over public school performance in the last two decades has pushed public school reform to the forefront of policy debate in the United States. School accountability and school choice, and especially vouchers, are among the most hotly debated instruments of public school reform. Understanding the behavior and response of public schools facing these initiatives is key to an effective policy design. This paper takes an important step forward in that direction by analyzing public school behavior under the Florida voucher program. The Florida voucher program, known as the "opportunity scholarship" program, is unique in that it embeds a voucher program within a school accountability system. Moreover, the federal No Child Left Behind (NCLB) Act is similar to and largely modeled after the Florida program, which makes the latter all the more interesting and relevant. Much of the literature studying the effect of voucher programs on public schools has looked at the effect on student and mean school scores. In contrast, this study tries to go inside the black box to investigate some of the ways in which schools facing the voucher program behaved in the first 3 years after the program. (1) Exploiting the institutional details of the Florida program during this period, it analyzes the incentives built into the system, and investigates public school behavior and response facing these incentives. The Florida voucher program, written into law in June 1999, made all students of a school eligible for vouchers to move to private or higher performing public schools if the school got two "F" grades in a period of 4 years. Thus, the program can be looked upon as a "threat of voucher" program--schools getting an "F" grade for the first time were directly threatened by vouchers, but vouchers were implemented only if they got another "F" grade in the next 3 years. Vouchers were always associated with a loss in revenue and also media publicity and visibility. Moreover, the "F" grade, being the lowest performing grade, was likely associated with shame and stigma. Therefore, the threatened schools had a strong incentive to try to avoid the second "F." (2) This paper studies some alternative ways in which the threatened schools responded, facing the incentives built into the system. Under the 1999 Florida grading criteria, certain percentages of a school's students had to score above some specified cutoffs on the score scale for it to escape the second "F." Therefore the threatened schools had an incentive to focus more on students expected to score just below these high stakes cutoffs rather than equally on all students. Did this take place in practice? Second, to escape an F grade, the schools needed to pass the minimum criteria in only one of the three subject areas of reading, math, and writing. Did this induce the threatened schools to concentrate more on one subject, rather than equally on all? If so, which subject area did the schools choose to concentrate on? One alternative would be to concentrate on the subject area closest to the cutoff. (3) But subject areas differ in the extent of difficulties, so it is not immediately obvious that it is easiest to pass the cutoff in the subject area closest to the cutoff. Rather, schools are likely to weigh the extent of difficulties of the different subjects and their distances from the cutoffs, and choose the subject that is least costly to pass the cutoff. In addition to analyzing the above questions, this study also tries to look at a broader picture. If the threatened schools concentrated on students expected to score just below the high stakes cutoffs, did their improvements come at the expense of higher performing ones? Using highly disaggregated school-level Florida data from 1993 through 2002, and a difference-in-differences analysis as well as a regression discontinuity (RD) analysis, I investigate the above issues. The schools that received the first "F" grade in 1999 were directly threatened and hence constitute my treated group of schools. …

Parental Substance Use and Foster Care: Evidence from Two Methamphetamine Supply Shocks

Abstract: Foster care caseloads have nearly doubled over the last three decades. Parental methamphetamine (meth) use grew significantly during the same period. While child welfare workers and law enforcement claim that parental meth use contributes to foster care growth, the evidence for a causal effect has not been determined. This paper presents the first evidence of a causal effect of meth on foster care admissions using two exogenous supply-side interventions in meth markets from the late 1990s for identification. First, we find that restrictions on meth precursor distribution caused meth use (proxied by white meth self-referred treatment cases) to decline 4.1%. Second, using two-stage least squares, we estimate a positive elasticity of foster care cases with respect to meth use of 1.54. We also estimate elasticities of 1.03 and 1.49 for cases of child neglect and parental abuse, respectively. These results suggest that child welfare policies should be designed specifically for the children of meth-using parents. (JEL I12, J13, K42)

Carbon geography: the political economy of congressional support for legislation intended to mitigate greenhouse gas production

Abstract: Over the last 5 years, the U.S. Congress has voted on several pieces of legislation intended to sharply reduce the nation’s greenhouse gas emissions. Given that climate change is a world public bad, standard economic logic would predict that the United States would “free ride” and wait for other nations to reduce their emissions. Within the Congress, there are clear patterns to who votes in favor of mitigating greenhouse gas emissions. This paper presents a political economy analysis of the determinants of “pro-green” votes on such legislation. Conservatives consistently vote against such legislation. Controlling for a representative’s ideology, representatives from richer districts and districts with a lower per-capita carbon dioxide footprint are more likely to vote in favor of climate change mitigation legislation. Representatives from districts where industrial emissions represent a larger share of greenhouse gas emissions are more likely to vote no. (JEL Q54, Q58, R50)

The State Street Mile: Age and Gender Differences in Competition-Aversion in the Field*

Abstract: Gender differences in "competitiveness," previously documented in laboratory experiments, are hypothesized to play a role in a wide array of economic outcomes. The current paper provides evidence of competition-aversion in a natural setting somewhere between the simplicity of a laboratory experiment and the full complexity and ambiguity of a labor market. The "State Street Mile" race offers both male and female participants a choice between two different levels of competition. Large, systematic age and gender differences are observed in the relationship between true ability and the decision to enter the more competitive race. Overall, qualified women and older runners are far less likely than qualified young men to enter a competitive race with cash prizes. However, the fastest young women unanimously enter the competitive race. Therefore, while we confirm age and gender differences in competitiveness in our field setting, the economic consequences to capable young women are rather small.

The habit of giving

Abstract: I. INTRODUCTION Habit formation is thought to exert great influence on behavior. It has been proffered as a potential answer to questions as disparate as the size of the equity premium (Abel 1990), optimal purchases of insurance (Ben-Arab, Briys, and Schlesinger 1996), labor force participation (Woittiez and Kapteyn 1998), the relationship between savings and growth rates (Carroll, Overland, and Well 2000), responsiveness to monetary policy (Fuhrer 2000), the importance of brand loyalty (Gupta, Chintagunta, and Wittink 1997), and the existence of a "gateway" effect between alcohol and illegal drug use (Pacula 1998). Yet there is scant discussion in the economics literature about long-term habit forming. Most studies focus on shorter-term intertemporal relationships, like changes in annual consumption (see, inter alia, Naik and Moore 1996; Dynan 2002; Carrasco, Labeaga, and Lopez-Salido 2005). The importance of early influences on later risk taking (Malmendier and Nagel 2007) and motivations for purchasing different goods (Portolese-Dias 2004) has been hypothesized. Yet there is little direct evidence on the long-term impact of shocks to behavior early in life, particularly in the way that preferences form and evolve. One recent exception is the study of Bronnenberg, Dube, and Gentzkow (2010), who use variation in consumers' previous states of residence to show that early exposure to particular brands of package goods affects purchasing behavior decades later. Charities, in particular, care about building relationships with their donors and expend a great deal of effort in the pursuit of small gifts, with the expectation that they may lead to larger gifts in the future. Universities seem to be convinced that this strategy is effective, and with $8.7 billion raised from alumni in 2008, the stakes are high (Council for Aid to Education 2009). The dean of alumni affairs at Columbia University stated that "it isn't about the dollars," and that the purpose of getting young alumni to donate is to create a habit of giving (Durkin 2005). Fundraising professionals agree--one consultant explained, "I would never say that a small gift is not important because it's building that relationship. If you don't build those relationships today, you may not have their interest when the day comes that they can give those $101 million donations" (Westmoreland 2008). This sentiment was echoed by an expert on senior class giving at the Council for Advancement and Support of Education, who explained that "the goal [of these programs] is not to raise money, but to begin a pattern of behavior" (Ensign 2010). There is scant evidence that this belief is justified. While a number of studies have documented a positive correlation between giving when young and giving when older (see Monks 2003; Turner, Meserve, and Bowen 2001), this may be driven by a number of factors that have nothing to do with building a relationship. This correlation may actually represent spurious state dependence that arises from unobserved heterogeneity--like the alumnus's affinity for the school. This is contrasted with true state dependence, in which a donation in one period affects preferences for donating in a later period. While participation rates are a factor in university rankings, it seems evident that development officials assume that habit-forming in charitable contributions exists and justifies the pursuit of small gifts when alumni are young, with the expectation that this will lead to larger gifts in the future. These beliefs hinge on the idea that a habit can form by the simple act of making a gift, and that the amount given is possibly irrelevant. In essence, the proponents of this idea believe that giving regularly when young will cause the individual to be in a state of "focus" for giving when older--willing to make a larger gift, perhaps because they are accustomed to giving to the charity in each year. Standard models of habit forming, in which the amount given in an earlier period affects a stock variable and the individual incurs disutility from deviating from this level, do not account for this phenomenon. …

Cooperation Spillovers and Price Competition in Experimental Markets

Abstract: I. INTRODUCTION Both competition and cooperation are important for the successful functioning of many economic systems. For example, firms compete in markets but they also cooperate with one another through arrangements such as research joint ventures, lobbying, cooperative marketing agreements, and strategic alliances. In this paper, we use experiments to examine how competitive interactions affect agents' propensity to cooperate. We are interested in studying spillovers that may involve cooperation in one domain (such as a research joint venture) and competition in another (such as in a market). (1) Cooperation could weaken competition, perhaps promoting collusion, or market competition could reduce incentives for non-market cooperation. These "behavioral spillovers" could go in either direction. They are distinct from another type of spillover, through knowledge externalities that occur in research and development (R&D) when the innovator cannot fully appropriate the gains to innovation, leading potentially to a socially inefficient level of research (deBondt 1996). (2) As discussed below, behavioral spillovers have been shown in experiments to increase cooperation in otherwise competitive environments, for example through establishing cooperative precedents. A large body of theoretical research has focused on firms cooperating in research joint ventures and how this impacts competition in output markets. For example, Cooper and Ross (2009) examine the mechanism by which agreements to cooperate in one market can have negative effects on competition in other markets, even in situations when these markets are not linked via costs or demand. Cabral (2000) shows that product market prices are affected by R&D agreements between firms. Caloghirou, Ioannides, and Vonortas (2003), Lambertini, Poddar, and Sasaki (2003), and Poyago-Theotoky (2007) also discuss the impact of forming research joint ventures on product markets and cartel formation. (3) Empirical work using field data has provided creative indirect evidence on the collusive potential of research joint ventures by exploiting natural "policy experiments," although the extent of this evidence is limited. Goeree and Helland (2010), for example, show that research joint ventures facilitate collusion because they became less popular following an enforcement policy change (leniency) that made collusion less attractive. Policy experiments such as these are often required since systematic collusion often goes undetected by authorities. Duso, Roller, and Seldeslachts (2010) also examine the link between research joint ventures and collusion, using data from the U.S. National Cooperation Research Act that granted certain research joint ventures milder antitrust scrutiny. They find that horizontal research joint ventures lead to more collusion than vertical joint ventures. Our work provides complementary and more direct evidence, since in the laboratory we can observe the level and sustainability of tacit and explicit collusion and can therefore circumvent the measurement and endogeneity issues that are often prevalent in field data. The specific research goals of this study are the following. First, we wish to examine if agents take advantage of available gains from cooperation in the presence of payoff uncertainties that arise from stochastic innovation success. Second, we are interested in learning if a behavioral spillover of cooperation can lead to collusion in markets, or whether competition in markets reduces non-market cooperation. These notions of cooperation concern contributions to joint R&D projects or collusion in price setting, and are defined independently of any communication opportunities. Therefore, our third goal is to determine how this interaction between cooperation and competition is affected by the introduction of non-market communication opportunities. Finally, we will measure the externalities from R&D cooperation to non-innovators in the market. …

Hold-up: with a vengeance

Abstract: When contracts are incomplete or unenforceable, inefficient levels of investment may occur because of hold-up. If individuals care for negative reciprocity, these problems may be reduced, as revenge becomes a credible threat. However, negative reciprocity has this effect only when the investor holds the rights of control of the investment proceeds. We explore this issue analytically, deriving predictions for hold-up games which differ as regards assignment of rights of control. We also test and support these predictions in an experiment.

The effects of publication lags on life‐cycle research productivity in economics

Abstract: We investigate how increases in publication delays have affected the life cycle of publications of recent Ph.D. graduates in economics. We construct a panel dataset of 14,271 individuals who were awarded Ph.D.s between 1986 and 2000 in U.S. and Canadian economics departments. For this population of scholars, we amass complete records of publications in peer-reviewed journals listed in the JEL (a total of 368,672 observations). We find evidence of significantly diminished productivity in recent relative to earlier cohorts when productivity of an individual is measured by the number of AER-equivalent publications. Diminished productivity is less evident when the number of AER-equivalent pages is used instead. Our findings are consistent with earlier empirical findings of increasing editorial delays, decreasing acceptance rates at journals, and a trend toward longer manuscripts. This decline in productivity is evident in both graduates of top 30 and non-top 30 ranked economics departments and may have important implications for what should constitute a tenurable record. We also find that the research rankings of top economics departments are a surprisingly poor predictor of the subsequent research rankings of their Ph.D.s graduates. (JEL A11, J24, J29, J44)

Leadership by example in the weak-link game

Abstract: We investigate the effects of leadership in a four-player weak-link game. A weak-link game is a coordination game with multiple Pareto-ranked Nash equilibria. Because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria. We wanted to see whether leadership by example, in the form of one player acting publicly before the rest of the group, could help groups do better. Our results suggest that leadership can increase efficiency but is far from being a guarantee of success. Specifically, in a significant number of groups we observed successful leadership and increased efficiency, but in most groups efficiency was low despite the efforts of leaders. We did not find any difference between voluntary leaders and leaders that are randomly assigned.

A Century of Human Capital and Hours

Abstract: I. INTRODUCTION Over the course of the 19th and 20th centuries the United States has witnessed a noticeable increase in various measures of educational attainment. For instance, average schooling of generations of the second half of the 19th century was about 7 years while is close to 14 years nowadays. Over the same period of time the lifetime labor supply of a typical worker decreased substantially. For instance, the workweek of a typical worker was around 60 hours in the 1870s and is about 40 hours nowadays, (1) What explains these trends? We consider a model of human capital and labor supply that can broadly capture the secular trends in average years of schooling and hours of work. We use the model to quantitatively assess the importance of productivity growth--reflected as an increase in wages--and life expectancy in accounting for the trends in schooling and hours. We find that the observed increase in wages and life expectancy account for 80% of the increase in years of schooling and 88% of the reduction in hours of work. The motivation for studying the trends in education and work hours simultaneously is threefold. First, the trends in education and hours are not specific to the United States but are, instead, common to most developed countries. We argue that over a long period of time the face of Western societies has changed quite dramatically because of reduced hours of work and because of the spread of formal education. Second, other authors such as Heckman (1976) and Blinder and Weiss (1976) have emphasized the importance of jointly modeling labor supply and human capital accumulation. Since some dimensions of human capital investment are not observed, models of human capital accumulation are typically restricted by using data on earnings. Recognizing that the accumulation and utilization of human capital have implications for leisure time, it is an immediate consequence that we can also use observations about leisure time to bring more discipline to bear on the implications of the model. The study of human capital and labor supply has typically been done in the context of life cycle frameworks, see for instance the seminal contribution by Blinder and Weiss (1976) and the more recent analysis in Guvenen, Kuruscu, and Ozkan (2010). We propose to use the noticeable changes observed over long periods of time as an alternative discipline to these models. Third, our research is connected to the recent literature in macroeconomics on the importance of human capital for understanding inequality across people, time, and countries, for example Manuelli and Seshadri (2006), Erosa, Koreshkova, and Restuccia (2010), You (2009), and Guvenen, Kuruscu, and Ozkan (2010). By focusing on a time period with substantial changes in labor supply, we find that abstracting from hours of work critically affects the effective returns to human capital investment. Our model of human capital accumulation builds on Bils and Klenow (2000) and Restuccia and Vandenbroucke (2011). Individuals live for a finite interval of time and are homogenous within a generation. They choose how long to stay in school as well as spending in educational services and, as a result, accumulate human capital. After school they also choose to allocate their time between leisure and work. There are two key features of our model. First, preferences feature a taste for schooling. Second, preferences are non-homothetic for consumption goods. In the context of our model, we show that these two features of preferences are critical for schooling to depend on the level of income. We argue that these features of preferences are non-controversial. Taste for schooling is a common feature in models of schooling such as Heckman, Lochner, and Taber (1998) and Bils and Klenow (2000) and has been found to be empirically relevant in estimated models of human capital accumulation. Non-homothetic preferences are central in theories of structural change. …

Supermarkets as a natural oligopoly

Abstract: This paper proposes and tests a model of supermarket competition based upon an endogenous fixed cost (EFC) framework (Sutton, J. Sunk Cost and Market Structure: Price Competition, Advertising, and the Evolution of Concentration. Cambridge: MIT Press, 1991.). The relevance of the EFC framework to supermarket competition stems from the industry's surprisingly uniform competitive structure: irrespective of the size of the local market, a small number of firms (between three and six) capture the majority of sales. As markets grow, local rivalry drives firms to expand their fixed investments, limiting the number of firms that can profitably enter even the largest markets. Although markets stay concentrated, competition remains fierce, reflecting the inherently rivalrous nature of the underlying competitive mechanism. The goal of this paper is to identify the strategic focus of this rivalry, namely the drive to provide an ever greater variety of consumer products, and to eliminate alternative explanations for the observed structure by highlighting the unique form of firm conduct that characterizes this industry. (JEL D21, D43, L11, L13, L22, L81)

Non-monetary incentives and opportunistic behavior: evidence from a laboratory public good game

Abstract: This study reports data from a laboratory experiment that investigates the incentive effect of three distinct social communication schemes on free-riding behavior. We use performance-based approval and disapproval ratings and a linear public good game to address the above issues. The treatments vary in terms of subjects' opportunities to anonymously assign (1) only the approval ratings to other group members, (2) only the disapproval ratings to other group members, and (3) either the approval or the disapproval ratings to other group members (but not both to the same group member), after they play a standard linear public good game. Despite the Nash prediction of zero individual contribution in all three treatments, the data show that the disapproval points generate significantly higher contribution than the approval points. The treatment in which subjects could communicate either the approval or the disapproval points produces the highest level of contribution. We discuss the implications that these findings may have for efficient design of organizations. (JEL D03, H41, C72, C92)