Showing papers in "Quarterly Journal of Economics in 2004"
TL;DR: In this article, the authors randomly generate placebo laws in state-level data on female wages from the Current Population Survey and use OLS to compute the DD estimate of its "effect" as well as the standard error of this estimate.
Abstract: Most papers that employ Differences-in-Differences estimation (DD) use many years of data and focus on serially correlated outcomes but ignore that the resulting standard errors are inconsistent. To illustrate the severity of this issue, we randomly generate placebo laws in state-level data on female wages from the Current Population Survey. For each law, we use OLS to compute the DD estimate of its “effect” as well as the standard error of this estimate. These conventional DD standard errors severely understate the standard deviation of the estimators: we find an “effect” significant at the 5 percent level for up to 45 percent of the placebo interventions. We use Monte Carlo simulations to investigate how well existing methods help solve this problem. Econometric corrections that place a specific parametric form on the time-series process do not perform well. Bootstrap (taking into account the autocorrelation of the data) works well when the number of states is large enough. Two corrections based on asymptotic approximation of the variance-covariance matrix work well for moderate numbers of states and one correction that collapses the time series information into a “pre”- and “post”-period and explicitly takes into account the effective sample size works well even for small numbers of states.
9,397 citations
TL;DR: Botero et al. as discussed by the authors investigated the regulation of labor markets through employment, collective relations, and social security laws in 85 countries and found that the political power of the left is associated with more stringent labor regulations and more generous social security systems, and that socialist, French and Scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries.
Abstract: Author(s): Botero, Juan; Djankov, Simeon; La Porta, Rafael; Lopez-de-Silanes, Florencio; Shleifer, Andrei | Abstract: We investigate the regulation of labor markets through employment, collective relations, and social security laws in 85 countries. We find that the political power of the left is associated with more stringent labor regulations and more generous social security systems, and that socialist, French and Scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries. However, the effects of legal origins are larger, and explain more of the variation in regulations, than those of politics. Heavier regulation of labor is associated with lower labor force participation and higher unemployment, especially of the young. These results are most naturally consistent with legal theories, according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems.
1,615 citations
TL;DR: This article developed a novel system of reclassifying historical exchange rate regimes and employed monthly data on market-determined parallel exchange rates going back to 1946 for 153 countries, and showed that the breakup of Bretton-woods had less impact on exchange rate regime than is popularly believed.
Abstract: We develop a novel system of reclassifying historical exchange rate regimes. One key difference between our study and previous classifications is that we employ monthly data on market-determined parallel exchange rates going back to 1946 for 153 countries. Our approach differs from the IMF official classification (which we show to be only a little better than random), it also differs radically from all previous attempts at historical reclassification. Our classification points to a rethinking of economic performance under alternative exchange rate regimes. Indeed, the breakup of Bretton Woods had less impact on exchange rate regimes than is popularly believed.
1,544 citations
TL;DR: The Cognitive Hierarchy (CH) model as discussed by the authors assumes that each player assumes that his strategy is the most sophisticated, and assumes that other players are distributed over step 0 through step k − 1, and explains why equilibrium theory predicts behavior well in some games and poorly in others.
Abstract: Players in a game are “in equilibrium” if they are rational, and accurately predict other players' strategies. In many experiments, however, players are not in equilibrium. An alternative is “cognitive hierarchy” (CH) theory, where each player assumes that his strategy is the most sophisticated. The CH model has inductively defined strategic categories: step 0 players randomize; and step k thinkers best-respond, assuming that other players are distributed over step 0 through step k − 1. This model fits empirical data, and explains why equilibrium theory predicts behavior well in some games and poorly in others. An average of 1.5 steps fits data from many games.
1,511 citations
TL;DR: In this paper, the authors exploit product-level U.S. import data to test trade theory and find that unit values within products vary systematically with exporter relative factor endowments and exporter production techniques.
Abstract: This paper exploits product-level U. S. import data to test trade theory. Although the United States increasingly sources the same products from both high- and low-wage countries, unit values within products vary systematically with exporter relative factor endowments and exporter production techniques. These facts reject factor-proportions specialization across products but are consistent with such specialization within products. The data are inconsistent with new trade theory models predicting an inverse relationship between price and producer productivity. The existence of within-product specialization is an important consideration for understanding the impact of globalization on firms and workers, the evolution of total factor productivity, and the likelihood of long-run income convergence.
1,356 citations
TL;DR: In this article, the authors study the effects of differences in local financial development within an integrated financial market and construct a new indicator of financial development by estimating a regional effect on the probability that, ceteris paribus, a household is shut off from the credit market.
Abstract: We study the effects of differences in local financial development within an integrated financial market. We construct a new indicator of financial development by estimating a regional effect on the probability that, ceteris paribus, a household is shut off from the credit market. By using this indicator, we find that financial development enhances the probability an individual starts his own business, favors entry of new firms, increases competition, and promotes growth. As predicted by theory, these effects are weaker for larger firms, which can more easily raise funds outside of the local area. These effects are present even when we instrument our indicator with the structure of the local banking markets in 1936, which, because of regulatory reasons, affected the supply of credit in the following 50 years. Overall, the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements.
1,249 citations
TL;DR: In this article, the authors investigate whether the industrial relations climate in Indian states has affected the pattern of manufacturing growth in the period 1958-92 and show that pro-worker ammendments to the Industrial Disputes Act are associated with lowered investment, employment, productivity and output in registered manufacturing.
Abstract: This paper investigates whether the industrial relations climate in Indian states has affected the pattern of manufacturing growth in the period 1958-92. We show that pro-worker ammendments to the Industrial Disputes Act are associated with lowered investment, employment, productivity and output in registered manufacturing. Regulating in a pro-worker direction is also associated with increases in urban poverty. This suggests that attempts to redress the balance of power between capital and labor can end up hurting the poor.
1,137 citations
TL;DR: In this paper, the authors assess the extent to which the grant actually reached the intended end-user (schools) using panel data from a unique survey of primary schools, and find that schools in better-off communities managed to claim a higher share of their entitlements.
Abstract: According to official statistics, 20 percent of Uganda's total public expenditure was spent on education in the mid-1990s, most of it on primary education. One of the large public programs was a capitation grant to cover schools' nonwage expenditures. Using panel data from a unique survey of primary schools, we assess the extent to which the grant actually reached the intended end-user (schools). The survey data reveal that during 1991–1995, the schools, on average, received only 13 percent of the grants. Most schools received nothing. The bulk of the school grant was captured by local officials (and politicians). The data also reveal considerable variation in grants received across schools, suggesting that rather than being passive recipients of flows from the government, schools use their bargaining power to secure greater shares of funding. We find that schools in better-off communities managed to claim a higher share of their entitlements. As a result, actual education spending, in contrast to budget allocations, is regressive. Similar surveys in other African countries confirm that Uganda is not a special case.
987 citations
TL;DR: In this paper, the authors estimate the effect of international trade on average labor productivity at the country level and conclude that trade works through labor efficiency, while institutional quality works through physical and human capital accumulation.
Abstract: We estimate the effect of international trade on average laborproductivity at the country level. Our empirical approach relies onsummary measures of trade that, we argue, are preferable on boththeoretical and empirical grounds to the one conventionally used. Incontrast to the marginally significant and non-robust effects of tradeon productivity found previously, our estimates are highly significantand robust even when we include institutional quality and geographicfactors in the empirical analysis. We also examine the channels throughwhich trade and institutional quality affect average labor productivity.Our finding is that trade works through labor efficiency, whileinstitutional quality works through physical and human capitalaccumulation. We conclude with an exploratory analysis of the role oftrade policies for average labor productivity.
970 citations
TL;DR: The authors argue that the growing presence of a new type of man brought up in a family in which the mother worked has been a significant factor in the increase in female labor force participation over time.
Abstract: This paper argues that the growing presence of a new type of man—one brought up in a family in which the mother worked—has been a significant factor in the increase in female labor force participation over time. We present cross-sectional evidence showing that the wives of men whose mothers worked are themselves significantly more likely to work. We use variation in the importance of World War II as a shock to women's labor force participation—as proxied by variation in the male draft rate across U. S. states—to provide evidence in support of the intergenerational consequences of our propagation mechanism.
900 citations
TL;DR: In this article, the authors classify countries as pegged or non-pegged and examine whether a pegged country must follow the interest rate changes in the base country more than nonpegs.
Abstract: To investigate how a fixed exchange rate affects monetary policy, this paper classifies countries as pegged or nonpegged and examines whether a pegged country must follow the interest rate changes in the base country. Despite recent research which hints that all countries, not just pegged countries, lack monetary freedom, the evidence shows that pegs follow base country interest rates more than nonpegs. This study uses actual behavior, not declared status, for regime classification; expands the sample including base currencies other than the dollar; examines the impact of capital controls, as well as other control variables; considers the time series properties of the data carefully; and uses cointegration and other levels-relationship analysis to provide additional insights.
TL;DR: In this article, the authors developed a voting model to investigate the effects of radio on government policies and found that U.S. counties with many radio listeners received more relief funds.
Abstract: If informed voters receive favorable policies, then the invention of a new mass medium may affect government policies since it affects who is informed and who is not. These ideas are developed in a voting model. The model forms the basis for an empirical investigation of a major New Deal relief program implemented in the middle of the expansion period of radio. The main empirical finding is that U. S. counties with many radio listeners received more relief funds. More funds were allocated to poor counties with high unemployment, but controlling for these and other variables, the effects of radio are large and highly significant.
TL;DR: In this article, the authors analyze the profit-maximizing contract design of firms if consumers have time-inconsistent preferences and are partially naive about it, and show that time inconsistency has adverse effects on consumer welfare only if consumers are naive.
Abstract: How do rational firms respond to consumer biases? In this paper we analyze the profit-maximizing contract design of firms if consumers have time-inconsistent preferences and are partially naive about it. We consider markets for two types of goods: goods with immediate costs and delayed benefits (investment goods) such as health club attendance, and goods with immediate benefits and delayed costs (leisure goods) such as credit card-financed consumption. We establish three features of the profit-maximizing contract design with partially naive time-inconsistent consumers. First, firms price investment goods below marginal cost. Second, firms price leisure goods above marginal cost. Third, for all types of goods firms introduce switching costs and charge back-loaded fees. The contractual design targets consumer misperception of future consumption and underestimation of the renewal probability. The predictions of the theory match the empirical contract design in the credit card, gambling, health club, life insurance, mail order, mobile phone, and vacation time-sharing industries. We also show that time inconsistency has adverse effects on consumer welfare only if consumers are naive.
TL;DR: This article found that voters merely elect policies: the degree of electoral strength has no effect on a legislator's voting behavior, and that politicians' inability to credibly commit to a compromise appears to dominate any competition-induced convergence in policy.
Abstract: There are two fundamentally different views of the role of elections in policy formation. In one view, voters can affect candidates’ policy choices: competition for votes induces politicians to move toward the center. In this view, elections have the effect of bringing about some degree of policy compromise. In the alternative view, voters merely elect policies: politicians cannot make credible promises to moderate their policies, and elections are merely a means to decide which one of two opposing policy views will be implemented. We assess which of these contrasting perspectives is more empirically relevant for the U. S. House. Focusing on elections decided by a narrow margin allows us to generate quasi-experimental estimates of the impact of a “randomized” change in electoral strength on subsequent representatives’ roll-call voting records. We find that voters merely elect policies: the degree of electoral strength has no effect on a legislator’s voting behavior. For example, a large exogenous increase in electoral strength for the Democratic party in a district does not result in shifting both parties’ nominees to the left. Politicians’ inability to credibly commit to a compromise appears to dominate any competition-induced convergence in policy.
TL;DR: In this article, a new rationale is presented for why an elite may want to expand the franchise even in the absence of threats to the established order, and the evolution of public spending and of political competition in nineteenth century Britain is consistent with our model.
Abstract: A new rationale is presented for why an elite may want to expand the franchise even in the absence of threats to the established order. Expanding the franchise can turn politicians away from particularistic politics based on ad personam redistribution within the elite and foster competition based on programs with diffuse benefits. If these programs are valuable, a majority of the elite votes in favor of an extension of the franchise despite the absence of a threat from the disenfranchised. We argue that the evolution of public spending and of political competition in nineteenth century Britain is consistent with our model. I. INTRODUCTION At the beginning of the nineteenth century, in most countries, narrow elites had a disproportionate influence on public affairs. Even in England, where parliament was an influential institution, suffrage was mostly the privilege of the wealthy, and some members of parliament were elected in boroughs with as few as 100 voters, while cities such as Manchester did not have any representative. A century later, most western countries had universal male suffrage, with female suffrage to arrive shortly thereafter. What brought about this “democratic revolution?” In many cases, the elites were forced out of power after violent revolutions. However, there are important examples, such as England, where democratization took the form of gradual extensions of the suffrage, and these were accompanied by little overt violence. “It is the peculiar pride of England that [the record of social and political reform] is to be found on the statute book, not in the annals of revolution” [Cheyney 1931, p. vii]. Such peaceful democratizations are difficult to rationalize within the benchmark political-economic models. In those models, extending the franchise dilutes the elite’s power to influence policy and results
TL;DR: This paper investigated the role that non-portfolio fund differentiation and information/search frictions play in creating two salient features of the mutual fund industry: the large number of funds and the sizeable dispersion in fund fees.
Abstract: We investigate the role that non-portfolio fund differentiation and information/search frictions play in creating two salient features of the mutual fund industry: the large number of funds and the sizeable dispersion in fund fees. In a case study, we find that despite the financial homogeneity of S&P 500 index funds, this sector exhibits the fund proliferation and fee dispersion observed in the broader industry. We show how extra-portfolio mechanisms explain these features. These mechanisms also suggest an explanation for the puzzling late-1990s shift in sector assets to more expensive (and often newly entered) funds: an influx of highinformation-cost novice investors.
TL;DR: In this paper, the authors investigated the effect of potential market size on the entry of new drugs and pharmaceutical innovation, focusing on exogenous changes driven by U.S. demographic trends.
Abstract: This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U. S. demographic trends, we find a large effect of potential market size on the entry of nongeneric drugs and new molecular entities. These effects are generally robust to controlling for a variety of supply-side factors and changes in the technology of pharmaceutical research.
TL;DR: It is found that babies conceived in times of high unemployment have a reduced incidence of low and very low birth weight, fewer congenital malformations, and a reduced rate of post-neonatal mortality.
Abstract: We study the relationship between the unemployment rate at the time of a baby’s conception and parental characteristics, parental behaviors, and babies’ health. Babies conceived in times of high unemployment have a reduced incidence of low and very low birth weight, fewer congenital malformations, and lower post-neonatal mortality. These health improvements are attributable both to selection (changes in the type of mothers that conceive during recessions) and to improvements in health behavior during recessions. Black mothers tend to be higher socio-economic status (as measured by education and marital status) in times of high unemployment, whereas white mothers are less educated.
TL;DR: In this paper, the authors show that bundling is a particularly effective entry-deterrent strategy in an oligopolistic environment, where a company that has market power in two goods, A and B, can, by bundling them together, make it harder for a rival with only one product to enter the market.
Abstract: In this paper we look at the case for bundling in an oligopolistic environment. We show that bundling is a particularly effective entry-deterrent strategy. A company that has market power in two goods, A and B, can, by bundling them together, make it harder for a rival with only one of these goods to enter the market. Bundling allows an incumbent to credibly defend both products without having to price low in each. The traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist. Although price discrimination provides a reason to bundle, the gains are small compared with the gains from the entry-deterrent effect. I. INTRODUCTION In this paper we look at the case for bundling in an oligopolistic environment. We show that bundling is a particularly effective entry-deterrent strategy. A company that has market power in two goods, A and B, can, by bundling them together, make it harder for a rival with only one of these goods to enter the market. Bundling allows an incumbent to defend both products without having to price low in each. While it is still possible to compete by offering a rival bundle, a monopolist can significantly lower the potential profits of a one-product entrant without having to engage in limit pricing prior to entry. We also show that bundling continues to be an effective pricing tool even if entry deterrence fails (or if there is already an existing one-product rival). A company with a monopoly in product A and a duopoly in product B makes higher profits by selling an A‐B bundle than by selling A and B independently. Leveraging market power from A into B and accepting some one-product competition against the bundle is better than using the monopoly power in good A all by itself. Since bundling mitigates the impact of competition on the incumbent, an entrant can expect the bundling strategy to persist, even without any commitment. The traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist (see Stigler [1968], Adams and Yellen
TL;DR: The authors found no negative relationship between having a distinctively Black name and later life outcomes after controlling for a child's circumstances at birth, and they also found that the rise of the Black Power movement influenced how Blacks perceived their identities.
Abstract: In the 1960s Blacks and Whites chose relatively similar first names for their children. Over a short period of time in the early 1970s, that pattern changed dramatically with most Blacks (particularly those living in racially isolated neighborhoods) adopting increasingly distinctive names, but a subset of Blacks actually moving toward more assimilating names. The patterns in the data appear most consistent with a model in which the rise of the Black Power movement influenced how Blacks perceived their identities. Among Blacks born in the last two decades, names provide a strong signal of socioeconomic status, which was not previously the case. We find, however, no negative relationship between having a distinctively Black name and later life outcomes after controlling for a child’s circumstances at birth.
TL;DR: This article used a regression discontinuity design to estimate the impact of unionization on business survival, employment, output, productivity, and wages, and found that small impacts on all outcomes were examined; estimates for wages are close to zero.
Abstract: Economic impacts of unionization on employers are difficult to estimate in the absence of large, representative data on establishments with union status information. Estimates are also confounded by selection bias, because unions could organize at highly profitable enterprises that are more likely to grow and pay higher wages. Using multiple establishment-level data sets that represent establishments that faced organizing drives in the United States during 1984–1999, this paper uses a regression discontinuity design to estimate the impact of unionization on business survival, employment, output, productivity, and wages. Essentially, outcomes for employers where unions barely won the election (e.g., by one vote) are compared with those where the unions barely lost. The analysis finds small impacts on all outcomes that we examine; estimates for wages are close to zero. The evidence suggests that—at least in recent decades—the legal mandate that requires the employer to bargain with a certified union has had little economic impact on employers, because unions have been somewhat unsuccessful at securing significant wage gains.
TL;DR: In this article, the authors focus on the size of the minority needed to block legislation, or conversely the number of super-majority needed to govern, and derive several empirical implications which they then discuss.
Abstract: A fundamental aspect of institutional design is how much society chooses to delegate unchecked power to its leaders. If, once elected, a leader cannot be restrained, society runs the risk of a tyranny of the majority, if not the tyranny of a dictator. If a leader faces too many ex post checks and balances, legislative action is too often blocked. As our critical constitutional choice, we focus upon the size of the minority needed to block legislation, or conversely the size of the (super)majority needed to govern. We analyze both “optimal” constitutional design and “positive” aspects of this process. We derive several empirical implications which we then discuss.
TL;DR: The authors found that the budget cycle is sizable and short-lived, public spending shifts toward direct monetary transfers to voters, and the magnitude of the cycle decreases with democracy, government transparency, media freedom, voter awareness, and over time.
Abstract: This paper tests the theory of opportunistic cycles in a decade-old democracy—Russia—finds strong evidence of cycles, and provides an explanation for why previous literature often found weaker evidence. Using regional monthly panel data, we find that (1) the budget cycle is sizable and short-lived; public spending shifts toward direct monetary transfers to voters; (2) the magnitude of the cycle decreases with democracy, government transparency, media freedom, voter awareness, and over time; and (3) preelectoral manipulation increases incumbents' chances for reelection. The short length of the cycle explains underestimation of its size by previous literature because of low frequency data used in previous studies.
TL;DR: In this paper, the authors investigate how integration of bank ownership across states has affected economic volatility within states and conclude that bank integration could cause higher or lower volatility, depending on whether credit supply or credit demand shocks predominate.
Abstract: We investigate how integration of bank ownership across states has affected economic volatility within states. In theory, bank integration could cause higher or lower volatility, depending on whether credit supply or credit demand shocks predominate. In fact, year-to-year fluctuations in a state’s economic growth fall as its banks become more integrated (via holding companies) with banks in other states. As the bank linkages between any pair of states increase, fluctuations in those two states tend to converge. We conclude that interstate banking has made state business cycles smaller, but more alike. I. INTRODUCTION The United States banking system was once anything but united. Until 1978, every state in the union barred banks from other states, so instead of one national banking system, we had more like 50 little banking systems, one per state. 1 Once states opened their borders to out-of-state banks, bank holding companies marched in and bought up (or merged with) banks all over the country. In 1975, just 10 percent of the bank assets in the typical state were owned by a multistate bank holding company. By 1994 this interstate bank asset ratio had risen to 60 percent (Figure I). Our paper investigates how the advent of interstate banking integration in the United States has affected economic volatility within states. With the United States’ balkanized banking system, the fate of a state and its banks were closely tied; as went the state, so went the banks. The farm price deflation in the early 1980s bankrupted many farmers and many farm banks. Falling oil prices in the mid-1980s wiped out a lot of Texans and a lot of Texas banks. Shocks to commodity prices probably caused these contractions, but frictions in the banking sector may have aggravated them. By allowing a freer flow of bank capital and lending among states, we maintain that interstate banking will reduce the drag that banking frictions can have on economic contractions.
TL;DR: In this paper, the authors combine data from bilateral negotiations in the sportscard market with complementary field experiments to provide evidence that discrimination exists in various markets, but they rarely allow the analyst to draw conclusions concerning the nature of discrimination.
Abstract: Empirical studies have provided evidence that discrimination exists in various markets, but they rarely allow the analyst to draw conclusions concerning the nature of discrimination. By combining data from bilateral negotiations in the Sportscard market with complementary field experiments, this study provides a framework that amends this shortcoming. The experimental design, which includes data gathered from more than 1100 market participants, provides sharp findings: (i) there is a strong tendency for minorities to receive initial and final offers that are inferior to those received by majorities, and (ii) overall, the data indicate that the observed discrimination is not due to animus, but represents statistical discrimination.
TL;DR: In this paper, the authors proposed a model in which investors fear (but do not necessarily experience) future liquidity shocks, in which they are better off if they can wait out the storm and realize the eventual expected asset value.
Abstract: In contrast to the financial institutions literature (e.g., Diamond and Dybvig [1983]), runs on financial markets have not been a prime subject of inquiry. Our paper offers such a model, in which investors fear (but do not necessarily experience) future liquidity shocks. This creates two scenarios. In the good scenario, a risk-neutral public holds most of the risky shares. Investors hit by a liquidity shock in the future will sell to the risk-averse market-making sector at a “low-inventory price,” which will be close to the risk-neutral value of the asset. In the good scenario, the market-making sector provides the public with low-cost insurance against liquidity shocks. In the bad scenario, every investor conjectures that other investors intend to sell today, thus causing a “run.” By joining the pool of selling requests today, an individual investor can expect to receive the average price that is necessary to induce the marketmaking sector to absorb all tendered shares today. The investor’s alternative is to not enter the pool and instead to hold onto the shares. In making this decision, this investor is better off if he can wait out the storm and realize the eventual expected asset value. However, if he were randomly hit by the possible liquidity shock, this investor would need to sell his shares behind the rest of the public. But, with the market-making sector already holding the shares of other investors who had joined the run, this postrun price will be worse than the average in-run price today. If the average in-run price is greater than the expected payoff achieved by waiting, this investor will join the herd and also sell into the run. If other investors act alike, the conjecture that other inves
TL;DR: The authors investigated how contractual incompleteness affects asset ownership in trucking by examining cross-sectional patterns in truck ownership and how truck ownership has changed with the diffusion of on-board computers (OBCs).
Abstract: We investigate how contractual incompleteness affects asset ownership in trucking by examining cross-sectional patterns in truck ownership and how truck ownership has changed with the diffusion of on-board computers (OBCs). We find that driver ownership of trucks is greater for long than short hauls, and when hauls require equipment for which demands are unidirectional rather than bidirectional. We then find that driver ownership decreases with OBC adoption, particularly for longer hauls. These results are consistent with the hypothesis that truck ownership reflects trade-offs between driving incentives and bargaining costs, and indicate that improvements in the contracting environment have led to less independent contracting and larger firms.
TL;DR: This paper investigated the potential effects of three types of specification error: aggregation over time, aggregation over firms with heterogeneous demand shocks, and estimation of a convex adjustment-cost technology in the presence of nonconvex discrete adjustment costs.
Abstract: I estimate adjustment costs for labor and capital from the Euler equations for factor demand. For both factors, I find relatively strong evidence against substantial adjustment costs. My estimates use annual data from two-digit industries. My results support the view that rents arising from adjustment costs are relatively small and are not an important part of the explanation of the large movements of the values of corporations in relation to the reproduction costs of their capital. I investigate the potential effects of three types of specification error: (1) aggregation over time, (2) aggregation over firms with heterogeneous demand shocks, and (3) estimation of a convex adjustment-cost technology in the presence of nonconvex discrete adjustment costs. I find that the likely biases from these specification errors are relatively small.
TL;DR: In this paper, the authors investigate the effect of public policies designed to increase usage of preexisting vaccines on the adoption of new vaccines and find that these policies were associated with a 2.5-fold increase in clinical trials for new vaccines.
Abstract: Public policies designed to increase utilization of existing technologies may also affect incentives to develop new technologies. This paper investigates this phenomenon by examining policies designed to increase usage of preexisting vaccines. I find that these policies were associated with a 2.5-fold increase in clinical trials for new vaccines. For several diseases, the induced innovation is socially wasteful, though small in magnitude. In one case, however, the "dynamic" social welfare benefits from induced innovation exceed the policies' "static" benefits from increasing vaccination with existing technology. These findings underscore the importance of including technological progress in economic analysis of public policy.
TL;DR: In this paper, the authors introduce investor protection into a standard overlapping generations model of capital accumulation, and assess the widely held affirmative view that investor protection fosters economic growth, and predict that the (positive) effect of investor protection on growth is stronger for countries with lower restrictions.
Abstract: Does investor protection foster economic growth? To assess the widely held affirmative view, we introduce investor protection into a standard overlapping generations model of capital accumulation. Better investor protection implies better risk sharing. Because of entrepreneurs' risk aversion, this results in a larger demand for capital. This is the demand effect. A second effect (the supply effect) follows from general equilibrium restrictions. Better protection (i.e., higher demand) increases the interest rate and lowers the income of entrepreneurs, decreasing current savings and next period's supply of capital. The supply effect is stronger the tighter are the restrictions on capital flows. Our model thus predicts that the (positive) effect of investor protection on growth is stronger for countries with lower restrictions. Cross-country data provide support for this prediction, as does the detailed examination of the growth experiences of South Korea and India.