Showing papers in "Quarterly Journal of Economics in 2007"

Do Women Shy Away From Competition? Do Men Compete Too Much?

Abstract: We examine whether men and women of the same ability differ in their selection into a competitive environment. Participants in a laboratory experiment solve a real task, first under a noncompetitive piece rate and then a competitive tournament incentive scheme. Although there are no gender differences in performance, men select the tournament twice as much as women when choosing their compensation scheme for the next performance. While 73 percent of the men select the tournament, only 35 percent of the women make this choice. This gender gap in tournament entry is not explained by performance, and factors such as risk and feedback aversion only playa negligible role. Instead, the tournament-entry gap is driven by men being more overconfident and by gender differences in preferences for performing in a competition. The result is that women shy away from competition and men embrace it.

The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector

Abstract: When information is limited or costly, agents are unable to engage in optimal arbitrage. Excess price dispersion across markets can arise, and goods may not be allocated efficiently. In this setting, information technologies may improve market performance and increase welfare. Between 1997 and 2001, mobile phone service was introduced throughout Kerala, a state in India with a large fishing industry. Using microlevel survey data, we show that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion, the complete elimination of waste, and near-perfect adherence to the Law of One Price. Both consumer and producer welfare increased.

Measuring and Explaining Management Practices Across Firms and Countries

Abstract: We use an innovative survey tool to collect management practice data from 732 medium sized manufacturing firms in the US, France, Germany and the UK. These measures of managerial practice are strongly associated with firm-level productivity, profitability, Tobin’s Q, sales growth and survival rates. Management practices also display significant cross-country differences with US firms on average better managed than European firms, and significant within-country differences with a long tail of extremely badly managed firms. We find that poor management practices are more prevalent when (a) product market competition is weak and/or when (b) family-owned firms pass management control down to the eldest sons (primo geniture). European firms report lower levels of competition, while French and British firms also report substantially higher levels of primo geniture due to the influence of Norman legal origin and generous estate duty for family firms. We calculate that product market competition and family firms account for about half of the long tail of badly managed firms and up to two thirds of the American advantage over Europe in management practices.

The Fox News Effect: Media Bias and Voting

Abstract: Does media bias affect voting? We analyze the entry of Fox News in cable markets and its impact on voting. Between October 1996 and November 2000, the conservative Fox News Channel was introduced i ...

Did Highways Cause Suburbanization

Abstract: Between 1950 and 1990, the aggregate population of central cities in the United States declined by 17 percent despite population growth of 72 percent in metropolitan areas as a whole. This paper assesses the extent to which the construction of new limited access highways has contributed to central city population decline. Using planned portions of the interstate highway system as a source of exogenous variation, empirical estimates indicate that one new highway passing through a central city reduces its population by about 18 percent. Estimates imply that aggregate central city population would have grown by about 8 percent had the interstate highway system not been built.

Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade

Abstract: When relationship-specific investments are necessary for production, under-investment occurs if contracts cannot be enforced. The efficiency loss from under-investment will differ across industries depending on the importance of relationship-specific investments in the production process. As a consequence, a country’s contracting environment may be an important determinant of comparative advantage. To test for this, I construct measures of the efficiency of contract enforcement across countries and the importance of relationship-specific investments across industries. I find that countries with better contract enforcement specialize in industries that rely heavily on relationshipspecific investments. This is true even after controlling for traditional determinants of comparative advantage such as endowments of capital and skilled labor.

Disease and Development: Evidence from Hookworm Eradication in the American South

Abstract: This study evaluates the economic consequences of the successful eradication of hookworm disease from the American South. The hookworm-eradication campaign (c. 1910) began soon after (i) the discovery that a variety of health problems among Southerners could be attributed to the disease and (ii) the donation by John D. Rockefeller of a substantial sum to the effort. The Rockefeller Sanitary Commission (RSC) surveyed infection rates in the affected areas (eleven southern states) and found that an average of forty percent of school-aged children were infected with hookworm. The RSC then sponsored treatment and education campaigns across the region. Follow-up studies indicate that this campaign substantially reduced hookworm disease almost immediately. The sudden introduction of this treatment combines with the cross-area differences in pre-treatment infection rates to form the basis of the identification strategy. Areas with higher levels of hookworm infection prior to the RSC experienced greater increases in school enrollment, attendance, and literacy after the intervention. This result is robust to controlling for a variety of alternative factors, including differential trends across areas, changing crop prices, shifts in certain educational and health policies, and the effect of malaria eradication. No significant contemporaneous results are found for adults, who should have benefited less from the intervention owing to their substantially lower (prior) infection rates. A long-term follow-up of affected cohorts indicates a substantial gain in income that coincided with exposure to hookworm eradication. I also find evidence that eradication increased the return to schooling.

The Value of Life and the Rise in Health Spending

Abstract: Over the past half century, Americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result. Debate on health policy often focuses on limiting the growth of health spending. We investigate an issue central to this debate: Is the growth of health spending a rational response to changing economic conditions—notably the growth of income per person? We develop a model based on standard economic assumptions and argue that this is indeed the case. Standard preferences— of the kind used widely in economics to study consumption, asset pricing, and labor supply—imply that health spending is a superior good with an income elasticity well above one. As people get richer and consumption rises, the marginal utility of consumption falls rapidly. Spending on health to extend life allows individuals to purchase additional periods of utility. The marginal utility of life extension does not decline. As a result, the optimal composition of total spending shifts toward health, and the health share grows along with income. In projections based on the quantitative analysis of our model, the optimal health share of spending seems likely to exceed 30 percent by the middle of the century.

Remedying education: Evidence from two randomized experiments in india

Abstract: This paper presents the results of a two-year randomized evaluation of a large scale remedial education program conducted in Mumbai and Vadodara India. The remedial education program hires young women from the community to teach basic literacy and numeracy skills to children who reach standard three or four without having mastered these competencies. The program implemented by a NGO in collaboration with the government is extremely cheap (it cost 5 dollars per child per year) and is easily replicable: It has been implemented in 20 Indian cities and reached tens of thousands of children. We find the program to be very effective: On average it increased learning by 0.15 standard deviations in the first year and 0.25 in the second year. The gains are the largest for children at the bottom of the distribution: Children in the bottom third gain 0.2 standard deviations in the first year and 0.32 in the second year. In math they gain 0.51 standard deviation in the second year. The results are similar in the two grade levels and in the two cities. At the margin extending this program would be up to 12-16 times more cost effective than hiring new teachers. (authors)

Selection, Growth, and the Size Distribution of Firms

Abstract: This paper describes an analytically tractable model of balanced growth that is consistent with the observed size distribution of firms. Growth is the result of idiosyncratic firm productivity improvements, selection of successful firms, and imitation by entrants. Selection tends to improve aggregate productivity at a fast rate if entry and imitation are easy. The empirical phenomenon of Zipf's law can be interpreted to mean that entry costs are high or that imitation is difficult, or both. The small size of entrants indicates that imitation must be difficult. A calibration based on U. S. data suggests that about half of output growth can be attributed to selection. But the implied variance of the combined preference and technology shocks is puzzlingly high.

From the Cradle to the Labor Market? The Effect of Birth Weight on Adult Outcomes

Abstract: Lower birth weight babies have worse outcomes, both short-run in terms of one-year mortality rates and longer run in terms of educational attainment and earnings. However, recent research has called into question whether birth weight itself is important or whether it simply reflects other hard-to-measure characteristics. By applying within twin techniques using an unusually rich dataset from Norway, we examine the effects of birth weight on both short-run and long-run outcomes for the same cohorts. We find that birth weight does matter; despite short-run twin fixed effects estimates that are much smaller than OLS estimates, the effects on longer-run outcomes such as adult height, IQ, earnings, and education are significant and similar in magnitude to OLS estimates.

Inside the Family Firm: The Role of Families in Succession Decisions and Performance

Abstract: This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making, and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or an external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO’s first-born child. This is a plausible instrumental variable (IV) as male firstchild firms are more likely to pass on control to a family CEO relative to female first-child firms, but the gender of a first child is unlikely to affect firms’ outcomes. We find that family successions have a large negative causal impact on firm performance: operating profitability on assets falls by at least four percentage points around CEO transitions. Our IV estimates are significantly larger than those obtained using ordinary least squares. Furthermore, we show that family-CEO underperformance is particularly large for firms in high-growth industries and for relatively large firms. Overall, the empirical results demonstrate that professional non-family CEOs provide extremely valuable services to the organizations they head.

Measuring Trends in Leisure: The Allocation of Time Over Five Decades

Abstract: In this paper, we use five decades of time-use surveys to document trends in the allocation of time within the United States. We find that a dramatic increase in leisure time lies behind the relatively stable number of market hours worked between 1965 and 2003. Specifically, using a variety of definitions for leisure, we show that leisure for men increased by roughly six to nine hours per week (driven by a decline in market work hours) and for women by roughly four to eight hours per week (driven by a decline in home production work hours). Lastly, we document a growing inequality in leisure that is the mirror image of the growing inequality of wages and expenditures, making welfare calculation based solely on the latter series incomplete.

Returns to Capital in Microenterprises: Evidence from a Field Experiment

Abstract: Small and informal firms account for a large share of employment in developing countries. The rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity. However, measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock. The authors use a randomized experiment to overcome this problem and to measure the return to capital for the average microenterprise in their sample, regardless of whether they apply for credit. They accomplish this by providing cash and equipment grants to small firms in Sri Lanka, and measuring the increase in profits arising from this exogenous (positive) shock to capital stock. After controlling for possible spillover effects, the authors find the average real return to capital to be 5.7 percent a month, substantially higher than the market interest rate. They then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns. Returns are found to vary with entrepreneurial ability and with measures of other sources of cash within the household, but not to vary with risk aversion or uncertainty.

Does Head Start Improve Children's Life Chances? Evidence from a Regression Discontinuity Design

Abstract: This paper exploits a new source of variation in Head Start funding to identify the program’s effects on health and schooling. In 1965 the Office of Economic Opportunity (OEO) provided technical assistance to the 300 poorest counties to develop Head Start proposals. The result was a large and lasting discontinuity in Head Start funding rates at the OEO cutoff for grant-writing assistance. We find evidence of a large drop at the OEO cutoff in mortality rates for children from causes that could be affected by Head Start, as well as suggestive evidence for a positive effect on educational attainment. I. INTRODUCTION Head Start was established in 1965 as part of the War on Poverty to provide preschool, health, and other social services to poor children age three to five and their families, and currently serves over 900,000 children each year at a cost of around $7 billion [HHS 2006]. This paper provides new evidence on the effects of the Head Start program on schooling and health by drawing on a new source of variation in program funding. Spe

Accounting for the Effect Of Health on Economic Growth

Abstract: I use microeconomic estimates of the effect of health on individual outcomes to construct macroeconomic estimates of the proximate effect of health on GDP per capita. I employ a variety of methods to construct estimates of the return to health, which I combine with cross-country and historical data on height, adult survival rates, and age at menarche. Using my preferred estimate, eliminating health differences among countries would reduce the variance of log GDP per worker by 9.9 percent and reduce the ratio of GDP per worker at the 90th percentile to GDP per worker at the lOth percentile from 20.5 to 17.9. While this effect is economically significant, it is also substantially smaller than estimates of the effect of health on economic growth that are derived from cross-country regressions.

How Does Information Technology Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement, and Worker Skills

Abstract: To study the effects of new information technologies (IT) on productivity, we have assembled a unique data set on plants in one narrowly defined industry— valve manufacturing—and analyze several plant-level mechanisms through which IT could promote productivity growth. The empirical analysis reveals three main results. First, plants that adopt new IT-enhanced equipment also shift their business strategies by producing more customized valve products. Second, new IT investments improve the efficiency of all stages of the production process by reducing setup times, run times, and inspection times. The reductions in setup times are theoretically important because they make it less costly to switch production from one product to another and support the change in business strategy to more customized production. Third, adoption of new IT-enhanced capital equipment coincides with increases in the skill requirements of machine operators, notably technical and problem-solving skills, and with the adoption of new human resource practices to support these skills.

Volatility and Development

Abstract: Why is GDP growth so much more volatile in poor countries than in rich ones? We identify four possible reasons: (i) poor countries specialize in more volatile sectors; (ii) poor countries specialize in fewer sectors; (iii) poor countries experience more frequent and more severe aggregate shocks (e.g. from macroeconomic policy); and (iv) poor countries' macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in. We show how to decompose volatility into these four sources, quantify their contribution to aggregate volatility, and study how they relate to the stage of development. We document the following regularities. First, as countries develop, their productive structure moves from more volatile to less volatile sectors. Second, the level of specialization declines with development at early stages, and slowly increases at later stages of development. Third, the volatility of country- specific macroeconomic shocks falls with development. Fourth, the covariance between sector-specific and country-specific shocks does not vary systematically with the level of development. We argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work.

Power to the people : evidence from a randomized field experiment on community-based monitoring in Uganda

Abstract: This brief summarizes the results of a gender impact evaluation study, entitled Power to the people : evidence from a randomized field experiment on community-based monitoring in Uganda, intervention started in 2004 and consisted of a training and a six month follow up in Uganda. The study observed that localized nongovernmental organizations encouraged communities to be more involved with the state of health service provision and strengthened their capacity to hold their local health providers to account for performance. The community based monitoring project increased the quality and quantity of primary health care provision. The program led to a significant increase in the weight of infants by .14 z scores and a significant decrease in child mortality by 33. Utilization of outpatient services was significantly higher (20 percent) in the treatment group and the overall effect across utilization measures is large and significant. Funding for the study derived from Bank-Netherlands Partnership Program, World Bank Research Committee, World Bank Africa Region division, Swedish International Development Agency, Department for Research Cooperation.

The Marginal Product of Capital

Abstract: Whether or not the marginal product of capital (MPK) differs across countries is a question that keeps coming up in discussions of comparative economic development and patterns of capital flows. Using easily accessible macroeconomic data we find that MPKs are remarkably similar across countries. Hence, there is no prima facie support for the view that international credit frictions play a major role in preventing capital flows from rich to poor countries. Lower capital ratios in these countries are instead attributable to lower endowments of complementary factors and lower efficiency, as well as to lower prices of output goods relative to capital. We also show that properly accounting for the share of income accruing to reproducible capital is critical to reach these conclusions. One implication of our findings is that increased aid flows to developing countries will not significantly increase these countries’ capital stocks and incomes. I. INTRODUCTION Is the world’s capital stock efficiently allocated across countries? If so, then all countries have roughly the same aggregate marginal product of capital (MPK). If not, the MPK will vary substantially from country to country. In the latter case, the world foregoes an opportunity to increase global GDP by reallocating capital from low to high MPK countries. The policy implications are far reaching. Given the enormous cross-country differences in observed capital-labor ratios (they vary by a factor of 100 in the data used in this paper) it may seem obvious that the MPK must vary dramatically as well. In this case we would have to conclude that there are important frictions in international capital markets that prevent an efficient cross-country allocation of capital. 1 However, as Lucas [1990] pointed out in his celebrated article, poor countries also have lower endowments of factors complementary with physical capital, such as human capital, and lower total

News Droughts, News Floods, and U. S. Disaster Relief

Abstract: This paper studies the influence of mass media on U. S. government response to approximately 5,000 natural disasters occurring between 1968 and 2002. These disasters took nearly 63,000 lives and affected 125 million people per year. We show that U. S. relief depends on whether the disaster occurs at the same time as other newsworthy events, such as the Olympic Games, which are obviously unrelated to need. We argue that the only plausible explanation of this is that relief decisions are driven by news coverage of disasters and that the other newsworthy material crowds out this news coverage.

The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare

Abstract: This paper investigates the effects of market-wide changes in health insurance by examining the single largest change in health insurance coverage in American history: the introduction of Medicare in 1965. I estimate that the impact of Medicare on hospital spending is over six times larger than what the evidence from individual-level changes in health insurance would have predicted. This disproportionately larger effect may arise if market-wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles. I present some evidence of these types of effects. A back of the envelope calculation based on the estimated impact of Medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period.

Obtaining a Driver's License in India: An Experimental Approach to Studying Corruption

Abstract: We conduct two experiments to understand the process of obtaining a driver’s license in India. In the first experiment, we randomly assign license candidates to one of three groups: bonus (offered a financial reward if they could obtain their license fast), lesson (offered free driving lessons upfront), and control. The control group alone illustrates bureaucratic failures: 71% of the license getters in that group avoided the mandated driving test and 62% failed a surprise driving test. The system responds to private needs— there are more license getters in the bonus group—but at a social cost: there are more license getters who cannot drive in the bonus group. The system however also appears to respond to social considerations, as there are more license getters in the lesson group. Large extra-legal payments are made by license getters: those in the control group pay 2.5 times the official fee. More of these extra-legal payments take place in the bonus group. Surprisingly, these extra-legal payments are not direct bribes to bureaucrats but instead payments to agents. In the second experiment, we perform an audit study to better understand the role of agents. The audit shows that agents can provide licenses to individuals even if they cannot drive; but the audit also shows that agents cannot as easily circumvent all other rules. We argue that our findings are most consistent with agents being the channel for corruption in this system. We also report some suggestive evidence that bureaucrats create red tape, possibly to induce more license candidates to use agents.

Technology, Information, and the Decentralization of the Firm

Abstract: This paper analyzes the relationship between the diffusion of new technologies and the decentralization of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the other hand, delegates authority to a manager with superior information. However, the manager can use his informational advantage to make choices that are not in the best interest of the principal. As the available public information about the specific technology increases, the tradeoff shifts in favor of centralization. We show that firms closer to the technological frontier, firms in more heterogeneous environments, and younger firms are more likely to choose decentralization. Using three data sets on French and British firms in the 1990s, we report robust correlations consistent with these predictions.

The Illusion of Sustainability

Abstract: This brief summarizes the results of a gender impact evaluation study, entitled The illusion of sustainability, conducted during the time period 1998 to 2001 in Kenya. The study observed that deworming is a public good since much of its social benefit comes through reduced disease transmission. People were less likely to take deworming if their direct first-order or indirect second-order social contacts were exposed to deworming. The introduction of a small fee for deworming drugs led to an 80 percent reduction in treatment rates. Take-up was not sensitive to the exact price level, suggesting that it is particularly counter-productive to charge small positive prices for the treatment of infectious diseases. An intensive school health education had no impact on worm prevention. Funding for the study derived from World Bank, NIH Fogarty International Center, Berkeley Center for Health Research.

Entitled to Work: Urban Property Rights and Labor Supply in Peru

Abstract: This brief summarizes the results of a gender impact evaluation study, entitled Entitled to work : urban property rights and labor supply in Peru, new legal rights were issued in 1996; project teams providing titling service through 2003, in Peru. The study observed that between 1996 and 2003, the Peruvian government issued property titles to over 1.2 million urban households, the largest titling program targeted at urban squatters in the developing world. This paper examines the labor market effects of increases in tenure security resulting from the program. Pre-program squatters in program neighborhoods were significantly more likely to report improved tenure security, by 60 percent. Similarly, program participants were 18.8 percentage points less likely to report a high likelihood of eviction or invasion and 18.8 percentage points more likely to report that their dwelling was currently very secure from eviction or invasion. The likelihood of working inside the home significantly falls by 11.6 percentage points for the average squatter family with two program periods.

Incentives for Managers and Inequality among Workers: Evidence from a Firm-Level Experiment

Abstract: We present evidence from a firm level experiment in which we engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower-tier workers. Theory suggests that managerial incentives affect both the mean and dispersion of workers’ productivity through two channels. First, managers respond to incentives by targeting their efforts towards more able workers, implying that both the mean and the dispersion increase. Second, managers select out the least able workers, implying that the mean increases but the dispersion may decrease. In our field experiment we find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity. Analysis of individual level productivity data shows that managers target their effort towards high ability workers, and the least able workers are less likely to be selected into employment. These results highlight the interplay between the provision of managerial incentives and earnings inequality among lower-tier workers.

The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters

Abstract: We study the formation of beliefs in a squatter settlement in the outskirts of Buenos Aires exploiting a natural experiment that induced an allocation of property rights that is exogenous to the characteristics of the squatters. There are significant differences in the beliefs that squatters with and without land titles declare to hold. Lucky squatters who end up with legal titles report beliefs closer to those that favor the workings of a free market. Examples include materialist and individualist beliefs (such as the belief that money is important for happiness or the belief that one can be successful without the support of a large group). The effects appear large. The value of a (generated) index of "market" beliefs is 20 percent higher for titled squatters than for untitled squatters, in spite of leading otherwise similar lives. Moreover, the effect is sufficiently large so as to make the beliefs of the squatters with legal titles broadly comparable to those of the general Buenos Aires population, in spite of the large differences in the lives they lead.

Consumption Commitments and Risk Preferences

Abstract: Many households devote a large fraction of their budgets to “consumption commitments”— goods that involve transaction costs and are infrequently adjusted. This paper characterizes risk preferences in an expected utility model with commitments. We show that commitments affect risk preferences in two ways: (1) they amplify risk aversion with respect to moderate-stake shocks, and (2) they create a motive to take large-payoff gambles. The model thus helps resolve two basic puzzles in expected utility theory: the discrepancy between moderate-stake and large-stake risk aversion and lottery playing by insurance buyers. We discuss applications of the model such as the optimal design of social insurance and tax policies, added worker effects in labor supply, and portfolio choice. Using event studies of unemployment shocks, we document evidence consistent with the consumption adjustment patterns implied by the model. Many households have “consumption commitments” that are costly to adjust when shocks such as job loss or illness occur. For example, most homeowners do not move during unemployment spells and have a commitment to make mortgage payments. Consumption of many other durable goods (vehicles, furniture) and services (insurance, utilities) may also be difficult to adjust. Data on household consumption behavior show that more than 50 percent of the average household’s budget is fixed over moderate income shocks (see Section I). This paper argues that incorporating consumption commitments into the analysis of risk preferences can help explain several stylized facts and yields a set of new normative implications. The canonical expected utility model of risk preferences does not allow for commitments because it assumes that agents consume a single composite commodity. This assumption requires that agents can substitute freely among goods at all times. When some goods cannot be costlessly adjusted, a composite commodity does not exist, and the standard expected utility model cannot be applied. We analyze the effect of commitments on risk preferences in a model where agents consume two goods— one that requires

How Large are the Effects from Changes in Family Environment? A Study of Korean American Adoptees

Abstract: I analyze a new set of data on Korean American adoptees who were quasi-randomly assigned to adoptive families. I find large effects on adoptees' education, income, and health from assignment to parents with more education and from assignment to smaller families. Parental education and family size are significantly more correlated with adoptee outcomes than are parental income or neighborhood characteristics. Outcomes such as drinking, smoking, and the selectivity of college attended are more determined by nurture than is educational attainment. Using the standard behavioral genetics variance decomposition, I find that shared family environment explains 14 percent of the variation in educational attainment, 35 percent ofthe variation in college selectivity, and 33 percent of the variation in drinking behavior.