Showing papers in "Quarterly Journal of Economics in 2010"
TL;DR: In this paper, satellite-generated data on terrain elevation and presence of water bodies were used to estimate the amount of developable land in U.S. metropolitan areas and found that residential development is effectively curtailed by the presence of steep-sloped terrain.
Abstract: I process satellite-generated data on terrain elevation and presence of water bodies to precisely estimate the amount of developable land in U.S. metropolitan areas. The data show that residential development is effectively curtailed by the presence of steep-sloped terrain. I also find that most areas in which housing supply is regarded as inelastic are severely land-constrained by their geography. Econometrically, supply elasticities can be well characterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and demographic growth. Geography is a key factor in the contemporaneous urban development of the United States.
1,609 citations
TL;DR: In this paper, the authors investigate the relationship between declines in trade costs, imports of intermediate inputs, and domestic firm product scope, and find that lower input tariffs account on average for 31% of the new products introduced by domestic firms.
Abstract: New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from India to investigate the relationship between declines in trade costs, imports of intermediate inputs, and domestic firm product scope. We estimate substantial gains from trade through access to new imported inputs. Moreover, we find that lower input tariffs account on average for 31% of the new products introduced by domestic firms. This effect is driven to a large extent by increased firm access to new input varieties that were unavailable prior to the trade liberalization.
1,171 citations
TL;DR: The authors found that the perceived returns to secondary school are extremely low, despite high measured returns, and that students at randomly selected schools given information on the higher measured returns completed on average 0.20-0.35 more years of school over the next four years than those who were not.
Abstract: Economists emphasize the link between market returns to education and investments in schooling. Though many studies estimate these returns with earnings data, it is the perceived returns that affect schooling decisions, and these perceptions may be inaccurate. Using survey data for eighth-grade boys in the Dominican Republic, we find that the perceived returns to secondary school are extremely low, despite high measured returns. Students at randomly selected schools given information on the higher measured returns completed on average 0.20–0.35 more years of school over the next four years than those who were not.
1,064 citations
TL;DR: This paper developed falsification tests for three widely used value added modeling (VAM) specifications based on the idea that future teachers cannot influence students' past achievement and found that each of the VAMs' exclusion restrictions are dramatically viola ted.
Abstract: Growing concerns over the inadequate achievement of U.S. students have led to proposals to reward good teachers and penalize (or fire) bad ones . The leading method for assessing teacher quality is “value added” modeling (VAM), which decomposes students’ test scores into components attributed to student heterogeneity and to teacher quality. Implicit in the VAM approach are strong assumptions about the nature of the educational production function and the assignment of students to classrooms. In this paper, I develop falsification tests for three widely used VAM specifications , based on the idea that future teachers cannot influence students’ past achievement. In da ta from North Carolina, each of the VAMs’ exclusion restrictions are dramatically viola ted. In particular, these models indicate large “effects” of 5th grade teachers on 4th grade t est score gains. I also find that conventional measures of individual teachers’ value added fade out very quickly and are at best weakly related to long-run effects. I discuss implic ations for the use of VAMs as personnel tools.
896 citations
TL;DR: The authors found that distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria, and that individuals in low trust countries want more government intervention even though the government is corrupt.
Abstract: In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government's role, as well as on changes in beliefs and in trust during the transition from socialism.
716 citations
TL;DR: In this paper, the authors weigh into the debate about whether rising productiv- ity is ever a consequence rather than a cause of exporting, and they find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labour productivity, engaged in more product innovation, and had high adoption rates of advanced manufacturing technologies.
Abstract: We weigh into the debate about whether rising productiv- ity is ever a consequence rather than a cause of exporting. Export- ing and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such invest- ments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz (2003). We model this econometrically using a heterogeneous response model. Unique 'plant-specific' tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labour productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labour productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our com- plementarity theory.
616 citations
TL;DR: This paper showed that exchange rates are strongly forward-looking, whereas commodity price fluctuations are typically more sensitive to short-term demand imbalances, and they also explored the reverse relationship (commodity prices forecasting exchange rates) but find it to be notably less robust.
Abstract: We show that “commodity currency” exchange rates have surprisingly robust power in predicting global commodity prices, both in-sample and out-of-sample, and against a variety of alternative benchmarks. This result is of particular interest to policy makers, given the lack of deep forward markets in many individual commodities, and broad aggregate commodity indices in particular. We also explore the reverse relationship (commodity prices forecasting exchange rates) but find it to be notably less robust. We offer a theoretical resolution, based on the fact that exchange rates are strongly forward-looking, whereas commodity price fluctuations are typically more sensitive to short-term demand imbalances.
615 citations
TL;DR: This article analyzed a consumer credit marketing field experiment in South Africa, where the bank offered loans with repayment periods ranging from 4 to 18 months, and deadlines for response were randomly allocated from 2 weeks to 6 weeks.
Abstract: This brief summarizes what's advertising content worth? Evidence from a consumer credit marketing field experiment in South Africa. The bank offered loans with repayment periods ranging from 4 to 18 months. Deadlines for response were randomly allocated from 2 weeks to 6 weeks. Firms spend billions of dollars developing advertising content, yet there is little field evidence on how much or how it affects demand. The author analyze a direct mail field experiment in South Africa implemented by a consumer lender that randomized advertising content, loan price, and loan offer deadlines simultaneously. The author fined that advertising content significantly affects demand. Although it was difficult to predict ex ante which specific advertising features will matter most in this context, the features that do matter have large effects. Showing fewer example loans, not suggesting a particular use for the loan, or including a photo of an attractive woman increases loan demand by about as much as a 25 percent reduction in the interest rate. The evidence also suggests that advertising content persuades by appealing 'peripherally' to intuition rather than reason. Although the advertising content effects point to an important role for persuasion and related psychology, our deadline results do not support the psychological prediction that shorter deadlines may help overcome time-management problems; instead, demand strongly increases with longer deadlines.
560 citations
TL;DR: This article used Social Security Administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the United States and found that long-term mobility among all workers has increased since the 1950s but has slightly declined among men.
Abstract: This paper uses Social Security Administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the United States. Annual earnings inequality is U-shaped, decreasing sharply up to 1953 and increasing steadily afterward. Short-term earnings mobility measures are stable over the full period except for a temporary surge during World War II. Virtually all of the increase in the variance in annual (log) earnings since 1970 is due to increase in the variance of permanent earnings (as opposed to transitory earnings). Mobility at the top of the earnings distribution is stable and has not mitigated the dramatic increase in annual earnings concentration since the 1970s. Long-term mobility among all workers has increased since the 1950s but has slightly declined among men. The decrease in the gender earnings gap and the resulting substantial increase in upward mobility over a lifetime for women are the driving force behind the increase in long-term mobility among all workers.
546 citations
TL;DR: In this article, the authors investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation and the time path of aggregate productivity across countries, and find that productivity catch-up in industry explains about 50 percent of the gains in aggregate productivity.
Abstract: We investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation - the secular reallocation of labor across sectors - and the time path of aggregate productivity across countries. Using a simple model of the structural transformation that is calibrated to the growth experience of the United States, we measure sectoral labor productivity differences across countries. Productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing. Moreover, over time, productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services. In the model, these sectoral productivity patterns generate implications that are broadly consistent with the cross-country evidence on the structural transformation, aggregate productivity paths, and relative prices. We show that productivity catch-up in industry explains about 50 percent of the gains in aggregate productivity across countries, while low relative productivity in services and the lack of catch-up explains all the experiences of slowdown, stagnation, and decline observed across countries.
531 citations
TL;DR: In this article, the authors estimate the value of school facility investments using housing markets, and show that passing a referendum causes immediate, sizable increases in home prices, implying a willingness to pay on the part of marginal homebuyers of $1.50 or more for each $1 of capital spending.
Abstract: Author(s): Cellini, Stephanie Riegg; Ferreira, Fernando; Rothstein, Jesse | Abstract: Despite extensive public infrastructure spending, surprisingly little is known about its economic return. In this paper, we estimate the value of school facility investments using housing markets: standard models of local public goods imply that school districts should spend up to the point where marginal increases would have zero effect on local housing prices. Our research design isolates exogenous variation in investments by comparing school districts where referenda on bond issues targeted to fund capital expenditures passed and failed by narrow margins. We extend this traditional regression discontinuity approach to identify the dynamic treatment effects of bond authorization on local housing prices, student achievement, and district composition. Our results indicate that California school districts underinvest in school facilities: passing a referendum causes immediate, sizable increases in home prices, implying a willingness to pay on the part of marginal homebuyers of $1.50 or more for each $1 of capital spending. These effects do not appear to be driven by changes in the income or racial composition of homeowners, and the impact on test scores appears to explain only a small portion of the total housing price effect. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..
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TL;DR: This article measured the effect of competition on bias in the context of analyst earnings forecasts, which are known to be excessively optimistic because of conflicts of interest. And they found that the implied economic effect from their natural experiment is significantly larger than estimates from OLS regressions that do not correct for the endogeneity of coverage, which is much more significant for stocks with little initial analyst coverage or competition.
Abstract: We attempt to measure the effect of competition on bias in the context of analyst earnings forecasts, which are known to be excessively optimistic because of conflicts of interest Our natural experiment for competition is mergers of brokerage houses, which result in the firing of analysts because of redundancy (eg, one of the two oil stock analysts is let go) and other reasons such as culture clash We use this decrease in analyst coverage for stocks covered by both merging houses before the merger (the treatment sample) to measure the causal effect of competition on bias We find that the treatment sample simultaneously experiences a decrease in analyst coverage and an increase in optimism bias the year after the merger relative to a control group of stocks, consistent with competition reducing bias The implied economic effect from our natural experiment is significantly larger than estimates from OLS regressions that do not correct for the endogeneity of coverage This effect is much more significant for stocks with little initial analyst coverage or competition
TL;DR: The authors constructed a matrix showing the share of the year 2000 population in every country that is descended from people in different source countries in the year 1500 and analyzed how post-1500 migration has influenced the level of GDP per capita and within-country income inequality in the world today.
Abstract: We construct a matrix showing the share of the year 2000 population in every country that is descended from people in different source countries in the year 1500. Using this matrix, we analyze how post-1500 migration has influenced the level of GDP per capita and within-country income inequality in the world today. Indicators of early development such as early state history and the timing of transition to agriculture have much better predictive power for current GDP when one looks at the ancestors of the people who currently live in a country than when one considers the history on that country’s territory, without adjusting for migration. Measures of the ethnic or linguistic heterogeneity of a country’s current population do not predict income inequality as well as measures of the ethnic or linguistic heterogeneity of the current population’s ancestors. An even better predictor of current inequality in a country is the variance of early development history of the country’s inhabitants, with ethnic groups originating in regions having longer histories of agriculture and organized states tending to be at the upper end of a country’s income distribution. However, high within-country variance of early development also predicts higher income per capita, holding constant the average level of early development.
TL;DR: In this article, the authors explored the effect of cost-sharing on the adoption of ITNs and found that women who received free ITNs were not less likely to use them than those who paid subsidized positive prices.
Abstract: It is often argued that cost-sharing—charging a subsidized, positive price—for a health product is necessary to avoid wasting resources on those who will not use or do not need the product. We explore this argument through a field experiment in Kenya, in which we randomized the price at which prenatal clinics could sell long lasting anti-malarial insecticide-treated nets (ITNs) to pregnant women. We find no evidence that costsharing reduces wastage on those that will not use the product: women who received free ITNs are not less likely to use them than those who paid subsidized positive prices. We also find no evidence that costsharing induces selection of women who need the net more: those who pay higher prices appear no sicker than the average prenatal client in the area in terms of measured anemia (an important indicator of malaria). Cost-sharing does, however, considerably dampen demand. We find that uptake drops by 75 percent when the price of ITNs increases from zero to $0.75 (i.e. from 100 to 87.5 percent subsidy), the price at which ITNs are currently sold to pregnant women in Kenya. We combine our estimates in a cost-effectiveness analysis of ITN prices on child mortality that incorporates both private and social returns to ITN usage. Overall, our results suggest that free distribution of ITNs could save many more lives than cost-sharing programs have achieved so far, and, given the large positive externality associated with widespread usage of ITNs, it would likely do so at a lesser cost per life saved.
TL;DR: In this paper, the authors calibrate a multisector menu cost model using new evidence on the cross-sectional distribution of the frequency and size of price changes in the U.S. economy and show that the introduction of heterogeneity in the frequency of price change triples the degree of monetary non-neutrality generated by the model.
Abstract: Empirical evidence suggests that as much as one-third of the U.S. business cycle is due to nominal shocks. We calibrate a multisector menu cost model using new evidence on the cross-sectional distribution of the frequency and size of price changes in the U.S. economy. We augment the model to incorporate intermediate inputs. We show that the introduction of heterogeneity in the frequency of price change triples the degree of monetary non-neutrality generated by the model. We furthermore show that the introduction of intermediate inputs raises the degree of monetary non-neutrality by another factor of three, without adversely affecting the model's ability to match the large average size of price changes. A single-sector model with a frequency of price change equal to the median, rather than the mean, generates monetary non-neutrality similar to that in our multisector model. Our multisector model with intermediate inputs generates variation in real output in response to calibrated aggregate nominal shocks that can account for roughly 23% of the U.S. business cycle.
TL;DR: In this paper, Carrell et al. discuss the role of the professor gender gap in discrimination in higher education, and present a method to counter the bias of the teacher gender gap.
Abstract: NBER WORKING PAPER SERIESSEX AND SCIENCE:HOW PROFESSOR GENDER PERPETUATES THE GENDER GAPScott E. CarrellMarianne E. PageJames E. WestWorking Paper 14959http://www.nber.org/papers/w14959NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts AvenueCambridge, MA 02138May 2009Thanks go to USAFA personnel: J. Putnam, D. Stockburger, R. Schreiner, K. Carson and P. Eglestonfor assistance in obtaining the data, and to Deb West for data entry. Thanks also go to Charlie Brown,Charles Clotfelter, Caroline Hoxby, Deborah Niemeier, Kim Shauman, Catherine Weinberger andseminar participants at NBER Higher Education Working Group, PPIC, SDSU, UC Davis, UC Irvine,and UC Santa Cruz for their helpful comments and suggestions. The views expressed in this articleare those of the authors and do not necessarily reflect the official policy or position of the USAF, DoD,the U.S. Government, or the National Bureau of Economic Research.© 2009 by Scott E. Carrell, Marianne E. Page, and James E. West. All rights reserved. Short sectionsof text, not to exceed two paragraphs, may be quoted without explicit permission provided that fullcredit, including © notice, is given to the source.
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TL;DR: A model of judgment under uncertainty is presented, in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis, which can account for some of the evidence on heuristics and biases presented by Kahneman and Tversky.
Abstract: We present a model of intuitive inference, called “local thinking,” in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. In this model, selected and limited recall of information follows a version of the respresentativeness heuristic. The model can account for some of the evidence on judgment biases, including conjunction and disjunction fallacies, but also for several anomalies related to demand for insurance.
TL;DR: The authors showed that urban whites responded to this black influx by relocating to the suburbs and rule out the indirect effect on urban housing prices as a cause, suggesting that black migrants may have been attracted to areas already undergoing suburbanization, and created an instrument for changes in urban diversity that predicts black migrant flows from southern states and assigns these flows to northern cities according to established settlement patterns.
Abstract: Residential segregation across jurisdiction lines generates disparities in public services and education by race. The distinctive American pattern - in which blacks live in the center city and whites in the suburban ring - was enhanced by black migration from the rural South from 1940-1970. I show that urban whites responded to this black influx by relocating to the suburbs and rule out the indirect effect on urban housing prices as a cause. Black migrants may have been attracted to areas already undergoing suburbanization. I create an instrument for changes in urban diversity that predicts black migrant flows from southern states and assigns these flows to northern cities according to established settlement patterns. The best causal estimates imply that "white flight" explains around 20 percent of suburban growth in the postwar period.
TL;DR: This paper found that more personal fouls are awarded against players when they are officiated by an opposite-race officiating crew than when they were refereed by an own-race refereeing crew.
Abstract: The NBA provides an intriguing place to assess discrimination: referees and players are involved in repeated interactions in a high-pressure setting, with referees making split-second decisions that might allow implicit racial biases to become evident. We find that more personal fouls are awarded against players when they are officiated by an opposite-race officiating crew than when they are officiated by an own-race refereeing crew. These biases are sufficiently large so that they affect the outcome of an appreciable number of games. Our results do not distinguish whether the bias stems from the actions of white or black referees.
TL;DR: The authors empirically show that variable markups that reduce long-run pass-through also reduce the curvature of the proflt function when expressed as a function of the cost shocks, making the flrm less willing to adjust its price.
Abstract: We empirically document using U.S. import prices that on average goods with a high frequency of price adjustment have a long-run pass-through that is at least twice as high as that of low-frequency adjusters. We show theoretically that this relationship should follow because variable mark-ups that reduce long-run pass-through also reduces the curvature of the proflt function when expressed as a function of the cost shocks, making the flrm less willing to adjust its price. Lastly, we quantitatively evaluate a dynamic menu-cost model and show that the variable mark-up channel can generate signiflcant variation in frequency, equivalent to 37% of the observed variation in the data. On the other hand the standard workhorse model with constant elasticity of demand and Calvo or state dependent pricing has di‐culty matching the facts.
TL;DR: The authors proposed an efficiency-adjusted deferred acceptance mechanism (EADAM) that allows a student to consent to waive a certain priority that has no effect on his or her assignment, but may help many others benefit as a consequence.
Abstract: An increasingly popular practice for student assignment to public schools in the United States is the use of school choice systems. The celebrated Gale. Shapley student-optimal stable mechanism (SOSM) has recently replaced two deficient student assignment mechanisms that were in use in New York City and Boston. We provide theoretical evidence that the SOSM outcome may produce large welfare losses. Then we propose an efficiency-adjusted deferred acceptance mechanism (EADAM) that allows a student to consent to waive a certain priority that has no effect on his or her assignment. Under EADAM, consenting students cause themselves no harm, but may help many others benefit as a consequence. We show that EADAM can recover any welfare losses due to SOSM while also preserving immunity against strategic behavior in a particular way. It is also possible to use EADAM to eliminate welfare losses due to randomly breaking ties in student priorities.
TL;DR: In this paper, the authors provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection, and show how this welfare loss can be estimated empirically using identifying variation in the price of insurance.
Abstract: We provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection. We then show how this welfare loss can be estimated empirically using identifying variation in the price of insurance. Such variation, together with quantity data, allows us to estimate the demand for insurance. The same variation, together with cost data, allows us to estimate how insurers’ costs vary as market participants endogenously respond to price. The slope of this estimated cost curve provides a direct test for both the existence and the nature of selection, and the combination of demand and cost curves can be used to estimate welfare. We illustrate our approach by applying it to data on employerprovided health insurance from one specific company. We detect adverse selection but estimate that the quantitative welfare implications associated with inefficient pricing in our particular application are small, in both absolute and relative terms.
TL;DR: In this article, the authors show that in a dynamic rational expectations model with asymmetric information, stock-based compensation not only induces managers to exert costly effort, but also induces them to conceal bad news about future growth options and to choose suboptimal investment policies to support the pretense.
Abstract: The use of stock-based compensation as a solution to agency problems between shareholders and managers has increased dramatically since the early 1990s. We show that in a dynamic rational expectations model with asymmetric information, stock-based compensation not only induces managers to exert costly effort, but also induces them to conceal bad news about future growth options and to choose suboptimal investment policies to support the pretense. This leads to a severe overvaluation and a subsequent crash in the stock price. Our model produces many predictions that are consistent with the empirical evidence and are relevant to understanding the current crisis.
TL;DR: This work combines regression discontinuity estimates that compare health outcomes and medical treatment provision for newborns on either side of the very low birth weight threshold at 1500 grams to suggest the cost of saving a statistical life of a newborn with birth weight near 1500 grams is on the order of $550,000 in 2006 dollars.
Abstract: A key policy question is whether the benefits of additional medical expenditures exceed their costs. We propose a new approach for estimating marginal returns to medical spending based on variation in medical inputs generated by diagnostic thresholds. Specifically, we combine regression discontinuity estimates that compare health outcomes and medical treatment provision for newborns on either side of the very low birth weight threshold at 1500 grams. First, using data on the census of US births in available years from 1983-2002, we find that newborns with birth weights just below 1500 grams have lower one-year mortality rates than do newborns with birth weights just above this cutoff, even though mortality risk tends to decrease with birth weight. One-year mortality falls by approximately one percentage point as birth weight crosses 1500 grams from above, which is large relative to mean infant mortality of 5.5% just above 1500 grams. Second, using hospital discharge records for births in five states in available years from 1991-2006, we find that newborns with birth weights just below 1500 grams have discontinuously higher charges and frequencies of specific medical inputs. Hospital costs increase by approximately $4,000 as birth weight crosses 1500 grams from above, relative to mean hospital costs of $40,000 just above 1500 grams. Under an assumption that observed medical spending fully captures the impact of the "very low birth weight" designation on mortality, our estimates suggest that the cost of saving a statistical life of a newborn with birth weight near 1500 grams is on the order of $550,000 in 2006 dollars.
TL;DR: This article examined the impact on agricultural development of the introduction of barbed wire fencing to the American Plains in the late nineteenth century and found that counties with the least woodland experienced substantial relative increases in settlement, land improvement, land values, and the productivity and production share of crops most in need of protection.
Abstract: This paper examines the impact on agricultural development of the introduction of barbed wire fencing to the American Plains in the late nineteenth century. Without a fence, farmers risked uncompensated damage by others' livestock. From 1880 to 1900, the introduction and near-universal adoption of barbed wire greatly reduced the cost of fences, relative to the predominant wooden fences, especially in counties with the least woodland. Over that period, counties with the least woodland experienced substantial relative increases in settlement, land improvement, land values, and the productivity and production share of crops most in need of protection. This increase in agricultural development appears partly to reflect farmers' increased ability to protect their land from encroachment. States' inability to protect this full bundle of property rights on the frontier, beyond providing formal land titles, might have otherwise restricted agricultural development.
TL;DR: In this paper, the authors studied the revenue effect of varying the level and disclosure of shipping charges in online auctions and found that disclosure has little effect on the number of bidders attracted to an auction.
Abstract: We use …eld and natural experiments in online auctions to study the revenue eect of varying the level and disclosure of shipping charges. Our main …ndings are: (1) disclosure aects revenues— for low shipping charges, a seller is better odisclosing; (2) increasing shipping charges boosts revenues particularly when these charges are hidden; and (3) the level and disclosure of the shipping charge have little eect on the number of bidders attracted to an auction.
TL;DR: In this article, the authors develop a model based on shading, in which the use of authority has a central role, and consider two firms deciding whether to adopt a common standard.
Abstract: The formal literature on firm boundaries has assumed that ex post conflicts are resolved through bargaining. In reality, parties often simply exercise their decision rights. We develop a model, based on shading, in which the use of authority has a central role. We consider two firms deciding whether to adopt a common standard. Nonintegrated firms may fail to coordinate if one firm loses. An integrated firm can internalize the externality, but puts insufficient weight on employee benefits. We use our approach to understand why Cisco acquired StrataCom, a provider of new transmission technology. We also analyze delegation.
TL;DR: In this article, the authors present a model with altruistic parents and heterogeneous productivity, and derive two key properties for optimal estate taxation: the first is that the estate tax should be progressive, so that parents leaving a higher bequest face a lower net return on bequests.
Abstract: We present a model with altruistic parents and heterogeneous productivity. We derive two key properties for optimal estate taxation. First, the estate tax should be progressive, so that parents leaving a higher bequest face a lower net return on bequests. Second, marginal estate taxes should be negative, so that all parents face a marginal subsidy on bequests. Both properties can be implemented with a simple nonlinear tax on bequests, levied separately from the income tax. These results apply to other intergenerational transfers, such as educational investments, and are robust to endogenous fertility choices. Both estate or inheritance taxes can implement the optimal allocation, but we show that the inheritance tax has some advantages. Finally, when we impose an ad hoc constraint requiring marginal estate taxes to be nonnegative, the optimum features a zero tax up to an exemption level, and a progressive tax thereafter.
TL;DR: In this article, the authors proposed a method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers.
Abstract: This paper proposes a novel method of isolating fluctuations in public spending that are likely to be uncorrelated with contemporaneous macroeconomic shocks and can be used to estimate government spending multipliers. The approach relies on two features unique to many low-income countries: (1) borrowing from the World Bank finances a substantial fraction of public spending, and (2) actual spending on World Bank-financed projects is typically spread out over several years following the original approval of the project. These two features imply that fluctuations in spending on World Bank projects in a given year are in large part determined by fluctuations in project approval decisions made in previous years, and so are unlikely to be correlated with shocks to output in the current year. World Bank project-level disbursement data are used to isolate the component of public spending associated with project approvals from previous years, which in turn can be used to estimate government spending multipliers, in a sample of 29 aid-dependent low-income countries. The estimated multipliers are small, reasonably precisely estimated, and rarely significantly different from zero.
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TL;DR: In this article, the authors examined whether terrorism is an effective tool for achieving political goals, and they showed that local terror attacks cause Israelis to be more willing to grant territorial concessions to the Palestinians.
Abstract: This paper examines whether terrorism is an effective tool for achieving political goals. By exploiting geographic variation in terror attacks in Israel from 1988 to 2006, we show that local terror attacks cause Israelis to be more willing to grant territorial concessions to the Palestinians. These effects are stronger for demographic groups that are traditionally right-wing in their political views. However, terror attacks beyond a certain threshold cause Israelis to adopt a less accommodating position. In addition, terror induces Israelis to vote increasingly for right-wing parties, as the right-wing parties move to the left in response to terror. Hence, terrorism appears to be an effective strategy in terms of shifting the entire political landscape to the left, although we do not assess whether it is more effective than non-violent means.