Showing papers in "Southern Economic Journal in 2010"

Finance and inequality: The case of India

Abstract: Although theory emphasizes the role of financial market frictions in explaining income inequality, there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality. This article examines how finance impacts income inequality in India using annual time series data for over half a century. The results indicate that while financial development helps reduce income inequality, financial liberalization seems to exacerbate it. The results are robust to the use of different measures for financial development and financial liberalization. Although the relationship between financial development and economic growth has been extensively studied in the literature (see, for example, King and Levine 1993; Demetriades and Hussein 1996; Arestis and Demetriades 1997; Levine, Loayza, and Beck 2000; Bell and Rousseau 2001; Ang and McKibbin 2007), little is known about how finance impacts income inequality. The importance of the finance-inequality relationship has recently been highlighted in an insightful survey article by Claessens and Perotti (2007). They indicate that while financial development can help reduce income inequality, financial liberalization captured by established interests may do the opposite. The theoretical predictions of the effects of finance on income inequality are controversial. Rajan and Zingales (2003b) argue that improvements in the formal financial sector primarily benefit the rich. Greenwood and Jovanovic (1990) predict a nonlinear relationship between financial development and income inequality, where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems, then stabilizes and eventually declines. Others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital, implying that financial development helps alleviate income inequality (Banerjee and Newman 1993; Galor and Zeira 1993; Aghion and Bolton 1997; Mookherjee and Ray 2003, 2006). Given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income, it is useful to approach the issue at the empirical level. This could facilitate our understanding of the relationship between finance and inequality, and help us to assess the validity of each theoretical model. Despite the important role of financial market frictions in the theories of poverty and income inequality, researchers so far have not adequately addressed whether financial

Institutions, Capital, and Growth

Abstract: The international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country's institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.

Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?

Abstract: Using data drawn from the March Current Population Survey, we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates. When we then simulate the effects of a proposed federal minimum wage increase from $7.25 to $9.50 per hour, we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour. Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households, compared to 15.8% from the last increase. When we allow for negative employment effects, we find that the working poor face a disproportionate share of the job losses. Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor.

Motives for Giving: A Reanalysis of Two Classic Public Goods Experiments

Abstract: Experimental work in economics prompted the development of theories of other-regarding behavior. In this article we reanalyze two classic public goods experiments and focus on the nature of individuals' responses to others' behavior in order to help distinguish alternative motives for giving, including altruism, warm glow, reciprocity, and inequality aversion. Analysis that allows for asymmetric feedback responses generates support for inequality aversion motives but little for reciprocity (matching), altruism, and warm glow. We conclude that individual-level analysis of existing public goods data can provide more insightful, informative estimates of treatment effects.

Are Financial Development and Trade Openness Complements or Substitutes

Abstract: This article studies the long- and short-run relationships between financial development and trade openness. Using the pooled mean group estimator of Pesaran, Shin, and Smith (1999) for unbalanced panel data for 87 countries over the 1960-2005 period, our empirical results indicate that long-run complementarity between financial development and trade openness coexists with short-run substitutionarity between the two policy variables. But when splitting the data into OECD and non-OECD country groups, this finding can be observed only in non OECD countries. For OECD countries, financial development has negligible effects on trade. In addition, we find nonlinearity in the relationship in that long-run responses of trade decrease with financial development. The article further finds coexistence of negative trade effects of financial fragility and positive trade impacts of financial depth.

Asymmetric Enforcement of Cooperation in a Social Dilemma

Abstract: We use a public-good experiment to analyze behavior in a decentralized asymmetric punishment institution, The institution is asymmetric in the sense that players differ in the effectiveness of their punishment. At the aggregate level, we observe remarkable similarities between outcomes in asymmetric and symmetric punishment institutions. Controlling for the average punishment effectiveness of the institutions, we find that asymmetric punishment institutions are as effective in fostering cooperation and are as efficient as symmetric institutions. At the individual level, we find that players with higher punishment effectiveness contribute similar amounts to the public account but have higher earnings and punish more than their weak counterparts.

FDI, Trade, and Product Innovation: Theory and Evidence

Abstract: This article investigates the relationship between foreign direct investment (FDI, including outward FDI and inward FDI), imports and exports, and product innovation. Our theoretical model predicts that inward FDI, outward FDI, imports, and exports have positive influences on firm innovative activities, which would evaluate the effects of the relative magnitude of different sources on innovation. The empirical results based on the 2003 First Taiwan Technological Innovation Survey confirm three of the proposed hypotheses for the entire sample. However, when focusing on the manufacturing sector, outward FDI, inward FDI, imports, and exports all exhibit strongly positive effects on the determination of conducting product innovation (i.e., the four hypotheses are verified). A consistent trend is that outward FDI has the largest effect on innovation, regardless of the measurement of product innovation and the division of the entire sample, which may imply that in Taiwan a positive effect of "deindustrialization" is to innovate more.

Effects of Patent Policy on Income and Consumption Inequality in a R&D Growth Model

Abstract: What are the effects of strengthening patent protection on income and consumption inequality? To analyze this question, this paper incorporates heterogeneity in the initial wealth of households into a canonical quality-ladder growth model with endogenous labor supply. In this model, I firstly show that the aggregate economy always jumps immediately to a unique and stable balanced-growth path. Given the balanced-growth behavior of the aggregate economy and an exogenous distribution of initial wealth, I then show that the endogenous distribution of assets in subsequent periods is stationary and equal to its initial distribution. The model predicts that strengthening patent protection increases (a) economic growth by stimulating R&D investment and (b) income inequality by raising the return on assets. However, whether it also increases consumption inequality depends on the elasticity of intertemporal substitution. If and only if this elasticity is less (greater) than unity, strengthening patent protection increases (decreases) consumption inequality. For standard parameter values, strengthening patent protection leads to a larger increase in income inequality than consumption inequality.

Freedom and International Migration

Abstract: Economic and political freedoms are regressed on a bilateral cross section of international migrant stocks using ordinary least squares and Tobit techniques. A positive relationship between these variables is found. Economic freedom is statistically significant even when controlling for income per capita and political freedom. In addition, the impact of these freedoms on migration flows into OECD countries between 2001 and 2006 using fixed effects estimations is analyzed. The panel data analysis mostly corroborates the cross-sectional analysis. The notable exception is that political freedom appears to have had a negative impact on migration flows during this period.

Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments

Abstract: According to the Leviathan-Model, fiscal federalism is seen as a binding constraint on a revenue-maximizing government. The competitive pressure of fiscal federalism is supposed to reduce public sector size as compared to unitary states. However, empirical results concerning the Leviathan hypothesis are mixed. This study uses a state and local-level panel data set of Swiss cantons from 1980 to 1998 to empirically analyze the effect of different federalist institutions on the size and structure of government revenue. Because of the considerable tax autonomy of sub-national Swiss governments, it is possible to investigate different mechanisms by which fiscal federalism may influence government size. The results indicate that tax exporting has a revenue expanding effect whereas tax competition favors a smaller size of government. Fragmentation has essentially no effect on the size of government revenue for Swiss cantons. The overall effect of revenue decentralization leads to fewer tax revenue but higher user charges. Thus, revenue decentralization favors a smaller size of government revenue and shifts government revenue from taxes to user charges.

The Elasticity of Taxable Income during the 1990s: New Estimates and Sensitivity Analyses

Abstract: [Author Affiliation]Seth H Giertz, , , , sgiertz2@unl.edu[Acknowledgment]The author wishes to thank David Weiner, Ed Harris, Bob Dennis, Doug Hamilton, Tom Woodward, Emmanuel Saez, Chris Bollinger, and three anonymous referees for their comments and assistance.1. IntroductionEconomists have long recognized that taxation creates economic inefficiency by distorting relative prices, often between leisure and all other goods in the economy. Even a broad-based income tax can have substantial efficiency costs, so long as leisure remains untaxed. Harberger (1964) uses this as motivation for comparing the efficiency implications of direct versus indirect taxation. In so doing, he shows how labor supply elasticities can be used to measure the efficiency implications of income taxation.1 Harberger's analysis had a profound influence on public and labor economists, spurring increased research into labor supply elasticities, which were seen as proxies for the efficiency costs from taxation.More than two decades after Harberger, economists began to emphasize the variety of other margins over which taxes can distort behavior, in addition to hours worked. These economists noted that these other behavioral responses may too have important implications for efficiency. An important building block in the evolution of this literature was set forth by Slemrod (1990), who presented a hierarchy of behavioral responses to taxation. Slemrod divided behavior into three categories based on their responsiveness to taxes. His least responsive category, real responses , includes individuals changing consumption and work patterns and businesses altering investment and production decisions. Second, in order of responsiveness is circumvention , which includes both illegally (evasion) and legally (avoidance) bypassing the tax system.2 In the case of evasion, income is concealed from tax authorities--or factors that offset tax liabilities, such as expenses and deductions, are inflated (beyond what is legally permitted). In the case of avoidance, income is shifted in order to receive more favorable tax treatment. Diverting income into a tax-deferred retirement account is an example of avoidance.3 Included in circumvention is the expenditure (of time and money) necessary to avoid or evade taxation. Third on the hierarchy--and the most responsive--is the timing of income receipt , which includes "pulling" the receipt of income into the previous year or "pushing" it into the next in order to take advantage of more favorable tax treatment (while not altering real behavior).4 Slemrod further recognizes that the type of behavioral response could have implications for both tax revenue and tax incidence--and in some cases efficiency.Predating Slemrod's insights, Lindsey (1987) produced elasticity estimates for taxable income--although what Lindsey termed taxable income more closely approximates adjusted gross income (AGI)--instead of labor supply.5 Lindsey's estimated elasticities were much larger than the labor supply literature would have suggested. Lindsey emphasized the revenue implications of the elasticity of taxable income (ETI) but not its efficiency implications.Building on Slemrod and Lindsey, Feldstein (1995) produced ETI estimates but went much further than Lindsey in describing the behaviors that could affect taxable income. He argued that many of these behaviors were not captured by labor supply elasticities. Furthermore, Feldstein posited that (income) taxation creates economic inefficiency not only by distorting the relative price between labor and leisure but more broadly by distorting the relative price between goods or activities that are taxed and those that are not taxed since leisure is not the only untaxed activity. For example, in response to taxes, not only work hours but also work effort might change. …

In-Group versus Out-Group Trust: The Impact of Income Inequality

Abstract: [Author Affiliation]Vivian Lei, Department of Economics, University of Wisconsin-Milwaukee, 3210 N. Maryland Avenue, Bolton Hall 818, Milwaukee, WI 53201, USA, and Department of Economics and Finance, City University of Hong Kong, Hong Kong, , vlei@uwm.eduFilip Vesely, Department of Economics, University of Wisconsin-Milwaukee, 3210 N. Maryland Avenue, Bolton Hall 812, Milwaukee, WI 53201, USA, and Department of Economics, Hong Kong University of Science and Technology, Hong Kong, , vesely@uwm.edu[Acknowledgment]We are particularly grateful to the Center for Research on International Economics at the University of Wisconsin-Milwaukee, City University of Hong Kong, and Hong Kong University of Science and Technology for financial and laboratory support. We thank Kenneth Chan, John Heywood, Kamhon Kan, Steven Tucker, two anonymous referees, and participants at the 2007 Economic Science Association North American Regional Meeting and the 10th Experimental Economics Days, Dijon for valuable comments. We thank CiCi Lo and Jennifer Tse for excellent research assistance.1. IntroductionWhat promotes trust and what destroys it? Various studies have shown that institutional development, age structure, population size, religious composition, income inequality, and ethnic diversity are linked to, and may directly impact, the overall trust level in a society or community (see, for example, Knack and Keefer 1997; La Porta et al. 1997; Zak and Knack 2001; Knack and Zak 2002; Uslaner 2002; Zelmer 2003; Berggren and Jordahl 2006; Bjornskov 2006). Of all these variables, income inequality, measured by the Gini coefficient, is perhaps the most consistent and robust determinant of social solidarity and trust: Greater income inequality widens the social distance between different income classes and thereby reduces the overall level of trust.There are two things worth noting about this particular result. First, while it can be shown with cross-country data that income inequality is strongly associated with lower trust, the causal relation between these two variables is not yet clear due to omitted variables and endogeneity problems. Second, the measure of trust used in most of the empirical literature is based on responses to the question "Generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people?" from the World Values Surveys. Responses to this survey question reflect at best respondents' attitude regarding generalized trust , to say nothing of the finding by Glaeser et al. (2000) that they are a much better predictor of a society's overall level of trustworthiness rather than of trust. Note that to study exactly how income inequality affects trust, it is necessary to first identify what type of trust--generalized or particularized trust--that the research question is meant to address. Contrary to generalized trust that involves faith in a wide range of strangers, particularized trust, also called in-group trust, concerns faith in primarily in-group members--people of "one's own kind" or people who share the same values and norms--via social ties or social identities (Uslaner 2002). Inequality influences particularized trust by allowing social identities that are associated with different income classes to be developed. Social identities create similarity, and similarity cultivates trust among in-group members (see, for example, Allport 1954; Coleman 1990; Fukuyama 1995; Alesina and La Ferrara 2000; Hardin 2006). While Allport (1954) argues that in-group positivity does not necessarily imply out-group negativity, income inequality could nevertheless activate out-group hostility and further facilitate in-group favoritism if it creates conflicts over scarce resources or political power between different income classes (Sherif and Sherif 1953; LeVine and Campbell 1972; Brewer 1999).Given the limited field data that can be directly used to measure the impact of income inequality on particularized trust, this article contributes to the literature by studying the relationship between inequality and in-group favoritism in a stylized laboratory environment. …

Using Unemployment Rates as Instruments to Estimate Returns to Schooling

Abstract: I use state unemployment rates during a person's teenage years to estimate the returns to schooling. A higher unemployment rate reduces the opportunity costs of attending school. Using the same 1980 Census data set that Angrist and Krueger (1991) use, I also estimate returns to schooling with a modified version of their quarter-of-birth instrument. The estimates from the two-stage least squares (2SLS) model using the unemployment rate and the model using the quarter-of-birth instruments are almost identical. In addition, these 2SLS estimates are larger than the ordinary least squares (OLS) estimates, supporting this counterintuitive, yet prevalent, result in the literature.

Access to Bottleneck Inputs under Oligopoly: A Prisoners' Dilemma?

Abstract: We analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream market First, two vertically integrated incumbents make access price offers to an entrant that chooses which one to accept, if any Second, firms compete on Salop's circle The firms may be asymmetrically located on the circle, to reflect differences in consumer shares For some levels of asymmetry, the incumbents face a prisoners' dilemma with respect to conceding access to their bottleneck inputs Entry by a downstream firm may lead to lower retail prices However, entry may also lead to higher retail prices for the access provider and for the entrant We also consider the cases where there are several incumbents and where the entrant makes the access price offers

Does Real Exchange Rate Volatility Affect Sectoral Trade Flows

Abstract: This paper investigates empirically the effect of real exchange rate volatility on sectoral bilateral trade flows between the US and her top thirteen trading countries. Our investigation also considers those effects on trade flows which may arise through changes in income volatility and the interaction between income and exchange rate volatilities. We provide evidence that exchange rate volatility mainly affects sectoral trade flows of developing but not that of developed countries. We also find that the effect of the interaction term on trade flows is opposite that of exchange rate volatility yet there is little impact arising from income volatility.

Estimating the Effect of Individual Time Preferences on the Use of Disease Screening

Abstract: Economists have long been interested in evaluating the role that time preferences play in a wide range of economic decisions. In the health care arena, time preferences may be an especially important determinant of many decisions?particularly the use of preventative health care. One potential barrier to patient adoption of preventative screening regimens is that they impose current costs on consumers with the hope of lower costs in the future. Using data from a national survey, we jointly estimate latent discount rate and preventative service demand models using a limited information maximum likelihood estimator (iterated M-estimator). The results suggest that discount rates are generally inversely related to the likelihood of most screening tests.

The Impact of State Government Subsidies and Tax Credits in an Emerging Industry: Ethanol Production 1980–2007

Abstract: This article examines the effects of state economic development incentives in the emerging ethanol industry. We compiled data on ethanol production capacity and subsidies/tax credits for all states for the years 1980-2007, a period that covers the complete emergence of the biofuel industry in the United States. Importantly, this time period was characterized by the passage of several state-level subsidies and tax breaks aimed at increasing ethanol production. Hence, this panel documents a substantial amount of within-state variation in policies from which to identify an effect. We find that some incentives directed at ethanol production have a significant effect on a state's production capacity.

Food stamp participation among adult-only households

Abstract: : Several recent changes in the Food Stamp Program have been directed toward households without children, including new work requirements for able-bodied adults without dependents (ABAWDs) and easier application and recertification procedures for the disabled and the elderly. Despite their relevance to policy makers, adult-only households have not been extensively examined. We use administrative records from South Carolina to investigate how spells of food stamp participation for adult-only households vary with ABAWD provisions, recertification intervals, and other characteristics. We find that households that were subject to ABAWD policies had shorter spells and lower rates of food stamp participation than other households. We also find that households were much more likely to leave the Food Stamp Program at recertification dates than at other dates. We further find that time limits were associated with exits with and without earnings, suggesting that this policy increased self-sufficiency for some households but left others without support.

Does Paying Referees Expedite Reviews?: Results of a Natural Experiment

Abstract: A natural experiment in an economics field journal afforded time-series observations on payments to referees for on-time reviews. The natural experiment yielded 15 months’ worth of data with no payments and about two subsequent years of data with payments. Using refereeand manuscript-specific measures as covariates, hazard models were used to gauge the effects of payments on individual referee’s review times. All models indicate statistically significant reductions in review times owing to referee payments. Reductions in review times translate into significant reductions in first-response time (FRT). Median FRT was reduced from 90 to 70 days, a 22% reduction in the presence of payments. With payments, only 1% of the FRTs exceeded six months; without payments, 16% of the FRTs exceeded six months.

The Deadliest of Games: The Institution of Dueling

Abstract: Recent historical research indicates that ritualistic dueling had a rational basis. Basically, under certain social and economic conditions, individuals must fight in order to maintain their personal credit and social standing. We use a repeated two-player sequential game with random matching to show how the institution of dueling could have functioned as a costly but incentive-compatible means by which individuals could demonstrate their good faith dealings by defending their “honor.”

Cheating and Enforcement in Asymmetric Rank‐Order Tournaments

Abstract: [Author Affiliation]C Jill Stowe, Department of Agricultural Economics and Department of Economics, University of Kentucky, 307 C.E. Barnhart Building, Lexington, KY 40506-0276, USA, jill.stowe@uky.edu (corresponding author)Scott M Gilpatric, Department of Economics, University of Tennessee, 520 Stokely Management Center, Knoxville, TN 37996, USA, sgilpatr@utk.edu[Acknowledgment]The authors would like to thank participants at the Tournaments, Contests, and Relative Performance Evaluation (March 2008) meetings, the Fuqua Summer Brown Bag Series, Leslie Marx, Luca Rigotti, and anonymous referees for helpful comments. All remaining errors, of course, are our own.Gilpatric received support from The U.S. Environmental Protection Agency (EPA) which provided funding for this research under STAR grant R832847. The research has not been subjected to EPA review and therefore does not necessarily reflect the views of the Agency, and no official endorsement should be inferred.1. IntroductionAmong the many issues surrounding incentives to cheat in rank-order tournaments and contestants' behavior when cheating is possible, one of the most important is the effect of asymmetry in the position of the contestants. If two contestants are competing for a prize but one has an advantage over the other (such as greater ability or talent, or simply being "ahead" because of the history of play up to that point in the contest), will the trailing player necessarily be more likely to cheat because he needs to close the gap and has less to lose from possible disqualification? Might there be circumstances under which the leader cheats to maintain her advantage, because if she does not, the trailing player can close the gap by cheating? This article presents a model to provide insights into how positional concerns influence cheating in rank-order tournaments.1Rank-order tournaments present an environment in which the incentive to cheat may be particularly strong for a few reasons.2 First, tournaments are generally used in environments in which actions are difficult to monitor. Second, a small increase in a contestant's output can dramatically change his payoff if it increases his rank. Cheating in various forms has been observed in important competitive settings, such as corporate promotion tournaments and sports competitions, which can be broadly characterized as taking place in contests and can be modeled as rank-order tournaments of the sort first introduced by Lazear and Rosen (1981).In this article, we consider a game in which two heterogenous players simply choose whether or not to cheat. This can be thought of as the final stage of a tournament in which players have previously chosen effort and now find themselves having an opportunity to cheat while knowing their current position relative to each other. Or it can be considered as the final round of a multistage tournament in which one player is ahead of the other entering the last phase of competition. Our focus is on how equilibrium cheating behavior is affected by varying the intensity of enforcement, represented by the probability that contestants are audited to detect cheating, and on the conditions required to achieve complete deterrence of cheating and thus a "clean" contest. Consistent with intuition we find that the trailing player has a strong incentive to cheat, but in some circumstances, it is the leading player who is more likely to cheat.In addition, we explore how differences in the auditing regime affect cheating behavior. We find that employing "correlated" audits (both contestants are audited simultaneously with some probability and otherwise neither is) yields less frequent cheating in the mixed-strategy equilibrium of the game than if the two contestants are audited with an equal probability but as a result of independent random draws. Using a correlated audit regime achieves more effective deterrence of cheating than independent audits for any given expenditure of resources when resources are not sufficient to achieve full deterrence. …

R&D Collaboration Networks in Mixed Oligopoly

Abstract: We develop a model of endogenous network formation in order to examine the incentives for R&D collaboration in a mixed oligopoly. Our analysis reveals that the complete network, where each firm collaborates with all others, is uniquely stable. When R&D subsidies are not available, in addition to the complete network, the private partial and the private-hub star networks are Pareto efficient. However, the complete network becomes the unique Pareto efficient network when R&D is subsidized. This result is in contrast with earlier contributions in private oligopoly where under strong market rivalry a conflict between stable and efficient networks is likely to occur. It also highlights the role of a public firm as policy instrument in aligning individual incentives for collaboration with the objective of efficiency, independently of whether R&D subsidies are provided by the regulator.

The Effect of Pension Plan Type on Retirement Age: Distinguishing Plan Incentives from Career Length Preferences

Abstract: The widespread movement from dened benet (DB) plans to dened contribution (DC) plans over the past few decades has transferred much of the retirement savings risk from the institution to the individual, particularly in the private sector. This study uses the Retirement Condence

Testing Conflicting Political Economy Theories: Full‐Fledged versus Partial‐Scope Regional Trade Agreements

Abstract: We apply a duration analysis to test the conflicting predictions of the median voter model and the lobbying model using panel data on regional trade agreement (RTA) formation. Our results show that the pro-labor prediction of the median voter model is supported by the full-fledged free trade areas and customs unions (FTAs/CUs), while the pro-capital prediction of the lobbying model is supported by the partial-scope preferential trade arrangements among developing countries. This finding holds better for the country pairs with more different capital-labor ratios as a result of the stronger distributional effects of RTAs. The support for the median voter model (lobbying model) is stronger when the two countries in a pair have left-oriented (right-oriented) governments. I also find stronger support for the median voter model for the subset of FTAs/CUs with service coverage and stronger support for the lobbying model for countries that place higher weight on political contribution.

Compensation for Earnings Risk under Worker Heterogeneity

Abstract: We use two large data sets to estimate the Risk Augmented Mincer equation and test for risk compensation in expected earnings. We replicate earlier findings of a positive premium for risk and a negative premium for skew and add confirmation of the key results if we control for individual ability. We compare risk compensation and risk distributions between some labor market groups and find that immigrants and natives do not differ in risk attitudes, that public sector workers are undercompensated for their risk, and that risk compensation by gender is not fully consistent with higher risk aversion for women. We express concern that a linear compensation model may be too simple.

Pass or run: an empirical test of the matching pennies game using data from the National Football League.

Abstract: This article examines play calling in the National Football League (NFL). It finds that a mixed strategy equilibrium game explains NFL play calling better than standard optimization techniques. When a quarterback is injured and replaced with a less capable backup, standard optimization theory suggests that the offense will run more often, passing less. Our game theoretic model predicts that the offense will not change its play calling because the defense will play against the run more often. Using every first half play from the 11 teams that had a starting quarterback miss action because of injury in the 2006 season, we find that the injury did not alter the likelihood that the offense would pass. We also find that coaches randomly mix passing and running plays, as the mixed strategy games predict.

Substance Abuse Treatment and Motor Vehicle Fatalities

Abstract: The danger of alcohol- and drug-impaired driving implies that policies that reduce substance abuse can save lives. We study this issue in small U.S. counties where access to substance abuse treatment can be measured directly through the presence of treatment facilities. We find that placing an additional treatment clinic in a county reduces the number of alcohol-related motor vehicle fatalities by 15%. An additional outpatient clinic, which specializes in treating the local population, reduces the overall number of alcohol-related deaths by 26%. In the counties that we study, this reduction in alcohol-related accidents saves 0.66 lives per county per year.

The Aggregate Production Function of the Finnish Economy in the Twentieth Century

Abstract: This article uses the Bayesian approach to estimate the parameters of the normalized constant elasticity of substitution (CES) function with factor-augmenting technical progress directly, rather than using derived first-order conditions of profit maximizing behavior. Bayesian estimation is applied because maximum likelihood estimation is sensitive to the starting values of maximization, and the parameters typically fail to converge to the global optimum because of a multimodal likelihood. Thanks to a convenient prior distribution, the posterior simulation of parameters works fairly well. The results indicate that in the long run (over 100 years) the parameters for the elasticity of substitution and capital income share are intimately linked to the shape of capital-augmenting technological progress. In particular, the linear restriction excludes the possibility that the speed of capital-augmenting technological progress converges to zero, which seems to lead to upwardly biased estimates of the elasticity of substitution and income share parameters.