Showing papers in "The American Economic Review in 2004"
TL;DR: In this article, Helpman et al. introduce a simple multicountry, multisector model, in which firms face a proximity-concentration trade-off between exports and FDI.
Abstract: Multinational sales have grown at high rates over the last two decades, outpacing the remarkable expansion of trade in manufactures. Consequently, the trade literature has sought to incorporate the mode of foreign market access into the “new” trade theory. This literature recognizes that rms can serve foreign buyers through a variety of channels: they can export their products to foreign customers, serve them through foreign subsidiaries, or license foreign rms to produce their products. Our work focuses on the rm’s choice between exports and “horizontal” foreign direct investment (FDI). Horizontal FDI refers to an investment in a foreign production facility that is designed to serve customers in the foreign market. Firms invest abroad when the gains from avoiding trade costs outweigh the costs of maintaining capacity in multiple markets. This is known as the proximity-concentration tradeoff. We introduce heterogeneous rms into a simple multicountry, multisector model, in which rms face a proximity-concentration trade-off. Every rm decides whether to serve a foreign market, and whether to do so through exports or local subsidiary sales. These modes of market access have different relative costs: exporting involves lower xed costs while FDI involves lower variable costs. Our model highlights the important role of within-sector rm productivity differences in explaining the structure of international trade and investment. First, only the most productive rms engage in foreign activities. This result mirrors other ndings on rm heterogeneity and trade; in particular, the results reported in Melitz (2003). Second, of those rms that serve foreign markets, only the most productive engage in FDI. Third, FDI sales relative to exports are larger in sectors with more rm heterogeneity. Using U.S. exports and af liate sales data that cover 52 manufacturing sectors and 38 countries, we show that cross-sectoral differences in rm heterogeneity predict the composition of trade and investment in the manner suggested by our model. We construct several measures of rm heterogeneity, using different data sources, and show that our results are robust across all these measures. In addition, we con rm the predictions of the proximityconcentration trade-off. That is, rms tend to substitute FDI sales for exports when transport * Helpman: Department of Economics, Harvard University, Cambridge, MA 02138, Tel Aviv University, and CIAR (e-mail: ehelpman@harvard.edu); Melitz: Department of Economics, Harvard University, Cambridge, MA 02138, National Bureau of Economic Research, and Centre for Economic Policy Research (e-mail: mmelitz@ harvard.edu); Yeaple: Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104, and National Bureau of Economic Research (e-mail: snyeapl2@ssc.upenn.edu). The statistical analysis of rmlevel data on U.S. Multinational Corporations reported in this study was conducted at the International Investment Division, U.S. Bureau of Economic Analysis, under an arrangement that maintained legal con dentiality requirements. Views expressed are those of the authors and do not necessarily re ect those of the Bureau of Economic Analysis. Elhanan Helpman thanks the NSF for nancial support. We also thank Daron Acemoglu, Roberto Rigobon, Yona Rubinstein, and Dani Tsiddon for comments on an earlier draft, and Man-Keung Tang for excellent research assistance. 1 See Wilfred J. Ethier (1986), Ignatius Horstmann and James R. Markusen (1987), and Ethier and Markusen (1996) for models that incorporate the licensing alternative. We therefore exclude “vertical” motives for FDI that involve fragmentation of production across countries. See Helpman (1984, 1985), Markusen (2002, Ch. 9), and Gordon H. Hanson et al. (2002) for treatments of this form of FDI. 3 See, for example, Horstmann and Markusen (1992), S. Lael Brainard (1993), and Markusen and Anthony J. Venables (2000). 4 See also Andrew B. Bernard et al. (2003) for an alternative theoretical model and Yeaple (2003a) for a model based on worker-skill heterogeneity. James R. Tybout (2003) surveys the recent micro-level evidence on trade that has motivated these theoretical models. 5 This result is loosely connected to the documented empirical pattern that foreign-owned af liates are more productive than domestically owned producers. See Mark E. Doms and J. Bradford Jensen (1998) for the United States and Sourafel Girma et al. (2002) for the United Kingdom.
3,823 citations
TL;DR: The authors study race in the labor market by sending fictitious resumes to help-wanted ads in Boston and Chicago newspapers and find that white names receive 50 percent more callbacks for interviews than African-Americans.
Abstract: We study race in the labor market by sending fictitious resumes to help-wanted ads in Boston and Chicago newspapers. To manipulate perceived race, resumes are randomly assigned African-American- or White-sounding names. White names receive 50 percent more callbacks for interviews. Callbacks are also more responsive to resume quality for White names than for African-American ones. The racial gap is uniform across occupation, industry, and employer size. We also find little evidence that employers are inferring social class from the names. Differential treatment by race still appears to still be prominent in the U.S. labor market. (JEL J71, J64).
2,890 citations
TL;DR: This paper found large and statistically significant differences among teachers: a one standard deviation increase in teacher quality raises reading and math test scores by approximately.20 and.24 standard deviations, respectively, on a nationally standardized scale.
Abstract: Teacher quality is widely believed to be important for education, despite little evidence that teachers' credentials matter for student achievement. To accurately measure variation in achievement due to teachers' characteristics-both observable and unobservable-it is essential to identify teacher fixed effects. Unlike previous studies, I use panel data to estimate teacher fixed effects while controlling for fixed student characteristics and classroom specific variables. I find large and statistically significant differences among teachers: a one standard deviation increase in teacher quality raises reading and math test scores by approximately .20 and .24 standard deviations, respectively, on a nationally standardized scale. In addition, teaching experience has statistically significant positive effects on reading test scores, controlling for fixed teacher quality.
2,513 citations
TL;DR: In this article, the authors identify the effect of social capital on financial development by exploiting social capital differences within Italy and find that households are more likely to use checks, invest less in cash and more in stock, have higher access to institutional credit, and make less use of informal credit.
Abstract: To identify the effect of social capital on financial development, we exploit social capital differences within Italy. In high-social-capital areas, households are more likely to use checks, invest less in cash and more in stock, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less educated people. These results are not driven by omitted environmental variables, since we show that the behavior of movers is still affected by the level of social capital of the province where they were born.
1,895 citations
TL;DR: In this paper, the authors examined the robustness of explanatory variables in cross-country economic growth regressions and employed a novel approach, Bayesian Averaging of Classical Estimates (BACE), which constructs estimates as a weighted average of OLS estimates for every possible combination of included variables.
Abstract: This paper examines the robustness of explanatory variables in cross-country economic growth regressions. It employs a novel approach, Bayesian Averaging of Classical Estimates (BACE), which constructs estimates as a weighted average of OLS estimates for every possible combination of included variables. The weights applied to individual regressions are justified on Bayesian grounds in a way similar to the well-known Schwarz criterion. Of 32 explanatory variables we find 11 to be robustly partially correlated with long-term growth and another five variables to be marginally related. Of all the variables considered, the strongest evidence is for the initial level of real GDP per capita.
1,541 citations
TL;DR: In this article, the authors investigated the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling and found that completing high school reduces the probability of incarceration by about.76% for whites and 3.4% for blacks.
Abstract: We estimate the effect of high school graduation on participation in criminal activity accounting for endogeneity of schooling. We begin by analyzing the effect of high school graduation on incarceration using Census data. Instrumental variable estimates using changes in state compulsory attendance laws as an instrument for high school graduation uncover a significant reduction in incarceration for both blacks and whites. When estimating the impact of high school graduation only, OLS and IV estimators estimate different weighted sums of the impact of each schooling progression on the probability of incarceration. We clarify the relationship between OLS and IV estimates and show that the 'weights' placed on the impact of each schooling progression can explain differences in the estimates. Overall, the estimates suggest that completing high school reduces the probability of incarceration by about .76 percentage points for whites and 3.4 percentage points for blacks. We corroborate these findings using FBI data on arrests that distinguish among different types of crimes. The biggest impacts of graduation are associated with murder, assault, and motor vehicle theft. We also examine the effect of drop out on self-reported crime in the NLSY and find that our estimates for imprisonment and arrest are caused by changes in criminal behavior and not educational differences in the probability of arrest or incarceration conditional on crime. We estimate that the externality of education is about 14-26% of the private return to schooling, suggesting that a significant part of the social return to education comes in the form of externalities from crime reduction.
1,301 citations
TL;DR: The authors show that there is a bias towards the status quo (and hence against efficiency-enhancing reforms) whenever some of the individual gainers and losers from reform cannot be identified beforehand.
Abstract: Why do governments so often fail to adopt policies which economists consider to be efficiency-enhancing? Our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform. We show that there is a bias towards the status quo (and hence against efficiency-enhancing reforms) whenever some of the individual gainers and losers from reform cannot be identified beforehand. There are reforms which, once adopted, will receive adequate political support but would have failed to carry the day ex ante. The argument does not rely on risk aversion, irrationality, or hysteresis due to sunk costs. (JEL D72, F13) Why do governments so often fail to adopt policies that economists consider to be efficiency-enhancing? This is one of the fundamental questions of political economy. The answer usually relies on what may be
1,182 citations
TL;DR: In this paper, the effect on international trade of multilateral trade agreements (the World Trade Organization (WTO), its predecessor the General Agreement on Tariffs and Trade (GATT), and the Generalized System of Preferences (GSP) extended from rich countries to developing countries) is estimated.
Abstract: This paper estimates the effect on international trade of multilateral trade agreements-the World Trade Organization (WTO), its predecessor the General Agreement on Tariffs and Trade (GATT), and the Generalized System of Preferences (GSP) extended from rich countries to developing countries. I use a standard "gravity" model of bilateral merchandise trade and a large panel data set covering over 50 years and 175 countries. An extensive search reveals little evidence that countries joining or belonging to the GATT/WTO have different trade patterns from outsiders, though the GSP seems to have a strong effect. (JEL F13, F15)
1,128 citations
TL;DR: In this article, a field experiment at the University of Zurich showed that people behave pro-socially, conditional on others, and that the more others cooperate, the more one is inclined to do so as well.
Abstract: People behave pro-socially in a wide variety of situations that standard economic theory is unable to explain. Social comparison is one explanation for such pro-social behavior: people contribute if others contribute or cooperate as well. This paper tests social comparison in a field experiment at the University of Zurich. Each semester every single student has to decide whether he or she wants to contribute to two Social Funds. We provided 2500 randomly selected students with information about the average behavior of the student population. Some received the information that a high percentage of the student population contributed, while others received the information that a relatively low percentage contributed. The results show that people behave pro-socially, conditional on others. The more others cooperate, the more one is inclined to do so as well. The type of person is important. We are able to fix the i?½typesi?½ by looking at revealed past behavior. Some persons seem to care more about the pro-social behavior of others, while other i?½typesi?½ are not affected by the average behavior of the reference group.
1,126 citations
TL;DR: This article developed a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts and showed that employment is positively correlated across time and agents. And they examined inequality between two groups, if staying in the labor market is costly and one group starts with a worse employment status, then that group's drop-out rate will be higher and their employment prospects will be persistently below that of the other group.
Abstract: We develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts. We show that employment is positively correlated across time and agents. Moreover, unemployment exhibits duration dependence: the probability of obtaining a job decreases in the length of time that an agent has been unemployed. Finally, we examine inequality between two groups. If staying in the labor market is costly and one group starts with a worse employment status, then that group's drop-out rate will be higher and their employment prospects will be persistently below that of the other group.
1,096 citations
TL;DR: In this article, it is shown that formal schooling is used to supplement the skill set of those who choose to become entrepreneurs and that individuals may be endowed with a general set of skills, but endowments can be augmented by investment in human capital.
Abstract: Entrepreneurs are generalists who put together teams of people and assemble resources and capital. To do this effectively, they must have a general set of skills. Individuals may be endowed with a general set of skills, but endowments can be augmented by investment in human capital. It is shown that formal schooling is used to supplement the skill set of those who choose to become entrepreneurs.
TL;DR: Moretti et al. as mentioned in this paper investigated workers' education, spillovers, and productivity at plant-level production functions using data from the California Center for Population Research on-line working paper series.
Abstract: ^California Center for Population Research p U n i v e r s i t y of California - L o s A n g e l e s Workers' Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions Enrico Moretti CCPR-012-03 January California Center for Population Research On-Line Working Paper Series
TL;DR: The authors investigated the effect of scale on performance in the active money management industry and found that fund returns decline with lagged fund size, even after accounting for various performance benchmarks, suggesting that these adverse scale effects are related to liquidity.
Abstract: We investigate the effect of scale on performance in the active money management industry. We first document that fund returns, both before and after fees and expenses, decline with lagged fund size, even after accounting for various performance benchmarks. We then explore a number of potential explanations for this relationship. This association is most pronounced among funds that have to invest in small and illiquid stocks, suggesting that these adverse scale effects are related to liquidity. Controlling for its size, a fund's return does not deteriorate with the size of the family that it belongs to, indicating that scale need not be bad for performance depending on how the fund is organized. Finally, using data on whether funds are solo-managed or team-managed and the composition of fund investments, we explore the idea that scale erodes fund performance because of the interaction of liquidity and organizational diseconomies.
TL;DR: The authors developed a measure of U.S. monetary policy shocks for the period 1969-1996 that is relatively free of endogenous and anticipatory movements, and used this measure to infer the Federal Reserve's intentions for the federal funds rate around FOMC meetings.
Abstract: This paper develops a measure of U. S. monetary policy shocks for the period 1969-1996 that is relatively free of endogenous and anticipatory movements. Quantitative and narrative records are used to infer the Federal Reserve's intentions for the federal funds rate around FOMC meetings. This series is regressed on the Federal Reserve's internal forecasts to derive a measure free of systematic responses to information about future developments. Estimates using the new measure indicate that policy has large, relatively rapid, and statistically significant effects on both output and inflation. The effects are substantially stronger and quicker than those obtained using conventional indicators.
[...]
TL;DR: In this paper, the authors used an economically motivated two-beta model to explain the size and value anomalies in stock returns using the CAPM model and found that value stocks and small stocks have considerably higher cash-flow betas than growth stocks and large stocks, and this can explain their higher average returns.
Abstract: This paper explains the size and value "anomalies" in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market's future cash flows and one reflecting news about the market's discount rates. Intertemporal asset pricing theory suggests that the former should have a higher price of risk; thus beta, like cholesterol, comes in "bad" and "good" varieties. Empirically, we find that value stocks and small stocks have considerably higher cash-flow betas than growth stocks and large stocks, and this can explain their higher average returns. The poor performance of the capital asset pricing model (CAPM) since 1963 is explained by the fact that growth stocks and high-past-beta stocks have predominantly good betas with low risk prices.
TL;DR: Easterly et al. as mentioned in this paper examined whether aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies but has little effect in the presence of poor policies.
Abstract: In an extraordinarily influential paper, Craig Burnside and David Dollar (2000, p. 847) find that “... aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies but has little effect in the presence of poor policies.” This finding has enormous policy implications. The Burnside and Dollar (2000, henceforth BD) result provides a role and strategy for foreign aid. If aid stimulates growth only in countries with good policies, this suggests that (1) aid can promote economic growth, and (2) it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies. International aid agencies, public policy makers, and the press quickly recognized the importance of the BD findings. This paper reassesses the links between aid, policy, and growth using more data. The BD data end in 1993. We reconstruct the BD database from original sources and thus (1) add additional countries and observations to the BD data set because new information has become available since they conducted their analyses, and (2) extend the data through 1997. Thus, using the BD methodology, we reexamine whether aid influences growth in the presence of good policies. Given our focus on retesting BD, we do not summarize the vast pre-BD literature on aid and growth. We just note that there was a long and inconclusive literature that was hampered by limited data availability, debates about the mechanisms through which aid would affect growth, and disagreements over econometric specification (see Gustav F. Papanek, 1972; Robert Cassen, 1986; Paul Mosley et al., 1987; Peter Boone, 1994, 1996; and Henrik Hansen and Finn Tarp’s 2000 review). Since BD found that aid boosts growth in good policy environments, there have been a number of other papers reacting to their results, including Paul Collier and Jan Dehn (2001), CarlJohan Dalgaard and Hansen (2001), Patrick Guillaumont and Lisa Chauvet (2001), Hansen and Tarp (2001), Robert Lensink and Howard White (2001), and Collier and Dollar (2002). These papers conduct useful variations and extensions (some of which had already figured in the pre-BD literature), such as introducing additional control variables, using nonlinear specifications, etc. Some of these papers confirm the message that aid only works in a good policy environment, while others drive out the aid policy interaction term with other variables. This literature has the usual limitations of choosing a specification without clear guidance from theory, which often means there are more plausible specifications than there are data points in the sample. We differentiate our paper from these others by NOT deviating from the BD specification. Thus, we do not test the robustness of the results to an unlimited number of variations, but instead maintain the BD methodology. This paper conducts a very simple robustness check by adding new data that were unavailable to BD. Thus, we expand the sample used over their time period and extend the data from 1993 to 1997. * Easterly: Department of Economics, New York University, 269 Mercer Street, New York, NY 10003, Center for Global Development, and National Bureau of Economic Research (e-mail: william.easterly@nyu.edu); Levine: Department of Finance, Carlson School of Management, University of Minnesota, 321 19th Avenue South, Minneapolis, MN 55455, and National Bureau of Economic Research (e-mail: rlevine@csom.umn.edu); Roodman: Center for Global Development, 1776 Massachusetts Avenue NW, Washington, DC 20036 (e-mail: droodman@cgdev.org). We are grateful to Craig Burnside for supplying data and assisting in the reconstruction of previous results, without holding him responsible in any way for the work in this paper. Thanks also to Francis Ng and Prarthna Dayal for generous assistance with updating the Sachs-Warner openness variable, and to three anonymous referees, Craig Burnside, and Henrik Hansen for helpful comments. 1 See, for instance, the World Bank (1994, 2001, 2002), the U.K. Department for International Development (2000), President George W. Bush’s speech (March 16, 2002), the announcement by the White House on creating the Millennium Challenge Corporation (White House, 2002), as well as a Washington Post editorial (February 9, 2002), a Financial Times column by Alan Beattie (March 11, 2002), and The Economist (March 16, 2002).
TL;DR: In this paper, an equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed, and the driving force is a random productivity process of local economies and the perfect mobility of workers.
Abstract: Two empirical regularities concerning the size distribution of cities have repeatedly been established: Zipf's law holds (the upper tail is Pareto), and city growth is proportionate Census 2000 data are used covering the entire size distribution, not just the upper tail The nontruncated distribution is shown to be lognormal, rather than Pareto This provides a simple justification for the coexistence of proportionate growth and the resulting lognormal distribution An equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed The driving force is a random productivity process of local economies and the perfect mobility of workers
TL;DR: In this article, the authors proposed a new ascending-bid auction for homogeneous goods, such as Treasury bills or telecommunications spectrum, where items are awarded at the current price whenever they are "clinched," and the price is incremented until the market clears.
Abstract: When bidders exhibit multi-unit demands, standard auction methods generally yield inefficient outcomes. This article proposes a new ascending-bid auction for homogeneous goods, such as Treasury bills or telecommunications spectrum. The auctioneer announces a price and bidders respond with quantities. Items are awarded at the current price whenever they are "clinched," and the price is incremented until the market clears. With private values, this (dynamic) auction yields the same outcome as the (sealed-bid) Vickrey auction, but has advantages of simplicity and privacy preservation. With interdependent values, this auction may retain efficiency, whereas the Vickrey auction suffers from a generalized Winner's Curse.
TL;DR: The Canada-U.S. Free Trade Agreement (FTA) provides a unique window onto the effects of a reciprocal trade agreement on an industrialized economy (Canada) as discussed by the authors.
Abstract: The Canada-U.S. Free Trade Agreement (FTA) provides a unique window onto the effects of a reciprocal trade agreement on an industrialized economy (Canada). For industries that experienced the deepest Canadian tariff cuts, employment fell by 12 percent and labour productivity rose by 15 percent as low-productivity plants contracted. For industries that received the largest U.S. tariff cuts, there were no employment gains, but plant-level labour productivity soared by 14 percent. These results highlight the conflict between those who bore the short-run adjustment costs (displaced workers and struggling plants) and those who are garnering the long-run gains (consumers and efficient plants). Finally, a simple welfare analysis provides evidence of aggregate welfare gains.
TL;DR: In this article, the authors examine entry across 113 national markets in 16 different industries using a comprehensive data set of French manufacturing firms and find that variation in market share translates nearly completely into firm entry.
Abstract: We examine entry across 113 national markets in 16 different industries using a comprehensive data set of French manufacturing firms. The data are unique in indicating how much each firm exports to each destination. Looking across all manufacturers: (1) Firms differ substantially in export participation, with most selling only at home; (2) The number of firms selling to multiple markets falls off with the number of destinations with an elasticity of ?2.5; (3) Decomposing French exports to each destination into the size of the market and French share, variation in market share translates nearly completely into firm entry while about 60 percent of the variation in market size is reflected in firm entry. Looking within each of 16 industries we find little variation in these patterns. We propose that any successful model of trade and market structure must confront these facts.
TL;DR: The authors examined the link between income inequality and consumption inequality through the degree of insurance to income shocks and found that taxes and transfers as well as family labor supply play an important role in insuring permanent shocks.
Abstract: This paper examines the link between income inequality and consumption inequality through the degree of insurance to income shocks. A new panel data consumption series is created for the PSID using an imputation procedure that maps food data into consumption data using the estimates of a demand function for food obtained from repeated CEX cross-sections. We document a disjuncture between income and consumption inequality in the US over the 1980s and show that it can be explained by changes in the persistence of income shocks. In particular, an initial growth in the variance of permanent shocks is then replaced by a continued growth in the variance of transitory income shocks. Although we find important differences in the degree of insurance by wealth, education, and birth cohort, the overall interpretation of the relationship between consumption and income inequality is maintained. We find some partial insurance of permanent income shocks with more insurance possibilities for the college educated and those approaching retirement. We find little evidence against full insurance for transitory income shocks except among low wealth households. Taxes and transfers as well as family labor supply are found to play an important role in insuring permanent shocks.
TL;DR: This work argues that a model of addiction based on three premises, which accounts for a number of important patterns associated with addiction, gives rise to a clear welfare standard, and has novel implications for policy is tractable and generates a plausible mapping between behavior and the characteristics of the user, substance, and environment.
Abstract: We propose a model of addiction based on three premises: (1) use among addicts is frequently a mistake; (2) experience sensitizes an individual to environmental cues that trigger mistaken usage; (3) addicts understand and manage their susceptibilities. We argue that these premises find support in evidence from psychology, neuroscience, and clinical practice. The model is tractable and generates a plausible mapping between behavior and the characteristics of the user, substance, and environment. It accounts for a number of important patterns associated with addiction, gives rise to a clear welfare standard, and has novel implications for policy.
TL;DR: In this article, a field study conducted with 9-year old children, running on a track, showed that performance in competition varies according to gender, and that when children ran alone, there was no difference in performance.
Abstract: Gender gaps may be observed in a variety of economic and social environments. One of the possible determining factors is that men are more competitive than women and so, when the competitiveness of the environment increases, the performance of men increases relative to that of women. We test this hypothesis in a field study conducted with 9-year old children, running on a track. They first run alone and then in pairs over a short distance with different gender composition of the pairs. The results support the hypothesis that performance in competition varies according to gender. When children ran alone, there was no difference in performance. In competition boys, but not girls, improved their performance. This finding relates to the discussion regarding single sex schools: the outcomes of examinations in a mixed sex school can show a gender gap in favor of boys, even when this gap does not reflect actual abilities. Girls who are as talented as boys will end up performing worse just because they are not as competitive, and will not achieve as high scores in examinations as boys.
TL;DR: This paper investigated the impact of Metco on minority 3rd graders in reading and language in Boston public schools and concluded that any peer effects from Metco are modest and short-lived.
Abstract: Most integration programs transfer students between schools within districts. In this paper, we study Metco, a long-running desegregation program that sends mostly Black students out of the Boston public school district to attend schools in more affluent suburban districts. Metco increases the number of Black students in receiving districts dramatically. Because Metco students have substantially lower test scores than local students, this inflow generates a significant decline in scores, with an especially marked effect on the lower quantiles. This paper investigates the impact of Metco on receiving districts. Aggregate data on schools from districts throughout Massachusetts and micro data from a single large district strongly suggest the impact of Metco is largely a composition effect, since OLS estimates show no impact on average scores in samples of White or non-Metco students. On the other hand, OLS estimates using micro data show some evidence of an effect on the scores of minority 3rd graders in Reading and Language. Instrumental variables estimates for 3rd graders are imprecise but generally in line with OLS. Further analysis shows the negative effects on 3rd graders to be clearly present only for girls. Given the highly localized nature of these results, we conclude that any peer effects from Metco are modest and short-lived.
TL;DR: In this article, the authors argue that it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash, and that suppliers may lend more liberally than banks.
Abstract: It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes. Among other things, the model explains why trade credit has short maturity, why trade credit is more prevalent in less developed credit markets, and why accounts payable of large unrated firms are more countercyclical than those of small firms.
TL;DR: In this paper, the authors study the optimal allocation of power between accountable and non-accountable branches of government, and find that technical decisions are ill-suited to the political process, accountability is less desirable when there is a substantial risk of oppression by the majority, or conversely when "pork-barrel pandering" leads to a tyranny of minorities.
Abstract: Recent developments in long-established democratic systems have reignited the old debate about the proper degree of governmental accountability. We build a simple model that captures the major virtues and drawbacks of accountability: having the ability to screen and discipline public o¢cials on the one hand while inducing them to pander to public opinion on the other. We study the optimal allocation of power between accountable and nonaccountable branches of government. Our main …ndings are that (a) technical decisions are ill-suited to the political process, (b) accountability is less desirable when there is a substantial risk of oppression by the majority, or conversely when “pork-barrel pandering” leads to a tyranny of minorities, and (c) nonaccountable o¢cials should be given less discretion than their elected counterparts, but should be held more individually responsible in committee decision-making.
TL;DR: In this article, the authors apply a new conditional fixed-effect ordinal estimator to their measure of life satisfaction using data from the German Socio-economic Panel (GSOEP).
Abstract: One of the most prominent political and economic events of recent decades was the falling of the Berlin Wall on November 9, 1989, which was quickly followed by the reunification of the formerly separate entities of East and West Germany. It is well acknowledged that the falling of the wall was widely unanticipated in Germany (Stefan Bach and Harold Trabold, 2000), and thus it provides some useful exogenous variation with which we can more firmly establish causality in empirical analyses. In this paper, we aim to contribute to the growing economics literature on the determinants of life satisfaction (or happiness) by investigating how life satisfaction in East Germany changed over the decade following reunification. We are particularly interested in identifying the contribution that the substantial increase in real household income in East Germany in the post-reunification years (i.e., around 60 percent between 1990 and 2001) made to reported levels of life satisfaction. In order to achieve this aim, we apply a new conditional fixed-effect ordinal estimator to our measure of life satisfaction using data from the German Socio-Economic Panel (GSOEP). The estimates from this new model are then decomposed, using a new causal technique, in order to identify the factors that drove average changes in life satisfaction in East Germany following reunification. Our methodology exploits the fact that the GSOEP is an evolving panel, allowing us to make a distinction among changes in variables affecting everyone, changes in the aggregate unobserved fixed individual characteristics of the panel due to new entrants (who are also mostly younger cohorts), and panel attrition. In Section I, we briefly review the literature and describe our data. In Section II, we present the fixed-effect methodology and the causal decomposition approach that we adopt. Section III presents the results. Finally, Section IV concludes.
TL;DR: Do Conditional Cash Transfers Improve Child Health?
Abstract: Do Conditional Cash Transfers Improve Child Health? Evidence from PROGRESA's Control Randomized Experiment Author(s): Paul Gertler Source: The American Economic Review, Vol. 94, No. 2, Papers and Proceedings of the One Hundred Sixteenth Annual Meeting of the American Economic Association San Diego, CA, January 3-5, 2004 (May, 2004), pp. 336-341 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/3592906 . Accessed: 13/03/2014 14:32
TL;DR: Routine doctor visits and hospital admissions for relatively expensive procedures like bypass surgery and joint replacement increase more for previously insured groups that are more likely to have supplementary coverage after 65, reflecting the relative generosity of their combined insurance package under Medicare.
Abstract: The onset of Medicare eligibility at age 65 leads to sharp changes in the health insurance coverage of the U.S. population. These changes lead to increases in the use of medical services, with a pattern of gains across socioeconomic groups that varies by type of service. While routine doctor visits increase more for groups that previously lacked insurance, hospital admissions for relatively expensive procedures like bypass surgery and joint replacement increase more for previously insured groups that are more likely to have supplementary coverage after 65, reflecting the relative generosity of their combined insurance package under Medicare.
TL;DR: In this article, the authors used data on the location of car thefts before and after a terrorist attack on the main Jewish center in the city of Buenos Aires, Argentina, in July 1994, and found a large deterrent effect of observable police presence on crime, with little or no appreciable impact outside the narrow area in which the police are deployed.
Abstract: An important challenge in the crime literature is to isolate causal effects of police on crime. Following a terrorist attack on the main Jewish center in the city of Buenos Aires, Argentina, in July 1994, all Jewish institutions (including schools, synagogues, and clubs) were given 24-hour police protection. Thus, this hideous event induced a geographical allocation of police forces that can be presumed to be exogenous in a crime regression. Using data on the location of car thefts before and after the terrorist attack, we find a large deterrent effect of observable police presence on crime. The effect is local, with little or no appreciable impact outside the narrow area in which the police are deployed.