PRELIMINARY PROGRAM OF THE ALLIED SOCIAL SCIENCE ASSOCIATIONS JANUARY 3-5, 2014, PHILADELPHIA, PA

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Natural gas production through hydraulic fracturing (specifically horizontal slickwater fracking) since 1998 has brought or is likely to bring economic development in many parts of the U.S. Examples include: Marcellus Shale in New York, Barnett Shale in Texas, Eagle Ford Shale in Texas, Haynesville Shale in Louisiana, Arkansas and Texas, Bakken Shale in North Dakota and Montana, Niobrara shale in the Great plains of U.S., and Utica shale in the northeastern part of the U.S. Hydraulic fracturing has been the subject of much controversy and discussion because of its impact on groundwater quality, groundwater quantity, environmental quality, and health. The impact of hydraulic fracturing has also been linked to human rights (UN Human Right Council) as it can cause both direct and indirect impacts on human lives through its environmental impact.

Worldwide, about 70 percent of water extracted or diverted for consumptive use goes to agriculture, but in many groundwater basins, this proportion can be as high as 95 to 99 percent. Thus, any investigation into the economics of groundwater must consider the agricultural industry. This paper focuses exclusively on the groundwater used for agriculture. Many of the world's most productive agricultural basins depend on groundwater and have experienced declines in water table levels. Increasing competition for water from cities and environmental needs, as well as concerns about future climate variability and more frequent droughts, have caused policy makers to declare "water crises" and look for ways to decrease the consumptive use of water. Rising energy prices have also posed a concern, as they are an important component of water extraction costs. In this paper we examine the effects of energy prices on groundwater extraction using an econometric model of a farmer's irrigation water pumping decision that accounts for both the intensive and extensive margins.

In groundwater economics, the existence of an abundant but costly substitute to a traditional resource is typically assumed. For example, a water manager would have access to an unlimited supply of desalinated water to supplement ground and surface water. Yet theory and practice, for the most part, have not properly accounted for the energy-intensive nature of water management in determining groundwater extraction profiles. We identify three mechanisms through which energy prices affect optimal water pricing and groundwater extraction rates: pumping costs, desalination costs, and wastewater recycling costs. We then examine whether solar-powered desalination tends to mitigate those effects, using Hawaii as a case study.

In this paper we develop a new structural approach to measuring the gains from economic integration based on a Ricardian model in which heterogenous factors of production are allocated to multiple local markets based on comparative advantage. We implement our approach using data on crop markets in approximately 1,500 US counties from 1880 to 2002. Central to our empirical analysis is the use of a novel agronomic data source on predicted output by crop for small spatial units. Crucially, this dataset contains information about the productivity of all units for all crops, not just those that are actually being grown. Using this new approach we find that the long-run gains from economic integration among US agricultural markets have been substantial.

The paper evaluates the global welfare impact of China's trade integration and technological change in a quantitative Ricardian-Heckscher-Ohlin model implemented on 75 countries. We simulate two alternative productivity growth scenarios: a "balanced" one in which China's productivity grows at the same rate in each sector, and an "unbalanced" one in which China's comparative advantage sectors catch up disporportionally faster to the world productivity frontier. Contary to a well-known conjecture (Samuelson 2004), the large majority of countries in the sample, including the developed ones, experience an order of magnitude larger welfare gains when China's productivity growth is based towards its comparative disadvantage sectors. We demonstrate both analytically and quantitatively that this finding is driven by the inherently multilateral nature of world trade. As a separate but related excercise we quantify the world wide gains from China's trade integration.

The Zollverein was arguably the most important free-trade agreement of the 19th century. This paper investigates the economic impact of the Zollverein on trade in Germany. Although 1834 is the official date of the Zollverein's establishment, member states in fact joined in a non-random sequence over several decades. This was because the benefits of becoming a member increased, both as the size of the union increased, and as membership in the union became increasingly important for accessing foreign markets. Our key innovation in this paper is to incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. We find these effects are important-our estimated effects are several times larger than the simpler estimates that do not take these effects into account. This paper discusses the implications of this for Germany's economic history as for other studies of trade liberalization.

We propose an endowment augmentation formulation of the gains from trade that is rooted in production theory and generalizes David Ricardo's classic 1817 formulation into a multi-factor general equilibrium framework. Without imposing strong assumptions on consumer rationality or requiring autarky data, our formulation reveals information about both the magnitude and the sources of the gains from trade, both static and dynamic. A high quality data set on product and task-specific factor employments in 19th century Japan permits us to apply our formulation to the following counterfactual: what factor augmentation would have been necessary to compensate the economy for an overnight suspension of trade during its first decade of an open trade regime, 1865-1876. We find that the average static gains were equivalent to 5.5% in Japan's female labour force, a 3.3% increase in its male labor force and a 3.9% in its arable labor force. On the dynamic side, we identify Japan's 'intertemporal borrowing of foreign land' following the severe harvest failures of 1869 and argue that international trade acted as a vehicle for the prevention of a potential famine.

This paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labor supply, and consumption/ saving decisions. Altruistic parents make inter vivos transfers to their children. Labor supply during college, government grants and loans, as well as private loans, complement parental transfers as sources of funding for college education. We find that the current financial aid system in the U.S. improves welfare, and removing it would reduce GDP by two percentage points in the long-run. Any further relaxation of government-sponsored loan limits would have no salient effects. The short-run partial equilibrium effects of expanding tuition grants (especially their need-based component) are sizeable. However, long-run general equilibrium effects are 3-4 times smaller. Every additional dollar of government grants crowds out 20-30 cents of parental transfers.

We provide empirical evidence on the intergenerational mobility of wealth using administrative wealth records of three generations of Danes. Our preferred estimate for the intergenerational wealth elasticity (IWE) is 0.2 (and 0.27 when limiting attention to those with positive wealth only). We construct a theoretical framework that allows for understanding the variability of the IWE across time, samples, and countries. Our framework highlights that the IWE can be interpreted as the weighted average of elasticities corresponding to different sources of intergenerational correlation that may in principle vary in importance across different contexts. However, we find that the IWE is surprisingly stable when estimated for different age groups, when using parents-grandparents pairs instead of children and parents, when eliminating bequests, and when explicitly shutting down many of the potential channels behind intergenerational wealth mobility, including income and education. This suggests that parental wealth is a sufficient statistic for the channels that we control for and those that vary across different samples, that is, the effect of these parental characteristics on wealth of children can be summarized by their effect on wealth of parents. By exploiting information for three generations we find that the standard child-parents elasticity severely underestimates the long-term persistence in the formation of wealth across generations. We show that either the true elasticity is significantly underestimated or that grandparental characteristics matter beyond information incorporated in parental characteristics.

In this paper, we study the impact of housing reform and the rapid development of the housing market in China on parental wealth and financial transfers they receive from children. During the 1990s, the Chinese government gave property rights to many urban residents who had been allocated housing by their danwei employers. These unexpected windfalls were substantial in size, and grew with the rapid increase in housing prices over time, significantly impacting the asset holdings and wealth of affected urban residents. We find that these exogenous changes in wealth had a considerable impact on transfers received from adult non-resident children. We also find a non-linear relationship between transfers and recipient wealth, and strong evidence for altruistic transfer motives.

Rural China offers a unique and important setting for studying the economics of intergenerational transfers, given the rapidity of China's population aging, traditions of filial piety and co-residence, decrease in number of children, and dearth of formal social security, at a relatively low income level. In 2009, China launched a pension program for rural residents, now covering several hundred million Chinese. This study provides some early evidence on the program's intergenerational impact, drawing on data from 3 sources: rich household and social network data from multiple survey waves in rural Guizhou province; a July 2012 detailed household survey in one rural county of Shandong province; and the 2012 nationally representative China Health and Retirement Longitudinal Study (an HRS sister study). Employing regression discontinuity analysis, we find that rural pension receipt impacts intergenerational transfers and the living arrangements of the extended family (allowing both generations greater privacy), as well as the occupational choices and migration decisions of the pensioners' adult children. All adult children--both daughters and sons--are more likely to migrate and take off-farm jobs after the parents' pension receipt. We also utilize the extensive social network data in the Guizhou survey to explore how social networks shape pension take-up and household strategic responses.

This paper investigates the relationship between time preferences and lifetime social and economic behavior. We use a Swedish longitudinal dataset that links information from a large survey on children's time preferences at age 13 to administrative registers spanning over five decades. We document how time preferences are related to human capital investments in terms of educational choices and school performance as early as in compulsory school. We then follow the children throughout life, observing their completed education, results on military enlistment tests, fertility decisions, indicators of health, labor market success, and lifetime income. Our results indicate a substantial adverse relationship between high discount rates and school performance, health, labor supply, and lifetime income. Males and high ability children gain significantly more from being future-oriented. These discrepancies are largest regarding outcomes later in life. We also show that the relationship between time preferences and long-run outcomes operates through early human capital investments. Most earlier studies on the relationship between time preferences and outcomes are cross-sectional in nature or follow adult individuals over a short period of time. The strength and novelty of our study lie in the use of a very rich data source. The data enable us to link time preferences during childhood to social and economic outcomes observed for a very long portion of the respondents' lives. We measure time preferences at age 13 and are able to follow individuals for more than five decades. No other data have enabled researchers to analyze the importance of time preferences for such an extended period.

In this paper, we provide an explanation for why committees may behave significantly more risk averse than individuals. Specifically, we study a model in which a committee of experts must decide whether to approve or reject a proposal. Whether the proposal is beneficial to society or not depends on an unobservable underlying state of the world and each expert's signal is only indirectly related to that state of the world by way of the experts' common discipline of expertise. In addition to a payoff linked to the adequateness of the committee's decision, each committee member can receive a disesteem payoff linked to his vote. An example is FDA drug advisory committees, where committee members can be exposed to a disesteem (negative) payoff if they vote to pass a drug that proves to be very harmful to some users. We show that no matter how small the disesteem payoffs are, information aggregation fails completely in large committees: under any fixed majority rule, the committee will reject the proposal with probability approaching one. This inefficiency is robust to pre-vote communication unless the decision is taken by unanimity. That is, information aggregation in large committees with disesteem payoffs is only efficient if there is pre-vote communication and each committee member is fully responsible for the committee's decision.

We consider a myopic decision maker with smooth ambiguity averse preferences facing a recurrent decision problem. We study selfconfirming strategies. We show that a long run bias emerges that favors "tested" actions, that is, actions on which information has been collected over time. In so doing we provide, inter alia, a learning foundation for the selfconfirming equilibrium with model uncertainty of Battigalli et al. (2011, IGIER w.p. 428). The intuition behind our result is that tested actions become "certainty traps": the decision maker observes ex post the consequences of chosen actions, hence he learns to be approximately certain about the risks (probabilities of consequences) implied by tested actions, wheras he remains uncertain about the risks implied by deviations. Ambiguity aversion then implies a bias toward tested actions.

The working paper version is available at http://home.uchicago.edu/hanzhe/research/1208EvoNonBayes.pdf. Overwhelming experimental evidence in behavioral economics and psychology shows that people do not follow Bayes' Rule, especially when they form beliefs about their own intrinsic characteristics like IQ and driving skills. In particular, they respond less to new information (conservative), and less to negative signals indicating they have low ability and more to positive signals indicating otherwise (positively asymmetric) (Möbius et al, 2012). As a result, in the overall population, significantly more than half of the people believe they are above median. This paper is the first to suggest that these findings may have evolutionary roots. The evolutionary optimal posterior belief under non-linear preference is a systematic non-Bayesian updating. Although the perfect Bayesian updating is the evolutionary optimal rule for a risk-neutral (linear) agent, it is not for any other. Specifically, the evolutionary optimal updating for a risk-averse agent is positively asymmetric and conservative. Furthermore, the more risk-averse an agent is, the more asymmetric and conservative the optimal updating is. Under the evolutionary optimal updating, an agent realizes faster that he has high ability and slower if he has low ability. Such updating behavior aligns with experimental findings and offers an alternative explanation to the empirical puzzle that people across the population consistently overestimate their own personal hereditary traits. Previous explanation hinges upon the possibility that agents may have belief utilities that they feel good about themselves possessing a high ability. It does not conflict with the evolutionary explanation: Nature could compensate the loss of utility due to growth-maximizing choice instead of utility-maximizing choice by a belief utility, thus justifying the existence and importance of self-esteem since the hunter-gatherer societies (Campbell and Foster, 2010).

Economists have long been puzzled by event-ticket underpricing: underpricing reduces revenue for the performer, and encourages socially wasteful rent-seeking by ticket brokers. Why not use an auction to set price correctly? This paper studies the recent introduction of auctions into the event-ticket market by Ticketmaster. By combining primary-market data from Ticketmaster with secondary-market resale value data from eBay, we show that Ticketmaster's auctions work: the auctions substantially improve price discovery, roughly double performer revenues, and, on average, nearly eliminate the arbitrage profits associated with underpriced tickets. The data thus suggest that auctions can eliminate the speculator rent-seeking that has been associated with this market since the 19th century, and that seems to have exploded in volume in the 21st century.

We examine the long-run impact of an early childhood exposure to traumatic event on risk attitudes by investigating the impact of the Korean War. Korea experienced a devastating civil war from 1950 to 1953 that eventually left two Koreas divided until today. We find that those who spent their early childhood at the provinces that are relatively more severely affected by the war during the peak of the war, which is more than six decades ago, are more risk averse than those in the same birth cohorts who resided in relatively safer parts of the country. Using data from the World Values Survey and Armed Conflict Dataset that spans 51 countries, we confirm that an early childhood exposure to civil war is associated with stronger risk aversion.

How much of the geographic clustering of economic activity is attributable to agglomeration spillovers as opposed to natural advantages? I present evidence on this question using data on the long-run effects of large scale hydroelectric dams built in the U.S. over the 20th century, obtained through a unique comparison between counties with or without dams but with similar hydropower potential. Until mid-century, the availability of cheap local power from hydroelectric dams conveyed an important advantage that attracted industry and population. By the 1950s, however, these advantages were attenuated by improvements in the efficiency of thermal power generation and the advent of high tension transmission lines. Using a novel combination of synthetic control methods and event-study techniques, I show that, on average, dams built before 1950 had substantial short run effects on local population and employment growth, whereas those built after 1950 had no such effects. Moreover, the impact of pre-1950 dams persisted and continued to grow after the advantages of cheap local hydroelectricity were attenuated, suggesting the presence of important agglomeration spillovers. Over a 50 year horizon, I estimate that at least one half of the long run effect of pre-1950 dams is due to spillovers. The estimated short and long run effects are highly robust to alternative procedures for selecting synthetic controls, to controls for confounding factors such as proximity to transportation networks, and to alternative sample restrictions, such as dropping dams built by the Tennessee Valley Authority or removing control counties with environmental regulations. I also find small local agglomeration effects from smaller dam projects, and small spillovers to nearby locations from large dams. Lastly, I find relatively small costs of environmental regulations associated with hydroelectric licensing rules.

Using the gradual roll out of a large rural workfare program in India, we estimate its effect on private employment and wages by comparing districts that received the program earlier relative to those that received it later. Our results suggest that public sector hiring crowds out private sector work and increases private sector wages. We compute the implied welfare gains of the program by consumption quintile. Our calculations show that the welfare gains to the poor from the equilibrium increase in private sector wages are large in absolute terms and large relative to the gains received solely by program participants.

Traditional teacher compensation schemes may create incentives for teachers to seek out students who are the easiest to teach, leaving the most disadvantaged students with the weakest or least experienced teachers. We estimate the impacts of an intervention that attempts to redistribute some of the high-performing teachers in ten school districts by offering a $20,000 transfer bonus to induce these teachers to transfer into and stay for at least two years in one of the lowest-achieving schools in their district. Lowest achieving schools with eligible vacancies were randomly assigned either the opportunity to hire a high-performing teacher (treatment) or to fill their vacancy using their usual methods (control). We examine the effects of this intervention on teacher effectiveness, as measured by differences in student test score growth, and on teacher retention rates during and after the intervention. Finally, we estimate the net benefits of this intervention to schools who successfully hired a high-performing teacher.

This paper examines the impact of smallpox on economic growth and human capital development in the United States. Smallpox is a serious infectious disease with a long and destructive history - over the centuries it has killed more people than all other infectious diseases combined. The fatality rate of smallpox is over 30 percent and there is still no specific treatment for the disease. The invention of the smallpox vaccine in 1796 hence represented a dramatic turning point. By the mid-19th century, a number of countries had begun to mandate smallpox vaccinations for their populace. In particular, states in the U.S. that are close to the eastern seaboard - and hence more susceptible to smallpox invasions from overseas - made smallpox vaccinations compulsory for the public. Since the decision to get vaccinated may be endogenous and the timing of the mandates was determined primarily by geographical factors, I exploit the staggered implementation of the smallpox vaccination mandates to examine the impact of smallpox reduction. I use historical Census and newly digitized smallpox mortality data from 1850 to 1930 to investigate the following questions. First, I examine the impact of smallpox on mortality, and demonstrate that the vaccination mandates were very effective in reducing mortality rates. Second, I show that the cohorts that were affected by the mandates had higher life expectancy as well as higher literacy rates. One possible mechanisms is that vaccinations increased human capital accumulation by directly increasing health and productivity. It is also possible that human capital investment increased because the number of years that people can earn a return on education rose significantly. Finally, I provide evidence that within-state larger smallpox reductions are associated with faster economic growth, implying that public health interventions could potentially impact society on a macro-scale.

We propose to study the long-term impacts of deworming on productivity gains on the part of beneficiaries based on a sustained, nation-wide school-based deworming campaign in South Korea from 1969 till 1995. For the purpose, we match a current longitudinal study of Korean workers from the Korea Labor and Income Panel Study (KLIPS) and the annual administration data on school-by-school infection rates taking advantage of the identification of the high school attended of the subjects in the KLIPS. We identify the effects of the population infection rates in a given locale at the point of the future workers' high school attendance on their subsequent earnings as adult workers by comparing gains in earnings between pairs of birth cohorts that grew up in different parts of the country with differential rates of reduction in population infection rates. We also propose to conduct a cost benefit analysis based on the estimates as well as administrative records of resource inputs mobilized for the deworming campaign. The cost benefit analysis will emphasize the point often neglected in the literature that a sustained deworming campaign that succeeds in bringing down the population infection rate below a certain threshold will have an advantage over on-and-off modalities in that not just the current but also the future generations of workers will benefit in the absence of further public investments in deworming. Transcription of the printed administration data is currently on the way to be finished by the end of April. Preliminary results based on the subset of observations available for analysis suggest a smaller (but still significant) productivity impact compared to Blakeley's estimated for the American South. The differences in results could reflect the variation in prevalent worm types.

We examine the effect of pregnancy and childbirth on the research productivity of academic economists. Combining the survey responses of nearly 10,000 economists with their publication records as documented in their RePEc accounts, we find that more productive economists are more likely to become parents. This finding suggests that parenthood is planned strategically. Conditional difference-in-differences estimates that address the endogeneity of parenthood reveal that the effect of parenthood on research productivity is small.

The tendency of girls from large families to bear many children in adulthood has drawn the attention of social scientists and statisticians for over a century. Nevertheless, existing research has shed limited light on how this association evolves over the course of the fertility transition. This paper tracks mother-daughter fertility associations over half a century of birth cohorts from 42 developing countries. The association follows a U-shape over the fertility transition, as the relationship between socioeconomic status (SES) and fertility evolves from positive to negative. In the early regime, when parental SES and fertility are positively associated, women who grew up in larger families obtain more education, leading them to have more children. In the late regime, when parental SES and fertility are negatively associated, women who grew up in larger families obtain less education, also leading them to have more children. However, for women who were born in the early regime but become mothers in the late regime, those from larger families of origin obtain more education, which leads them to have fewer children of their own. As a result, during the transition between fertility regimes, the association of mothers' and daughters' fertility is muted and sometimes even negative. These intra-family dynamics first accelerate and then slow population-wide declines in fertility rates.

This paper asks whether children conceived during heat waves have better health and educational outcomes later in life. Using Census data from four Sub-saharan African countries and Spain, we show that children conceived during heat waves have higher literacy rates, attain more years of schooling, and have lower rates of disability than children conceived during periods of normal temperatures. We also show, using a combined AIS, DHS, and MIS data set from Africa, that infant mortality is lower for children conceived during heat waves. We then explore several channels through which this effect may occur, including differential reductions in sexual activity during heat waves among higher quality parents; biological effects of heat on conception and spontaneous abortion in utero; and changes in the proportion of unintended pregnancies during heat waves, among others.

Over the last several years highly accurate methods of gender selection before conception have been developed. Given that strong preferences for gender variety in offspring have been documented for the U.S., we move beyond bio-ethical and moral considerations and ask what the demographic consequences of gender selection technology could be. Lacking variation across space and time in access to this technology,we estimate a dynamic programming model of fertility decisions with microdata on fertility histories from the National Survey of Family Growth. After recovering preferences for gender variety, we simulate the introduction of this technology. While this technology can reduce fertility by allowing parents efficiently reach their preferred gender mix, it could also increase fertility. This is because without this technology, many parents may opt not to have another baby given the uncertainty about its gender. Preliminary results suggest that these two effects operate simultaneously, but on net, gender selection technology ends up increasing the total fertility rate by about ten percent in the steady state.

Many countries require children to reach a certain age by a specified date in the calendar year in order to start primary school. There is a clear tradeoff for parents to time a birth either before or after the school entrance cut-off date; births just before cut-off date benefit parents by avoiding a year of child care costs through sending their children to school at a relatively young age, while births just after cut-off date may benefit children from being in the oldest among the school cohort, which is shown to provide the children with academic advantage (relative age effects). Using the universe of birth during 1974-2010 in Japan with single school entrance cut-off date of April 2, I reach three findings. First, I find that more than 1,800 births are shifted roughly a week before the cut-off date to a week following the cut-off date. My finding suggests that relative age effects may dominate at least in Japanese setting. Second, I find that non-working mothers are more likely to delay births, which is consistent with lower opportunity cost of non-working mothers. However, interestingly among those working, mothers with low skilled jobs are more likely to shift births before the school entrance cut-off dates. This result implies that financial burden of child cares may force mothers to time delivers earlier to avoid the additional one year of child care cost. Also I find that delay of births is much more drastic for male births than female births, which may be one form of son-preference. Finally, I examine the health outcomes of births. While births after the cut-off date are slightly heavier, I do not find any change in infant mortality, which is plausible since hospitals anticipate the surge in the births. This study may have implications for growing literature that assumes births around the school entrance cut-off dates are random.

This paper examines the effect of income growth induced by 1978-84 land reform on the sex ratio imbalance in China. Using variation in reform timing by county together with the absence of sex selection among first-born child, we compare the sex of the second child between families with a first girl and those with a first boy before and after the reform. Results show that following a first daughter, the second child is 5.5 percent more likely to be a boy after land reform. Better educated parents are substantially more likely to respond with sex selection. After assessing various potential channels, our evidence is most consistent with an effect of increased household income, i.e. having a son is a normal good.

This study uses linked employer-employee data to estimate the labor supply elasticity facing the rm, separately by gender, for a comprehensive sample of U.S. firms. Using a dynamic model of labor supply, which identifies the labor supply elasticity tothe firm o of job to job transitions, I find evidence of substantial search frictions in the economy, with females facing a higher level of frictions than males. However, the majority of the gender gap in labor supply elasticities is driven by across firm sorting rather than within rm differences, a feature predicted in the search theory literature, but which has not been previously documented. On average, I find that males face a labor supply elasticity 0.15 points higher than females, a differential which leads to 3.3% lower earnings for women (or about 14% of the adjusted gender earnings gap). Roughly 60% of the elasticity differential can be explained by marriage and children penalties faced by women but not men.

Previous research has identified women as better credit risks than men in the context of microcredit, but very little is known about what causes such gender differences. In this paper, we examine whether the observed gender differences in repayment of microcredit has an evolutionary "natural" basis. Or, is it simply an outcome of social structures and local ecologies? We do so within the context of a framed field experiment across four distinct societies in Bangladesh: the Khasi and the Patro from Sylhet district; and the Bengali and the Marma from Khagrachori district. One distinguishing aspect of these societies is that while the Bengali and the Patro are examples of patrilineal societies, the Khasi are matrilineal, and the Marma are gender neutral as male and female are treated equally in this society. In a controlled experimental setting, small loans are extended to both male and female subjects under individual and joint liability-based loan contracts, and their repayment decisions are observed over multiple loan cycles. The results of our experiments suggest that women have better repayment performance than men in every society irrespective of the type of loan (i.e., individual vs. group). Thus, the observed gender differences in repayment of microcredit cannot be explained by the different roles that women play in different societies. In other words, women are "naturally" better credit risks than men. Our results further suggest that the use of a joint liability clause in the loan contract does not improve repayment of microcredit. In fact, in the Bengali and the Patro societies, repayment performance of the male borrowers deteriorates when loans are given under joint liability. This suggests that joint liability may open the door for free riding problem in microcredit, particularly among the male borrowers in a patrilineal society.

In a real effort experiment with repeated competition we find striking differences in how the work effort of men and women responds to previous wins and losses. For women losing per se is detrimental to productivity, but for men a loss impacts negatively on productivity only when the prize at stake is big enough. Responses to luck are more persistent and explain more of the variation in behavior for women, and account for about half of the gender performance gap in our experiment. Our findings shed new light on why women may be less inclined to pursue competition-intensive careers. To the best of our knowledge, our paper is the first to report how the work effort of men and women responds to the outcome of previous competitions. In each of 10 rounds subjects are paired and informed of the value of the monetary prize that they are competing for. The prize, which can be interpreted as a relative-performance bonus, is awarded to one of the pair members depending on the relative work efforts of the pair members in the "slider task", which involves positioning a number of sliders on a screen, and some element of chance which we control. In our empirical analysis we explore how effort provision responds to the outcomes of previous rounds of competitive interaction, i.e., previous wins and losses. We use fixed effects dynamic panel data methods and control for permanent individual-level ability, time effects and prize effects. We exploit randomization induced by the experimental design to obtain a number of valid instruments for the variables measuring previous competitive outcomes. We note that the randomness present in the experimental design is critical to our identification strategy: it is this randomness that allows us to estimate the causal effect of previous competitive outcomes on current effort provision.

This paper develops and estimates a dynamic model of individual's and couples labor supply and savings decisions to examine how the design of an individual retirement accounts pension system influences retirement decisions, pension accumulations and consumption levels of men and women. Chile has one of the longest-running nationwide private retirement accounts systems, operating since 1980, and its pension system served as a model for many other Latin American countries. In 2008, Chile undertook a major reform of its pension system with a focus on reducing old age poverty and promoting gender equity. Women can be particularly vulnerable to poverty under a private retirements account system, because they typically have less regular labor force participation than men, lower average wages and longer life spans. The pension reform introduced several new features designed to reduce gender gaps in pension accumulations and pension benefits. The behavioral model is estimated using household survey data from the Encuesta de Proteccion Social merged with administrative data on pension contribution. The estimated model is used to simulate the short-term and long-term effects of the 2008 pension reform and to compare with alternative pension system designs.

We use Danish register data for the three cohorts of high school students of 1984-86. We exploit exogenous variation from a high school pilot scheme to identify the channels through which advanced high school math causes more favorable career outcomes. The pilot scheme reduced the costs of choosing advanced math - in particular for girls at the top of the math ability distribution - because it allowed for a more flexible combination of math with other courses. Only one out of ten female high school students chooses advanced math without the pilot scheme, and this fraction almost doubled after introduction of the pilot scheme. It is this exogenous cost variation that we exploit in order to understand the potential of advanced math to attract females to high-powered careers. We specifically analyze the causal effect of advanced high school math on earnings. We further explore potential mechanisms by analyzing the causal effect of math on college enrollment and graduation, PhD graduation, field of major, promotion to top-corporate jobs, and choice of sector and industry. Consistent with earlier work, we find strong evidence of a causal effect of math on earnings for students who are induced to choose math after being exposed to the pilot scheme. Studying marginal treatment effects, we cannot reject that the returns to advanced math are equal across gender for individuals with an identical propensity to choose advanced math. This indicates that there is no gender discrimination in the labor market as to rewarding individuals with similar math ability equally for their advanced math qualifications. This further indicates that the underlying math ability distribution is also equal.

The paper uses original data on hospital bed assignments and clinical outcomes of adult hospital patients to examine whether, for patients sharing a room, outcomes of hospitalization are related in a systematic way to the clinical condition of their roommates. The sample includes 1,401 females and 1,251 males who were discharged from a medical or surgical unit of a large urban teaching hospital during 6/1/11-12/31/11 and who had at least one roommate throughout the duration of their entire hospital stay. All data were abstracted from the hospital's electronic medical records, including a new continuous measure of patient clinical condition that is automatically generated for each patient using a metric of 36 clinical variables (test results, nursing inputs) and continuously updated, in real time, using a novel clinically validated proprietary algorithm adopted by the study hospital. Using the continuous measure of patient clinical condition, we estimate a standard lagged linear-in-means peer influence model where the patient's clinical condition score at discharge is regressed on the weighted average of clinical condition scores of the roommates at admission, conditional on the patient's own clinical condition at admission. Our balancing tests support that, conditional on observable patient characteristics (gender, diagnosis), roommate assignments are plausibly exogenous. Using the admission measure of the roommate's clinical condition allows us to deal with confounding from exposure to the shared environment. Our results show significant peer effects for female patients - sharing a room with sicker patients leads to a smaller improvement in own clinical condition during hospitalization, as well as increased odds of mortality and readmission. We do not observe similar effects for males. We further find that these effects are not driven by having to compete for nursing care; rather, the mechanism of peer influence appears to operate through psychological pathways.

Absenteeism due to sickness imposes large costs on firms and workers. While firms experience production loss, workers potentially suffer from lost earnings. A large literature in health economics estimates the relationship between individuals' health and their labor market outcomes, but due to endogeneity and measurement issues, a causal relationship is difficult to establish. Similarly, answering the question to what extent more comprehensive health insurance can reduce the negative effects of health shocks on labor market outcomes is hampered by selection issues. In this paper, we exploit accidents and other unpredictable health shocks as sources of identifying variation and avoid these problems. Combining hospital discharge data with administrative earnings data from Chile, we can (a) estimate the causal short-term and long-term effects of health shocks on employment and earnings and (b) investigate if access to high quality health care through more comprehensive health insurance leads to better outcomes conditional on health. A dynamic model of labor supply and health investment predicts that workers aim to smooth their consumption over time. Negative health shocks reduce the worker's productivity and time endowment and lead to lower earnings and may reduce labor supply to zero. Risk averse individuals can purchase better more expensive insurance that reduces the negative effects of health shocks by providing access to high quality health care in order to reduce the income drop due to health shocks. We exploit the dual health care system in Chile (public and private) and panel data on monthly earnings to test the predictions of this model. Workers' employment and earnings fall by about five percent on average in the month after a health shock and recover only slowly and not completely. These effects are about twice as large for individuals with public health insurance showing that more expensive health insurance improves consumption smoothing.

Despite their lower socioeconomic status, Hispanic immigrants in the United States initially have better health outcomes than natives. However, while their socioeconomic status improves over time and across generations, their health deteriorates. This phenomenon is commonly known as the ``Hispanic health paradox.'' There is an open debate about whether the observed convergence is explained by selection on health or by the adoption of less healthy lifestyles. This paper uses a unique dataset linking the birth records of two generations of Hispanics born in California and Florida (1975-2009), to analyze the mechanisms behind the generational decline in birth outcomes. I calibrate a simple model to interpret the health trajectories of immigrant descendants, using country-level differences in health outcomes to pin down the degree of selection of the first-generation immigrants and existing estimates to account for the intergenerational transmission of health status. Accounting for socioeconomic differences between second-generation Hispanics and natives, the model not only explains, but actually reverses the paradox: the puzzle is not that immigrant relative health deteriorates so rapidly, but that it does not deteriorate rapidly enough. In order to quantify the relative importance of behaviors, I estimate the effect of health behaviors and assimilation on third-generation birth outcomes. Hispanics preserve a large advantage in health behaviors and present a lower incidence of risk factors. Higher incidence of risk factors and higher assimilation are associated with poorer third-generation birth outcomes. These effects hold true even in a subset of siblings, and holding constant grandmother-fixed effects. I conclude that the lower incidence of risk factors among Hispanics can explain 76% of the ``reverse paradox.''

In this paper we use a unique data set generated from ZocDoc.com-an online medical care scheduling service-to investigate whether user-generated quality data affects physician demand. Among the host of consumer review websites ZocDoc is unique. It integrates patient reviews and scheduling on one platform, thus enabling us to directly analyze the impact of patient-created reviews on the demand for physician services. In recent decades, hospital quality data has emerged as a way to enable patients to make an informed choice. However, such public reporting may soon be eclipsed as an information source by patient-created reviews of individual physicians, available at consumer review websites. This paper provides empirical evidence on the causal impact of online patient-created reviews on primary care physician services in New York City. Because ZocDoc prominently displays a physician's rounded average rating, we can identify the causal impact of ZocDoc ratings on demand with a regression discontinuity framework that exploits ZocDoc's rounding threshold. Using this novel data set the key findings of our paper are: (1) patient-created reviews of physicians significantly impact the choice of future patients. Patients prefer physicians with higher rating, a one-star increase in average rating (five-point scale) leads to 10%-18% increase in the probability of filling an appointment. (2) Surprisingly, we find evidence that physicians with really low rating choose to hide their reviews in order to influence the demand. (3) Consistent with standard learning models higher number of reviews also have a positive impact on future demand. (4) Interestingly, female primary care doctors have a higher chance of filling an appointment.

The difficulty and expense of purchasing health insurance as an individual or small business is claimed to be one major barrier to entrepreneurship in the United States. This paper takes advantage of the natural experiment provided by the Affordable Care Act's dependent coverage mandate, which allowed many 19-25 year-olds to acquire health insurance independently of their employment, to estimate the number of potential entrepreneurs discouraged by the current system of employer-based health insurance. A difference-in-difference strategy finds that the dependent coverage mandate led to a 6-9% increase in self-employment among the treated group. The effect is found to be larger for women and for unincorporated businesses. An instrumental variables strategy finds that those actually receiving health insurance coverage as dependents were drastically more likely to start businesses.

This paper examines the causal impact of employment on informal caregiving. To address the endogeneity of employment, we exploit local business cycles and instrument for individual employment with state unemployment rates that produce plausibly exogenous variation. Using data from the Survey of Income and Program Participation (SIPP), we find that employment significantly reduces informal caregiving, both on the extensive and intensive margins. Among women, working an additional 10 hours per week reduces the probability of providing informal care by 7 percentage points and reduces the number of care hours by about 30 percent. We also find that the effect of employment is heterogeneous across age and gender, but is similar across socio-economic status. Our results imply that informal care supply is unlikely to meet the growing demand for elderly care in an aging society as women's employment opportunities continue to crowd out informal caregiving.

This paper explores the effect of using an interactive online skill drill tool on basic math skills of first year secondary students using a randomized field experiment. The results show that access to the practice tool in itself does not explain significant differences in performance, which seems mainly due to the large diversity in practice behavior among classes. However, once using the average number of minutes practiced per week, a positive and significant effect of 6 percent increase in score growth per 30 additional minutes practiced per week is revealed. This effect is robust to adding covariates such as time used for the test, students' ability and student characteristics. Furthermore, we find evidence of a higher correct score per minute of testing time. Moreover, a cost-benefit analysis shows that the potential cost savings of this method are very large, both for the school and for the government and society at large.

There is scant evidence on the effects of providing school quality information, other than test scores, on parents' school choice decisions. One limitation of using test scores as a measure of quality is that they may reflect students' social background rather than quality per se. In addition, school quality is multifaceted and parents likely care not just about test scores, but also aspects such as curriculum, school ethos and safety. This paper investigates the demand-side effects of a novel measure of quality, school inspection ratings. The setting is the English public school system, where parents also have relatively easy access to test score information. The estimated causal effect of the inspection rating is thus over and above any reaction to test score information. Another feature of the study is that the estimated effect of the inspection ratings is in response to information that is available in the public realm. Thus the results are less susceptible to concerns about saliency and suggestion which may arise in a field experiment setting where information on school quality is presented directly to participants. Exploiting variation in the timing of inspections, I demonstrate that a school's market share, measured by total enrollment, responds to the top and bottom ratings; there is no enrollment response to the middle range of ratings. Using data on parents' ranked preferences over local schools, the paper also estimates a random utility model. The findings suggest that there is a strong causal response to all ratings, not just those at the extreme. Poorer families appear to be especially sensitive to how the information is presented in the reports.

As video games gain popularity among all age groups, the extent to which video games can and should be considered addictive has become an increasingly important question. I develop a model of rational addiction for video games and apply it to a unique panel dataset collected from the popular online video game Team Fortress 2. I provide evidence of rational addition in video games: past and future consumption play a significant role in determining how much an individual plays today. The micro nature of these data allow me to estimate the model at the individual level and characterize potential addicts in a way consistent with rational addiction. Finally, I extend the model to allow for learning and provide evidence of a skill-playtime feedback loop: by playing today an individual improves his skill which reinforces his decision to play in the future.

The quality of a student's high school courses can influence later academic success, including admission to a selective college. Recent evidence suggests that some low-income high school students choose not to attend selective colleges because (a) they mis-estimate their true abilities and (b) their classmates and course options are not sufficiently challenging. We use student-level high school transcript and test score data from the Chicago Public Schools, along with detailed Census information to investigate how low-income students' high school academic behavior is changed after taking the ACT test. Beginning in the 2000-2001 school year, the state of Illinois mandated that high school juniors take the ACT. This rule change was first used by Goodman (2013) as a behavior-changing mechanism. Goodman shows that this mechanism reveals information to students about how competitive they will be for selective colleges. By comparing the lower-income students to higher-income students in the time before and after the ACT rule change, we can estimate the impact of revealed information on changes in course quality, course absences, course grades, and other inputs to become competitive for selective colleges.

We use repeated cross sections of 11th grade students in Chicago Public Schools (CPS) to estimate the effect of the International Baccalaureate (IB) Diploma Programme on high school academic outcomes. The IB Diploma Programme is a two-year (11th and 12th grade) college-preparatory curriculum designed for higher-achieving students, requiring the completion of coursework in six academic subjects, a critical-thinking course, an independent research project, and service learning projects. We exploit exogenous variation in the offering of the IB Diploma Programme across CPS high schools over time with a difference-in-differences empirical specification. Our data come from CPS administrative student records and include the universe of 11th grade students from the 1993-94 to the 2005-06 academic years, inclusive. Our explanatory variable of interest is an indicator for whether a particular high school offered IB Diploma Programme coursework in a particular academic year. Our course performance results indicate a positive but statistically insignificant effect of the IB Diploma Programme on the probability of obtaining a D average or better in 11th grade coursework. However, we estimate a positive and statistically significant effect of the program on the probability of obtaining a B average or better in 11th grade coursework. Most of the overall increase in the probability of earning a B average or better accrues to performance in mathematics, with smaller effects on course performance in English, social science, and science. We also find a positive and statistically insignificant effect of the program on the likelihood of repeating 11th grade, a negative and marginally statistically significant impact of the program on the probability of dropping out of high school, and a positive and statistically significant effect of the program on the likelihood of high school graduation. Overall, the expansion of the IB Diploma Programme in CPS led to increased academic achievement along multiple dimensions.

In this paper we study the role of a dimension of ability, vocational ability, that has received little attention by economists when analyzing schooling choices and labor market outcomes. We first describe this ability and then analyze its effect on schooling decisions and wages. To analyze its contribution, we estimate a Roy model with factor structure that deals with the endogeneity of schooling and also allows to differentiate tests scores from unobserved abilities. The results indicate that vocational ability has a positive reward on the labor market as all other dimensions of ability. But, in contrast with standard measures of ability, vocational ability reduces the probability of going to college. In particular, the results from the simulation indicate that one standard deviation increase in cognitive ability is associated with an increase of 9 percentage points in the probability of attending 4-year college and 2 percentage points for noncognitive ability, while the same increase in vocational ability reduces the probability in 5 percentage points. The returns to cognitive and noncognitive ability are considerably higher than the returns to vocational (6 and 4 percent respectively compared to 0.5 percent for vocational ability). However we find that that for the highest decile of vocational ability the conditional mean of hourly wages is higher than the alternative, suggesting that for individuals with very high levels of vocational ability but low levels of standard ability (cognitive and noncognitive) not going to college is associated with the highest expected hourly wage.

It is well-known that parental income strongly predicts children's college attainment. However, there remains debate over whether this relationship is driven by parental income or by other factors, and how impacts of parental income vary across stages of childhood. I develop a new research design to estimate the causal effects of parental income during late childhood on children's college outcomes using administrative data on the U.S. population. The design compares outcomes of children whose fathers lose jobs before college decisions with outcomes of children whose fathers lose jobs after college decisions. I find that an unanticipated $1000 decrease in permanent income due to a father's layoff reduces children's enrollment by 0.18%. This impact is precisely estimated and smaller than estimates in prior work that rely on variation in firm closures rather than timing of layoffs. I replicate these larger estimates and show they are driven by selection of workers into closing firms. Causal effects of income during late childhood account for 10-15% of the cross-sectional correlation between income and enrollment. Income losses have even smaller impacts on the lowest-income children, consistent with the fact that these children rely less heavily on parental income to finance college. These findings suggest that relaxing parental liquidity constraints during late childhood will do little to increase enrollment compared to improvements in financial aid, especially for low-income children.

This paper uses tax return data from 1999 to 2009 to provide new estimates of wage losses during unemployment, and to examine how other types of income change during an unemployment spell. Periods of unemployment are associated with significant reductions in wage income, equivalent to approximately 16% of pre-unemployment household-level earnings and 30% of individual-level earnings. Households partially compensate for these wage losses in ways that vary across groups: Spousal earnings increase in the case of married couples, filers more likely to have accrued financial and housing wealth realize greater amounts of capital gains, and older filers take early withdrawals from restricted savings accounts. More generous UI benefits crowd out wage income of unemployed workers, but have mostly small or zero effect on spousal earnings and non-wage income.

This paper studies the role of employer behavior in generating "negative duration dependence," the adverse effect of a longer unemployment spell, by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions and find that duration dependence is stronger when the local labor market is tighter. This result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.

This paper provides new evidence on the behavior of reservation wages over the spell of unemployment. Using data from the survey of unemployed workers in NJ, where unemployed workers were interviewed each week for a period of up to 24 weeks, we find that self-reported reservation wages decline at a modest rate over the spell of unemployment, with our point estimates ranging from 0.05 to 0.14 percent per week of unemployment. Furthermore, our results show that the decline in reservation wages is mostly driven by older individuals and those with savings at the start of the survey. The longitudinal nature of the data also allows testing for the relationship between reservation wages and job acceptance. We find that reservation wages from a previous interview predict job acceptance in subsequent interviews.

Existing theories of technological innovation posit a split between the incremental innovations produced by large incumbents and the radical innovations produced by entrepreneurial start-ups. This study presents empirical evidence challenging this foundational assumption by demonstrating that entrepreneurs play a leading role, not a subordinate role, in sourcing incremental innovations through secondary inventions and design modifications. In making this argument, I present parallels between two separate instances involving the diffusion of radical innovations: the mechanized reaper (1804 - 1884) and cloud computing services (1960 - 2011). Although these technologies arose in markedly different environments and eras, each instance demonstrates that without the sustained introduction of secondary inventions and design modifications by entrepreneurs, the dominant designs would have remained dormant. Applying the techniques of historical econometrics, this study reveals that among the highest-ranked incremental innovations leading to the commercialization of the mechanized reaper and cloud computing services, nearly 90% were attributable to entrepreneurial start-ups. Paradoxically, however, an entrepreneurial start-up had only a one in fourteen chance of garnering returns from a reaper innovation and a one in nine chance of gains from a cloud computing improvement.

Crowdfunding is transitioning from a curiosity to a legitimate source of early stage capital. This paper explores how the increased use of crowdfunding might affect the rate and direction of innovation. Using data on over 10,000 projects funded on Kickstarter between April 2009 and March 2012, we show that crowdfunding substitutes for other forms of early stage financing. In addition, we document that crowdfunding investments by project type (e.g. fashion, film) and state are highly correlated with local employment in the industry-state. Thus, crowdfunding does not seem to have changed the direction of innovation substantially. We document evidence that the interaction of offline and online reputation mechanisms plays an important role in driving the correlation between offline industry agglomeration and crowdfunding.

An endogenous growth model is developed where each period firms invest in researching and developing new ideas. An idea increases a firm's productivity. By how much depends on how central the idea is to a firm's activity. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it fails to innovate. The developed model is matched up with stylized facts about the market for patents in the U.S. The analysis attempts to gauge how efficiency in the patent market affects growth.

We examine the impact of unionization on the innovation activities of firms by exploiting a novel database of union election results. We find patent counts and citations, proxies for firms' innovativeness, decline significantly after firms elect to unionize. We find the opposite for firms that vote to deunionize. To establish causality, we use a regression discontinuity design relying on "locally" exogenous variation in unionization generated by union elections that pass or do not pass by a small margin of votes. Further, we find that the market reaction to firms that elect to unionize is negatively related to firms' past innovation productivity. Our evidence suggests unionization stifles innovation.

To what extent does "false science" impact the rate and direction of scientific change? We examine the impact of more than 1,100 scientific retractions on the citation trajectories of articles that are close neighbors of retracted articles in intellectual space but were published prior to the retraction event. Our results indicate that following retraction and relative to carefully selected controls, related articles experience a lasting five to ten percent decline in the rate at which they are cited. We probe the mechanisms that might underlie these negative spillovers over intellectual space. One view holds that adjacent fields atrophy post-retraction because the shoulders they offer to follow-on researchers have been proven to be shaky or absent. An alternative view holds that scientists avoid the "infected" fields lest their own status suffers through mere association. Two pieces of evidence are consistent with the latter view. First, for-profit citers are much less responsive to the retraction event than are academic citers. Second, the penalty suffered by related articles is much more severe when the associated retracted article includes fraud or misconduct, relative to cases where the retraction occurred because of honest mistakes.

We construct "good" and "bad" aggregate volatility measures in the data, and document that they have different impact on macroeconomic variables and asset prices. We find that an increase in good volatility predicts high economic growth, while high bad volatility depresses future growth rates. Further, equity prices are positively related to movements in good volatility, and negatively to shocks in bad volatility. Using an economic model, we show that good and bad volatility risks have significant and separate implications for the asset prices.

This paper studies a DSGE model with endogenous financial asset supply and ambiguity averse investors. An increase in uncertainty about financial conditions leads firms to substitute away from debt and reduce shareholder payout in bad times when measured risk premia are high. Regime shifts in volatility generate large low frequency movements in asset prices due to uncertainty premia that are disconnected from the business cycle.

A growing body of evidence suggests that uncertainty is counter cyclical, rising sharply in recessions and falling in booms. But what is the causal relationship between uncertainty and growth? To identify this we construct cross country panel data on stock market levels and volatility as proxies for the first and second moments of business conditions. We then use natural disasters, terrorist attacks and unexpected political shocks as instruments for our stock market proxies of first and second moment shocks. We find that both the first and second moments are both highly significant in explaining GDP growth, with second moment shocks accounting for at least a half of the variation in growth. The impact is largest in countries with less developed financial markets and more rigid labor markets.

Regulatory stress-testing has become one of the most important tools for determining banks' capital adequacy. In the United States, the current methodology focuses on ensuring the banking system is well capitalized after experiencing losses in one or a few stress scenarios that involve macroeconomic weakness. However, by only focusing on a few scenarios, the current approach does not ensure the banking system is also well capitalized against the wider set of plausible scenarios that could affect the banking system. For example, the 2012 CCAR stress-test ensured banks were well capitalized to a scenario with a weakening economy, low interest rates and inflation. But, the CCAR stress-test approach left unclear how well capitalized the banking system would have been to a stagflation scenario with a weakening economy, rising interest rates and inflation even though such a scenario is plausible. To improve stress testing practices, this paper proposes a framework for modeling systemic risk. The framework is used to identify areas where current stress-testing practices can be improved. Based on the framework, the paper proposes a new approach for systemic risk stress-testing and recapitalization policy that ensures the banking system is well capitalized against a wide set of plausible shocks, but minimizes the costs of achieving this goal through better allocation of equity capital and better sharing of risk.

Interconnections among financial institutions create potential channels for contagion and amplification of shocks to the financial system. We estimate the extent to which interconnections increase expected losses, with minimal information about network topology, under a wide range of shock distributions. Expected losses from network effects are small without substantial heterogeneity in bank sizes and a high degree of reliance on interbank funding. They are also small unless shocks are magnified by some mechanism beyond simple spillover effects; these include bankruptcy costs, fire sales, and mark-to-market revaluations of assets. We illustrate the results with data on the European banking system.

We propose a minimal set of economic conditions that should be satisfied by any sensible measure of systemic risk. We argue that a useful systemic risk measure should be forward-looking and anticipate the build-up of systemic risk. It should not be based on a security whose market price includes a conjectural too-big-to fail subsidy and should incorporate the expected conditional losses on all bank liabilities (LGD) including off balance sheet claims. It should be theoretically and statistically distinct from systematic risk. It should indicate different systemic risk potential for financial and non-financial firms. Systemic risk should increase with financial firm size and be asymmetric with respect to extreme "negative" and "positive" market moves. We analyze several proposed measures of systemic risk and find that many of proposed measures fail to satisfy many of these conditions.

The most recent financial crisis has highlighted the need for regulators to be equipped with early warning tools for detecting systemic risk. One of them is the stress testing of the banking system and of the largest financial institutions. The perceived success of the stress tests of large U.S. banks carried out in 2009 led to the inclusion in the Dodd-Frank Act of 2010 of a provision requiring annual mandatory stress testing of large banks. The early literature on stress testing has been skeptical of the usefulness of such exercises and the feasibility of using alternative macroeconomic "scenarios" to evaluate both systemic and institution-specific risk. In this paper, we explore whether the type of stress tests mandated by the Dodd-Frank Act can be successful towards that end. We use time series information on the U.S. banking system and panel data information on the largest U.S. financial institutions. We show that the effects of changes in macroeconomic conditions on measures of financial health are highly sensitive to small and seemingly innocuous modeling choices. However, if rigorous model selection methods are employed, we find more robust linkages between macroeconomic and banking conditions. We conclude that carefully performed stress testing exercises may be informative in evaluating the banking system's exposure to systemic risk.

This paper examines the effects of the class size and type of high schools on college entrance exam scores and college attendance. We provide an econometric framework to estimate the Average Partial Effect (APE) or Average Treatment Effect (ATE) of school quality on academic achievement exploiting the unique institutional setting in Seoul, Korea. In Seoul until 2009, students attended the high school to which they were randomly assigned and the random assignment was conducted within the school district where students live. We account for the endogenous sorting of families across school districts by showing that the selection effect can be treated as a district-level cluster effect due to the within-district random assignment. There is a large literature on the effect of school quality or school inputs on student achievement. The key econometric issue has been identifying the effects uncontaminated by potential confounding factors. This paper contributes to the literature by explicitly addressing endogenous choices of families and schools as well as unobserved individual heterogeneity

This article develops a Bayesian framework for estimating multivariate treatment effect models in the presence of sample selection. Modeling is at the intersection of four areas including treatment effect models, sample selection, endogeneity, and discrete data modeling which presents several statistical and econometric problems. These issues, in conjunction with one another, render standard two-stage estimators inapplicable. Motivated by these difficulties, this paper presents a method of estimation that does not require simulation of the missing outcomes due to incidental truncation or the joint distribution of the potential outcomes which follows from Chib (2007) and Chib, Greenberg and Jeliazkov (2009). This methodology is appealing because it is computationally efficient and can capture a variety of interactions in the system. This framework is applied to a banking study that evaluates the effectiveness of bank recapitalization programs and their ability to resuscitate the banking system. By employing a novel bank-level data set from the Reconstruction Finance Corporation, a major recapitalization program established during the Great Depression, this paper jointly models a bank's decision to apply for a bailout, the federal government's decision to approve or decline the bailout, and the bank's failure or success. Properly incorporating missing data into the model and allowing for treatment response outcomes leads to a more comprehensive evaluation of the impacts of a bank bailout. This analysis addresses questions regarding lender of last resort regulation including whether and to what extent these programs stabilize the economy or simply privatize the gains and nationalize the loses. Overall, this model offers practical estimation tools to unveil new answers to questions involving treatment response data and incidental truncation.

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This study proposes a new estimator for estimating a treatment effect in one particular fuzzy regression discontinuity (RD) setting, in which the treatment effect is homogeneous on the support of an assignment variable and the treatment assignment is exogenous conditional on that assignment variable. The estimator is constructed using orthogonality conditions and can be easily implemented by an instrumental variable estimation procedure. We use Monte Carlo experiments to show that the proposed estimator can substantially reduce the bias in estimating the treatment effect caused by misspecifying the regression model of the observed outcome. We also use two empirical studies to demonstrate the advantages of our proposed estimator over alternative estimators. Furthermore, we use the first empirical study to highlight a connection between our proposed estimator and propensity-score matching estimators. The second empirical study emphasizes that the proposed estimator can work in a fuzzy RD setting where the cutoff point is either unknown or not exactly known. Our proposed estimator depends on the two assumptions aforementioned. As shown by Angrist and Rokkanen (2012), the assumption of a homogeneous treatment effect with respect to the assignment variable allows for identifying a treatment effect away from the cutoff. The assumption of the exogeneity of a treatment conditional on the assignment variable emphasizes a randomization that results from imperfect control over the assignment variable (Lee, 2008). However, for fuzzy RD designs the possibility of nonrandom treatment assignment may not be avoided when we focus on the population near the cutoff, where there can be selection based on potential gain from the treatment. In this case our proposed estimator will fail, and identification of a treatment effect only at the cutoff remains a distinct possibility, although the generalizability of that treatment effect can be questioned by empirical studies focused on public policy evaluations.

This study uses longitudinal data from the Early Childhood Longitudinal Study – Birth Cohort, a nationally representative sample of over 10,000 children born in the U.S. in 2001, to study – (i) how market childcare prices and market wages determine choice of childcare settings; (ii) is cognitive development affected by choice of childcare and time spent in different settings: (iii) is there evidence of association between cognitive ability and delayed entry or early enrollment in kindergarten; and, (iv) what are the potential policy implications of delayed and early enrollments in kindergarten, if any? Delayed and early enrollments are calculated by comparing child's birth date and kindergarten cut-off dates in child's state of residence at age five. Childcare expenditures are observed only when parents use paid care services, and mothers' salaries are observed only when they participate in labor market. Market prices and wages are, thus, predicted using suitable selection models. Mother's employment in two-parent households is considered to be endogenous and fathers' employment is assumed to be exogenous. Amount of time spent in different care settings are estimated using a demand system model and censored regression method. We examine two types of households – single-mother households, and two-parent households. Results, so far, indicate that childcare prices and wages do determine the amount of time spent in different childcare settings, which include parental care, paid relative care, unpaid relative care, non-relative care, center care and Head Start. Additionally, child care choices and time spent in different settings in turn affect math and reading scores of pre-kindergartners. We also note that cognitive ability affects delayed enrollment, while market childcare prices affect early enrollment. Our final results will discuss the effectiveness of subsidizing childcare costs, and the impact of skill distribution of kindergarten cohorts on national aggregate achievement gaps.

We study production factor adjustment taking into account factor utilisation in all its dimensions (labour and capital working time, capital capacity utilisation) through a unique survey among French manufacturing firms. This survey also allows us to examine the impact of obstacles to increasing capital operating time on this adjustment path. These obstacles may be regulatory, technical or due to the poor quality of labour relations. This survey, merged with balanced sheet and profit and loss accounts from fiscal reports, yields an unbalanced panel of 6,066 observations over 1993-2010. Factor utilisation adjusts the most rapidly, first through capital capacity utilisation, then the capital workweek and finally labour working time. The adjustment is slow for the number of employees and even slower for the capital stock. In case of a change in factor volume targets, the three factor utilisation degrees adjust to offset the very slow reaction of factor volumes. Obstacles to increasing the capital operating time lead to a slower adjustment of the capital stock gap through capital capacity utilisation and capital operating time, the short-term adjustment relying more on labour level and utilisation. Regulatory obstacles appear to be the most stringent obstacle, while union or labour opposition mostly constraint adjustment through labour or capital workweek.

This paper investigates the impact of trade liberalization on productivity in Vietnam. The gradual opening up of markets to trade over the course of the last decade culminating with the WTO accession in 2007 makes Vietnam an ideal case for exploring this issue. We use micro-data on the population of manufacturing enterprises for the period 2001 to 2010 and match these to data on exports and imports at the 4-digit sector level. We examine the direct and indirect effects of exposure to trade within sectors and along the supply chain by linking the trade data to Supply Use Tables. Pure efficiency effects are identified by comparing the impact of increased trade exposure on the productivity of firms in competitive and concentrated sectors. We also disentangle the pure within-firm efficiency effects from spillover and learning effects using a specifically designed survey on technology transfer channels of a sample of 8,000 manufacturing firms. Our results reveal that productivity gains associated with trade liberalization through the export channel are limited to competitive low-tech sectors with evidence to suggest that this is due to technology transfers and learning-by-exporting effects. We also find evidence of productivity gains associated imported intermediate goods through cost reductions for all downstream firms. We do not find any evidence that productivity effects due to increased trade in intermediates are associated with technology transfers.

Does demand have productive consequences? While theoretical work predicts that one should find productivity implications of demand, there is little direct evidence on this question. The Energy Policy Act of 2005 mandated a 3.5 billion gallon increase in the ethanol content of gasoline. In turn, this created a large, exogenous increase in demand for corn, the primary ingredient used to produce ethanol. We leverage this natural experiment using county-level data for corn and soybean producers located in the U.S. Corn Belt to investigate the demand-productivity nexus. Consistent with theoretical predictions, the demand shock caused a 26% increase in the treatment group's productivity. This effect is robust to a battery of robustness tests and cannot be explained by alternative forces such as product substitutability. The results are quantitatively similar when we use an alternative demand shock - Coca-Cola and Pepsi's switch from a sugar cane-based sweetener to high fructose corn syrup in 1985 - confirming external validity. We find evidence that the productivity gains were attributable to improvements in capacity utilization and large investments in an important factor of production, fertilizer. In contrast to Syverson (2004) we document a direct causal link between the demand environment and firm productivity.

The economic analysis of intellectual property rights (IPR) protection has focused on the efficacy of patents as an instrument for promoting research, growth and welfare. The bulk of this literature has arguably focused on patent length -- the duration of a patent's validity -- as the key policy of interest. There is now a well-developed argument for the existence of an optimal patent length in a broad class of models where innovation expands upon the set of products (e.g., Nordhaus 1969; Tirole 1988; Grossman and Lai 2004): An increase in the patent length induces a higher rate of innovation by extending the duration of the innovator's monopoly power (the dynamic gains), and this is traded off at the margin against the consumer surplus that is conceded (the static losses). However, innovation often takes the form of productivity improvements, where new technologies continually build upon old ones in a cumulative fashion, rather than engineer a radically new product. In that case, IPR protection in the form of inventive step requirement may be more relevant. We construct a tractable general equilibrium model of cumulative innovation and growth, in which new ideas strictly improve upon frontier technologies, and productivity improvements are drawn in a stochastic manner. The presence of positive knowledge spillovers implies that the decentralized equilibrium features an allocation of labor to R&D; activity that is strictly lower than the social planner's benchmark, which suggests a role for patent policy. We establish that there exists a finite required inventive step that maximizes the rate of innovation, as well as a separate optimal required inventive step that maximizes welfare, with the former being strictly greater than the latter. These conclusions are robust to allowing for the availability of an additional instrument in the form of patent length policy.

This paper examines the effect of conflict on agricultural production of small-farmers. We use a unique household survey applied to 4.800 households in four micro-regions of Colombia. The survey collects detailed information on households' economic conditions, incidence of violent shocks, and presence of non-state armed actors. We separate the effects of conflict on direct impacts, measured through conflict-induced shocks, and indirect impacts, measured through years of presence of non-state armed actors. The results show the association between lower agricultural production and conflict transmits through different channels. In regions with an intense conflict investments are lower, and households concentrate production on seasonal crops and pasture. However, the presence of non-state armed actors is associated with an increase in investment, although this investment is used for less productive activities. We rationalize these results with an intertemporal model and show how indirect and direct impacts induce sub-optimal agricultural decisions. Although traditional reconstruction efforts are crucial, post-conflict policies should also aim to reduce uncertainty and improve the rule of law to foster increases in production.

This paper shows that defined benefit pension and health care plans are important for firm leverage and real investment around the world. While consolidating off-balance sheet post-retirement plans typically increases effective leverage by 32%, firms reduce their level of regular debt by only 23 cents for every dollar of projected benefit obligation, yielding overall higher total leverage of plan sponsors by 24% compared to similar firms without post-retirement plan. Substitution rates between regular debt and post-retirement obligations are lower in countries with weaker employment laws and protection, more labor market freedom, pension guarantee funds, stricter rule of law as well as larger private bond market capitalization and private credit. Since post-retirement benefit obligations have more flexible terms than regular debt, they can be used to investigate the effect of financial flexibility on real investment. The results show that post-retirement benefit obligations are positively related to R&D;, which generates growth options, and negatively related to capital expenditures, which exercises growth options. Compared to an otherwise similar firm without a post-retirement plan, the average plan sponsor has 5% less capital expenditures and 12% more research and development. The results are robust to other dimensions of financial policy, such as debt maturity, dividends, preferred stock, convertible debt, and leverage that also affect real investment.

When companies sponsor defined benefit (DB) pension plans, they have to make several actuarial assumptions when computing the present value of future pension liabilities. This paper uses detailed actuarial and financial information provided by the U.S. Department of Labor and thereby provides the first empirical assessment of the impact of life expectancy assumptions on the liabilities of corporate U.S. DB pension plans. We construct a time-varying longevity variable for each pension plan and show that each additional year of life expectancy increases pension liabilities by around 4 percent. The economic effect is substantial and, as of 2007, a one-year longevity shock would double the degree of aggregate pension underfunding. Plan sponsors would in return need to substantially increase annual contributions to make up for the shortfall. Using data from Compustat, we finally show that there is a negative correlation between life expectancy assumptions and measures of financial risk and growth options whereas size has a positive effect.

This paper contributes to the literature on the link between political institutions (in particular presidentialism vs. parliamentarism) and fiscal policy with municipal-level panel data from Germany. Historically, the power of the municipal council vs. that of the mayor varied between the German States: southern states had powerful mayors while northern states had powerful councils. In the mid-nineties, however, many northern states switched to the southern system. That is, the northern states changed from an essentially parliamentary to a presidential system for local politics. Using a panel dataset that covers municipalities in two German States - North Rhine-Westphalia (treatment state) and Bavaria (control state) - over the period 1990-2010, we establish with difference-in-difference regressions how this switch to a quasi-presidential system affected municipal spending and taxation. The main contribution of this paper is a credible identification of the causal effect of political institutions: while the previous literature relies primarily on cross-sectional regressions with country-level data, we account for unobserved heterogeneity through the use of subnational and time-varying data.

Numerical fiscal rules, as part of strengthened fiscal governance frameworks, have been an important component of the EU's response to the sovereign debt crisis. Existing empirical studies analyze the effects of the mere existence of various types of numerical fiscal rules in national law, but neglect their design and actual imposed constraints. Therefore I create a new time-varying dataset of the 44 national numerical fiscal rules in the EU27 from 1990-2013, which are enacted in law or constitution and cover the central or general government. The dataset contains the actual and forecast values of the variables constrained by the respective fiscal rules as well as the numerical constraint, both calculated exactly as stated in the legal documents. Using this data I estimate a dynamic panel on aggregate and disaggregated fiscal policy outcomes. In contrast to previous studies I find only a small effect of the mere existence of numerical fiscal rules, which might be due to the increase in transparency going along with the introduction of such rules. But I do find a very strong effect on actual fiscal policy if variables are forecast to violate the numerical constraint of the fiscal rules. Furthermore I find that policy makers tend to not comply with their numerical fiscal rules in election years, bad economic times and more fragmented governments or parliaments.

The highway and bridge construction industry in the US is an important part of the infrastructure sector of the national economy. Annually, the government buys upwards of $70 bn of construction services from this industry. It is therefore a policy-relevant exercise to examine the relationship between a given amount of government spending and industry job growth. We provide an estimate of this relationship for the state of Texas during 1999-2006. The predominant format of disbursal of government funds in this industry is first-price sealed-bid procurement auctions. In order to measure the effect of construction spending on job growth, one needs to track the amounts disbursed at each auction as well as the employment level of the bidder who wins the auction. We compile a unique dataset that allows us to do so. For all road construction firms in Texas during 1999-2006, we collected data on the dollar value of work won by each of them in Texas Department of Transportation (TxDoT) auctions. We matched this to data on their monthly employment levels during this time, using the Texas Workforce Commission's Quarterly Census of Employment and Wages database. Regressing a firm's monthly employment level on its monthly work commitments--measured by payments received from TxDoT, which we observe--allows us to infer the response of firms (in terms of hiring additional workers) to an increase in their production targets. We find a firm-level employment elasticity of 2.7% in response to an increase in its work commitments. At the state level the total number of employees in the industry has an elasticity of 21.5% in response to total construction spending. This suggests that an increase in spending leads to firm entry in the market, which is indeed confirmed in a regression of the number of firms in the industry on construction spending.

Using data from a randomized experiment in rural China, this paper studies the influence of social networks on weather insurance adoption and the mechanisms through which social networks operate. To quantify network effects, the experiment provides financial education to a random subset of farmers. For untreated farmers, the effect of having an additional treated friend on take- up is equivalent to offering a 15% reduction in the insurance premium. By varying the information available about peers' decisions and using randomized default options, the experiment shows that the positive social network effect is not driven by the diffusion of information on purchase decisions, but instead by the diffusion of knowledge about insurance. We also find that social network effects are larger when people who are the first to receive financial education are more central in the social network. Full paper PDF: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2161686

This paper examines the effect of peers on individual risk taking. In the absence of informational motives, we investigate experimentally why social utility concerns may drive peer effects. We test for two main channels: utility from payoff differences and from conforming to the peer. We show that social utility generates substantial peer effects in risk taking: on average, individuals change over 30% of their risky choices in the presence of a peer. While conformity plays a role, our results suggest that social utility stems mainly from utility from payoff differences, in line with outcome-based social preferences. Full paper PDF: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2204956

A growing literature in the economics of education emphasizes the effect of peer characteristics on students' academic outcomes. Most of the existing empirical literature uses natural experiments in which students are randomly assigned to peer groups to identify the causal effect of peer characteristics. However, their results provide no direct evidence regarding the policy-relevant problem of which group assignment policies produce better or worse aggregate outcomes. I address this gap in the literature by contrasting the distribution of test scores under two common policies for assigning students to residential peer groups:tracking and random assignment. I find that tracking reduces mean GPA by approximately 0.12 standard deviations (one quarter of the black-white GPA gap) relative to random assignment. This is driven by very large negative effects on the lower tail of the GPA distribution (up to 0.5 standard deviations) and near-zero, insignificant effects on the upper tail. These results are robust to a variety of strategies to control for selection on observed and unobserved characteristics. I explore whether this result could have been predicted using random variation in dormitory composition generated under the random assignment policy. I estimate a flexible education production function and show that the parameters do not predict the magnitude of the treatment effect of tracking. This may reflect out of sample prediction problems or students' behavioral responses to the changed group assignment policy. Full paper PDF: https://sites.google.com/site/robgarlick/garlick_peereffects_tracking.pdf

Using a high-stakes field experiment conducted with a financial brokerage, we implement a novel design to separately identify two channels of social influence in financial decisions, both widely studied theoretically. When someone purchases an asset, his peers may also want to purchase it, both because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We find that both channels have statistically and economically significant effects on investment decisions. These results can help shed light on the mechanisms underlying herding behavior in financial markets and peer effects more generally. Full paper PDF: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2101391

An understanding of the magnitude and distribution of returns to investments is an important aspect of economic analysis in many contexts. Most existing studies, however, have assumed additive errors and provide standard errors of returns based on single-year estimates that fail to take into account the variability of profits due to stochastic shocks that interact with investments. These specifications are inconsistent with the idea that investments are risky. In this paper we use seven years of investment, rainfall and profit data from the new set of ICRISAT Indian surveys. We estimate the effects of planting-stage investments, which take place prior to the realization of current-period rainfall shocks, on yearly profits in a framework that permits investment returns to vary with rainfall levels. Identification exploits the annual forecasts of July-September rainfall levels issued by the Indian Meteorological Institute. We show that the forecasts, which can have no direct effects on profits (given governmental price-setting), influence farmer investments in accord with a simple dynamic model of risky agriculture. Our estimates show that sampling error alone accounts for a small fraction of the total error for any single-year estimate of investment returns and we characterize the true distribution of coefficient errors given the actual values of parameters describing the distribution of rainfall. Our estimates also indicate that ICRISAT farmers on average substantially under-invest for any reasonable values of returns on riskless investments.

This paper presents mid-line results from an ongoing, multi-year study of the effect of rain- fall insurance on farmer investment behavior. Exploiting variation from a randomized experiment which offered subsidized insurance policies to farmers, we find farmers covered by rainfall insurance modestly increased investments in cash crops. Poor, but typically not catastrophic, weather characterized much of the study period. We find that insured farmers earned more from policy payouts than they spent on insurance premia, but they also experienced reduced agricultural revenue.

Catastrophic health risks are ubiquitous in developing countries, yet few households are protected from their financial consequences with health insurance. In recent years, governments and private actors have tried to introduce health insurance. Several microfinance institutions have started offering catastrophic health insurance to their clients. To overcome adverse selection, insurance is often mandatory with a new loan or loan renewal. Insurance premium is folded in the interest rate. In a randomized controlled trial, we study the introduction of such a program by a large MFI in Andhra Pradesh, India. We show that health insurance led to large decreases in renewal rate of the microfinance loan in treatment villages (where health insurance was mandatory) than in control villages. Drop out is larger when there are other MFI present in the village, but remain large even without alternative sources of microfinance. With low demand for insurance, bundling with credit thus does not solve any of the problem associated with a voluntary program and may have made households worst off by causing loss in credit access. Faced with this increase in drop out, the MFI made insurance voluntary, and the take up of insurance dropped near zero.

In markets where the identity of consumers matters to profits, firms typically use non-price characteristics of their products to attract the most valuable consumers. This sorting requires heterogeneity within the set of marginal consumers, so modeling it requires consumers to differ along multiple dimensions. We develop a model of multidimensional sorting which is made tractable by following Spence (1975) in restricting firms to offer a single product with a small number of characteristics. The incentive to sort consumers is quantified by the covariance, among marginal consumers, between the marginal utility for a given product characteristic and the value of consumers to the firm. We apply our results to the design of insurance offered to consumers who differ both in risk and risk-aversion. While generous co-insurance sorts adversely for risky marginal individuals, comprehensiveness of coverage attracts valuable risk-averse marginal consumers, who are healthier and less costly than other marginal consumers. Positive co-insurance is possible in the competitive limit of symmetric differentiated products competition if the regression coefficient of risk-aversion on risk-type among covered individuals is sufficiently negative. Handel et al. (2013) show is true when insurers can price based on age, but not if age-based pricing is disallowed.

We examine price sensitivity and private information in the credit card market. Low price sensitivity raises interest rates above the risk-adjusted cost of funds. Private information also affects interest rates, although the direction of the effect is uncertain. Higher interest rates can select more risky borrowers (Stiglitz and Weiss, 1981) or less risky borrowers who disregard interest rates because they do not expect to carry credit card balances (Ausubel, 1991). We examine these effects using monthly data on over 400 million credit card accounts held by the 10 largest U.S. banks. We isolate discontinuities in credit card terms that arise at FICO score thresholds and use this variation to identify elasticities of demand and default. Combined with a model of lending, our estimates allow us to recover the quantitative importance of price sensitivity and private information in determining interest rate markups.

Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that insurance markets may "unravel". This short paper clarifies the distinction between these two notions of unraveling. I first show that the two concepts are mutually exclusive occurrences. Moreover, under a regularity condition of full support of the type distribution, the two concepts are exhaustive of the set of possible occurrences. Akerlof unraveling characterizes when there are no gains to trade, Rothschild and Stiglitz unraveling shows that the standard notion of competition (pure strategy Nash equilibrium) is inadequate to describe the workings of insurance markets when there are gains to trade.

This paper examines the welfare consequences of adverse selection in an environment where consumers have information frictions in plan choice. Information frictions arise from (i) not having information available or (ii) an inability to easily process information. Information frictions impact consumer choices, but may not represent welfare relevant factors in and of themselves. We empirically investigate these issues with a large micro-level data set that combines administrative claims and choice data with a comprehensive survey on consumer choices. We estimate an individual-level plan choice model with health risk, risk preferences, and information frictions, and study the welfare consequences of adverse selection. We show that (i) information frictions impact the extent of adverse selection and (ii) holding information frictions constant, the welfare impact of adverse selection changes when information frictions are included in the model. This suggests that the welfare impact of policies investigated with models without information frictions may not be sufficient for the true welfare impact of those policies.

The natural rate of unemployment is identified in a variety of ways, but two dominate. The first relates the unemployment rate to inflation and leads to the "non-accelerating inflation rate of unemployment" (NAIRU), the unemployment rate that leads to a no-change forecast of inflation in a traditional Phillips curve. The second identifies the natural rate with the low-frequency level of the unemployment rate, which is related to observable factors such as demographic changes, sectoral shifts in the product market, changing incentives for work versus leisure, or other factors. The variability of these factors during the Great Recession and its aftermath (including potential instability or nonlinearity in the Phillips curve) suggests potentially important changes in the value of the natural rate of unemployment. And, because the NAIRU or natural rate serves as the anchor for the unemployment "gap," these changes in the natural rate lead to different interpretations of the current level of the measured unemployment rate for evaluating slack in the labor market, the outlook for future inflation, and for the appropriate policy responses. This paper will empirically investigate recent changes in the natural rate using both of these frameworks.

This paper studies the natural rate of interest in the context of quantitative dynamic general equilibrium models. In the modern New Keynesian framework the natural rate of interest--that which would prevail in an otherwise equivalent general equilibrium model with flexible prices, can vary dramatically over time. Further, there is an entire term structure of natural real rates. Taking account of these observations we attempt to reconstruct the history of the natural rate, with particular attention to the Great Recession and implications for policy in a period with a binding zero lower bound.

What is the U.S. economy's underlying pace of growth in the aftermath of the Great Recession and subsequent slow recovery? Though the mid-2000s, there was considerable optimism about the contribution of information technology to longer-run productivity growth though, even then, growth in working-age population was forecast to slow. We explore the implications of simple growth models that assume technology growth is either exogenous or endogenous. Preliminary calibrations suggest that growth in GDP per worker is likely to exceed the relatively anemic 1973-1995 period because of continuing faster technology growth in producing equipment. But with much slower growth in working-age population, overall GDP could well underperform any 15-year period since the Great Depression.

We construct and analyze a model of delegated portfolio management in which money managers signal their investment skills via their choice of transparency for their fund. We show that a natural equilibrium is one in which high- and low-skill managers pool in opaque funds, while medium-skill managers separate in transparent funds. In this equilibrium, high-skill managers rely on their eventual performance to separate from low-skill managers over time, saving the monitoring costs associated with transparency. In contrast, medium-skill managers rely on transparency to separate from low-skill managers, especially when it is difficult for investors to tell them apart through performance alone. Low-skill managers prefer mimicking high-skill managers in opaque funds in the hope of replicating their performance and compensation. The model yields several novel empirical predictions that contrast transparent funds (e.g., mutual funds) and opaque funds (e.g., hedge funds).

We find that socially connected fund managers have more similar holdings and trades. The portfolio overlap of funds whose managers reside in the same neighborhood is considerably higher than that of funds whose managers live in the same city but in different neighborhoods. These effects are larger when managers are neighbors longer or are of a similar ethnic background, and are not explained by preferences. Valuable information is transmitted through these peer networks: a long-short strategy composed of stocks purchased minus sold by neighboring managers delivers positive risk-adjusted returns. Unlike prior empirical work, our tests disentangle social interaction from community effects.

This paper documents fund flow externalities across mutual funds associated by similar asset holdings. With a network specification of embedded instrumental variables to control for correlated shocks to associated funds, I find that mutual fund managers who ignore these spillover effects may underestimate fund flows by approximately 20%. Peer Flows, (flows to and from other mutual funds funds with similar holdings) account for 2% of mutual fund quarterly return after controlling for various factor models, which is subsequently and completely reversed in the following year. I provide evidence that this overshoot is the result of spillover among connected mutual funds. This effect seems to be the result of crowded trades since similarity is transient, concentrated holdings drive the mutual fund similarity measure, and the initial overshoot lasts only one quarter. Fund similarity may be measurable ahead of time and thus be of interest to fund managers and regulators alike.

In this paper we investigate how mutual funds react to the distress of another fund in the same fund family. We test three alternative hypotheses: (1) funds help the distressed fund, (2) funds front-run the distressed fund improving their relative performance in the fund family and, (3) the family coordinates and benefits from front-running the distressed fund. Our results suggest that fund managers front-run their distressed siblings and that this is the outcome of a coordinated strategy. First, we find that funds in the same family exhibit higher risk-adjusted returns when one of the funds in the family is in distress. Second, distressed funds have lower returns for a given outflow when they have a high portfolio overlap with their siblings. Third, consistent with a coordinated strategy on the family level we find that the higher risk-adjusted returns are clustered among the most important funds of the family.

We study the returns to owning dry bulk cargo ships. Ship earnings exhibit a high degree of mean reversion, driven by industry participants? competitive investment responses to increases in demand. This mean reversion is not fully reflected in ship prices. We show that high current ship earnings are associated with high secondhand ship prices and heightened industry investment, but forecast low future returns. We suggest and estimate a behavioral model that can account for the evidence. In our model, individual firms overestimate their ability to respond to common shocks and underestimate the ability of the competition, leading to excessive industry investment during booms and low subsequent returns on capital. Our model nests both rational expectations at one extreme and Kaldor?s (1938) cobweb theory at the other, in which producers naively set current production quantities based on lagged prices. Formal estimation of our model suggests significant competition neglect in the shippin

As illustrated in the tale of ?the dog that did not bark,? the absence of news and the passage of time often contain information. We test whether markets fully incorporate this information using the empirical context of mergers. During the year after merger announcement, the passage of time is informative about the probability that the merger will ultimately complete. We show that the variation in hazard rates of completion after announcement strongly predicts returns. This pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions.

For each stock in the U.S. universe in turn, we take the stock?s distribution of past returns, and compute the value that would be assigned to this distribution by (cumulative) prospect theory. We find that this ?prospect theory value? predicts subsequent returns in the cross-section, with a negative sign. This is particularly true for stocks traded primarily by individual investors and for stocks that are hard to arbitrage. We repeat our tests in 46 international markets, and find a similar pattern in a majority of those markets. Our conjecture is that some investors are influenced in their trading by the quick initial impression of a stock that they form after glancing at a chart of the stock?s historical price movements ? a so-called ?system 1? impression that we quantify as the stock?s prospect theory value. Stocks with high prospect theory values make a positive impression on these investors, who tilt toward them, causing them to be overpriced and to earn low subsequent returns.

Since 2005, recovery rates in the multi-trillion dollar credit default swap (CDS) market have been determined using a novel and complex auction format. This paper undertakes the first detailed empirical investigation of these auctions. We find that the auction price is significantly biased compared to pre- and post-auction market prices for the same instruments, with the average bias exceeding 20%. Nonetheless, econometric analysis shows that the auction is also significantly informative: information generated in the auction is critical for post-auction market price formation. Bidder behavior and auction outcomes are heavily influenced by "winner's curse" concerns, by a proxy variable that captures the size of bidders' CDS positions entering the auction, and by illiquidity concerns; all these factors contribute substantially to the observed bias. Other factors, such as exercise of monopsonistic market power also appear to matter.

We develop a model in which credit default swaps (CDS) are non-redundant securities because they are more liquid than the underlying bonds. When a CDS is introduced, two effects increase the bond price: First, the ability to buy CDS reduces the amount of short selling in bonds. Second, the ability to buy the bond but lay off the credit risk in the CDS market leads to the endogenous emergence of leveraged basis traders, who profit because the bond is cheap relative to the CDS in equilibrium (i.e. the CDS-bond basis is negative). The overall effect on the issuer's borrowing cost is ambiguous because of a countervailing effect that decreases bond prices: some potential bond buyers sell CDS instead. Issuers with relatively liquid bond markets and large disagreement about credit quality are more likely to benefit from the introduction of a CDS market. We derive a number of testable cross-sectional predictions: The CDS-bond basis is more negative if there is more disagreement about the defau

Credit default swaps (CDS) are derivative contracts that are widely used as tools for credit risk management. However, in recent years, concerns have been raised about whether CDS trading itself affects the credit risk of the reference entities. We use a unique, comprehensive sample covering CDS trading of 901 North American corporate issuers, between June 1997 and April 2009, to address this question. We find that the probability of both a credit rating downgrade and bankruptcy increase, with large economic magnitudes, after the inception of CDS trading. This finding is robust to controlling for the endogeneity of CDS trading. Beyond the CDS introduction effect, we show that firms with relatively larger amounts of CDS contracts outstanding, and those with relatively more ?no restructuring? contracts than other types of CDS contracts covering restructuring, are more adversely affected by CDS trading. Moreover, the number of creditors increases after CDS trading begins, exacerbating c

Maintaining a large endowment invested in risky securities requires a university to forego expansion through internal projects. We capture this trade-off by defining a university objective function that balances the demands of altruistic stakeholders to expand against those of self-interested stakeholders to maximize their lifetime payments. We show that a risky and large endowment signals a combination of three university characteristics: low productivity marginal internal projects; self-interested stakeholders resisting productive expansion; or binding constraints on maximum endowment payouts. Our model demonstrates that endowments offer a window into university fundamentals, and it helps explain the empirical heterogeneity in asset allocations and sizes.

Does information asymmetry affect the cross-section of expected stock returns? Using institutional ownership data from the Shanghai Stock Exchange, we show that institutions have a strong information advantage over individual investors. We then show that the aggressiveness of institutional trading in a stock?measured by the average absolute weekly change in institutional ownership during the past year?is an ex ante predictor of future information asymmetry in this stock. Sorting stocks on this information asymmetry predictor, we find that the top quintile outperforms the bottom quintile next month by 10.8% annualized, suggesting that information asymmetry raises the cost of capital.

We show that the optimal portfolio can be derived explicitly in a large class of models with transitory and persistent transaction costs, multiple assets, general correlation structure, and multiple return predictors with general dynamics. Our tractable continuous-time model is shown to be the limit of discrete-time models with endogenous transaction costs due to optimal dealer behavior. Depending on the dealers' inventory dynamics, we show that transitory transaction costs survive, respectively vanish, in the limit, corresponding to an optimal portfolio with bounded, respectively quadratic, variation. Finally, we provide several economic applications and equilibrium implications.

We assess whether deleveraging events have an impact on the cross section of stock returns. Deleveraging risk is the unique risk attributable to the existence of levered positions. When funding liquidity evaporates and short positions need to be covered, securities with greater presence of levered investors experience a significant shock as the levered investors unwind their positions. Using a unique dataset of equity lending data as a proxy for the degree of leverage in a stock, we find strong evidence of extreme return realizations attributable to the unwinding of these levered positions. We further find that these deleveraging risk events are attributable to (i) discrete liquidity events such as the quant crisis of August 2007 and the Lehman Brothers bankruptcy in September 2008, and (ii) reductions in funding liquidity as reflected in a variety of measures such as changes in VIX, TED spread, and the perceived credit risk of banks that facilitate the provision of levered capital to

We decompose the term structure of expected equity returns into (1) the real short rate, (2) a premium for holding real long-term bonds, or the real duration premium, the excess returns of nominal long-term bonds over real bonds which reflects (3) expected inflation and (4) inflation risk, and (5) a real cashflow risk premium, which is the excess return of equity over nominal bonds. All of these risk premiums vary over time. The shape of the unconditional nominal and real bond yield curves are upward sloping due to increasing duration and inflation risk premiums. The average term structures of expected equity returns and equity risk premiums, in contrast, are downward sloping due to the decreasing effect of short-term expected inflation, or trend inflation, across horizons. Around 70% of the variation of expected equity returns at the 10-year horizon is due to variation in the output gap and trend inflation.

Real-time macroeconomic data reflect the information available to market participants, whereas final data ? containing revisions and released with a delay ? overstate the information set available to them. We document that the in-sample and out-of-sample Treasury return predictability is significantly diminished when real-time as opposed to revised macroeconomic data are used. In fact, much of the predictive information in macroeconomic time series is due to the data revision and publication lag components.

Why do value stocks have higher expected returns than growth stocks, in spite of having lower risk? Why do these stocks exhibit positive abnormal performance while growth stocks exhibit negative abnormal performance? This paper offers a rare- events based explanation, that can also account for facts about the aggregate market. Patterns in time-series predictability offer independent evidence for the model?s conclusions.

We show that banks' cash flow exposure to interest rate risk, or income gap, plays a crucial role in their lending behavior following monetary policy shocks. In a first step, we show that the sensitivity of bank profits to interest rates increases significantly with their income gap, even when banks use interest rate derivatives. In a second step, we show that the income gap also predicts the sensitivity of bank lending to interest rates, both for commercial & industrial loans and for mortgages. Quantitatively, a 100 basis point increase in the Fed funds rate leads a bank at the 75th percentile of the income gap distribution to increase lending by about 1.6 percentage points annually relative to a bank at the 25th percentile. We conclude that banks' exposure to interest rate risk is an important determinant of the bank-level intensity of the lending channel.

We study the nature of deflation risk by extracting the objective distribution of inflation from the market prices of inflation swaps and options. We find that the market expects inflation to average about 2.5 percent over the next 30 years. Despite this, the market places substantial probability weight on deflation scenarios in which prices decline by more than 10 to 20 percent over extended horizons. We find that the market prices the economic tail risk of deflation very similarly to other types of tail risks such as catastrophic insurance losses. In contrast, inflation tail risk has only a relatively small premium. Deflation risk is also significantly linked to measures of financial tail risk such as swap spreads, corporate credit spreads, and the pricing of super senior tranches. These results indicate that systemic financial risk and deflation risk are closely related.

Cash holdings in the U.S. corporate sector have increased dramatically since the early 1980s. In this paper, I shed light on the causes of this phenomenon by exploring the role of the Just-in-Time (JIT) inventory system. I first demonstrate the importance of JIT in shaping corporate cash policy: the empirical estimates suggest that a 1 percentage point drop in inventory ratio is associated with a 0.67-0.73 percentage point rise in cash. I then develop a dynamic stochastic model to analyze the mechanisms through which JIT affects cash and inventory holdings and quantify their impacts. In the model, both cash and inventory can serve as working capital. As firms switch over from the traditional operating system (Just-in-Case, JIC) to JIT, they allocate the resources freed up from inventory to cash to ensure smooth transactions with suppliers. On average, this switchover accounts for 45% of the observed cash increase. The often-discussed explanation in previous studies is the rise in idios

Theory predicts that frictions in the funding markets of intermediaries should transmit to the cross-section of equities. Stocks that experience low returns when funding becomes scarce should exhibit higher illiquidity, higher volatility and ultimately higher risk premium. In this paper, we document this mechanism empirically. We show that the illiquidity and volatility of individual portfolios are positively associated with the value of funding liquidity, a measure of funding scarcity, while the portfolios returns? are negatively correlated. In addition, the cross-sectional dispersion of illiquidity, volatility, and returns widens when funding conditions deteriorate. We find that this risk is priced. The funding liquidity risk premium explains the cross-section of returns across liquidity-, volatility-, and size-sorted portfolios. Overall, our results provide strong support for the prediction that funding liquidity plays a significant role in the determination of equity liquidity, vol

In this paper, we examine the impact of real earnings management activities on the SEO process to revisit the window of opportunity and risk-return trade-off hypotheses debated in the literature. REITs serve as a unique laboratory for our analysis. Given the high dividend payout feature and restricted investment options on real estate assets, REITs managers are inclined to engage real earnings management activities over accrual based manipulation compared to general firms. Particularly, we apply a recently developed liquidity-augmented asset pricing model to measure the liquidity risk and market risk for SEO firms. We focus on firms' exposures to liquidity risk and market risk in relation to the level of real earnings management around SEO to (1) test the role of real earnings management in SEO timing, and (2) examine whether real earnings management will impact SEO firms' stock return. We find that REITs managers engage in real earnings management to attract more uninformed trading in order to provide the liquidity services at lower cost during seasoned equity offerings. We find less liquid firms are more likely to manipulate earnings prior equity offerings and uninformed trading is higher following the real earnings management. Firms set the offer price at a smaller discount after engaging in real earnings management and stock returns decline in the long run. The findings are consistent with real option and liquidity explanations.

We focus on the measurement of risk in a market where assets trade infrequently. Given the scarcity of repeat sale prices for an individual commercial property, we examine observable cash flow dynamics in accounting for property risk. The underlying premise is that cash flow fundamentals are the most important driver for pricing an asset and its risk. Two sets of cash flows are evaluated in our risk assessment process: the actual cash flows arising from an existing lease contract and the cash flows if the owner had the ability to mark rents to market in each period (market cash flows). Several property types are also examined since the lease contract differs for each type. The use of observable cash flows to infer property price and, in turn, returns and covariances have implications for the construction of optimal property portfolios. Using a panel VAR framework to estimate an adapted Campbell-Shiller dynamic Gordon Growth Model (GGM), we find that this paradigm provides a good representation of commercial real estate yields. Our out-of-sample results are similar to the in-sample findings. This is consistent with the notion that we can use observable cash flow dynamics in accounting for property risk.

In this paper we examine the drivers of office building-level returns utilizing a large proprietary database of building-level investment returns from NCREIF. We utilize two approaches: first, we start by utilizing panel data regression-based attribution analysis to apportion the relative contribution of building-level investment performance between fixed unique building characteristics, fixed submarket characteristics, dynamically changing local characteristics, market-level rental trends, and national property market as well as economic trends. We find that fixed property characteristics explain only 20% of variation in building-level NCREIF returns, market level rental trends account for 13% of variation, while national economic and property market trends explain over 32% of variation. Most significantly, dynamic property and neighborhood effects account for 53% of variation in property performance. In the second approach, we develop a dynamic panel model of building level returns as a function of macroeconomic, capital markets, as well as property market variables. Our findings add further insight to the drivers of investment performance in CRE and have a number of implications for devising investment strategies in the sector. One key implication is the inefficiency of a simplistic "theme" investment strategy, as it relies on fixed unique market of building characteristics that account for a small share of performance differences and, hence, provide little utility in identifying above market return opportunities.

This paper examines the influence of the special servicer in the financial resolution of distressed commercial real estate. The empirical analysis utilizes a large and unique data set of distressed commercial mortgages for securitized and non-securitized loans. The data set is constructed based on the recent financial crisis and includes U.S. and International agents. The main hypotheses address the impact of special servicers on resolution outcome, time to resolution and capital recovery rates. Overall, we find the most active special servicers are less likely to resolve or restructure distressed loans relative to their less productive peers. Furthermore, the time to resolution is longer for loans that are managed by special servicers. However, the current results show no difference in (unconditional) recovery rates across CMBS and non-CMBS distressed loans. Finally, our study is intended to contribute to the growing literature on distressed asset resolution and to provide new perspectives on agents at the nexus of real estate and capital market decisions.

This paper develops and estimates a general equilibrium model of business and residential location in the presence of agglomeration externalities and commuting costs. The model is based on the theory introduced by Lucas and Rossi-Hansberg (2002), but adds a congestion cost in addition to a distance cost of commuting. This specification allows for the investigation of the effect of different transportation technologies (i.e. transit or automobile infrastructure) on the spatial structure of cities. In addition, other modifications are made in order to make empirical analysis tractable. I introduce data on commercial and residential densities, commuting times, and wages paid, to illustrate the structure of cities and highlight the tradeoffs faced by businesses and individuals in location decisions. The model is estimated using a method of moments procedure, and the estimates are used to illustrate the quantitative aspects of equilibrium, including the importance of congestion in commuting costs. Policy experiments show that decreasing congestion costs relative to distance costs (a policy akin to increasing transit provision) increases the relative concentration of employment in the center city and increases residential density in inner ring suburbs. However, changes in density are non-monotonic with respect to distance from the city center.

The purpose of this paper is to study the causes, welfare effects, and policy implications of the decline of the Rust Belt. I develop a dynamic spatial equilibrium model which consists of a multi-region, multi-sector economy comprised of overlapping generations of heterogeneous individuals. Using several data sets that cover the time period from 1960--2010, I estimate the structural parameters of the model based on a simulated method of moments estimator. The empirical findings suggest that goods-producing firms located in the Rust Belt had a 13 percent relative productivity advantage in 1960 compared to the rest of the U.S., which shrank to approximately 3 percent by the end of the sample period in 2010. As a consequence, a large fraction of the decline of the Rust Belt can be attributed to the reduction in its location-specific advantage in the goods-producing sector. The transition of the U.S. economy to a service sector economy is a less significant factor. The decline of the Rust Belt generated significant differences in welfare between individuals residing in the Rust Belt and those residing in other areas, particularly for the less educated. Policy experiments show that the inequality in welfare can be significantly reduced by subsidizing labor costs in the Rust Belt or reducing mobility costs.

This paper studies the long run development of U.S. counties and metro areas from 1800 to 2000. In earlier periods smaller counties converge whereas larger counties diverge. Over time, due to changes in the age composition of locations and net congestion, convergence dissipates and divergence weakens. Gibrat's law emerges gradually without fully attaining it. Our findings suggest that orthogonal growth is a consequence of reaching a steady state population distribution, rather than an explanation of that distribution. A simple onesector model, with entry of new locations, a growth friction, and decreasing net congestion closely matches these and related dynamics.

In an equilibrium model of residential and workplace choice, we develop a measure of quality of life, incorporating commuting costs and wages based on place of work, to account for residential sorting on unobserved skills within metropolitan areas. Quality-of-life measures estimated for 2071 areas in the United States reveal that quality of life varies as much within metropolitan areas as between them and is highest in denser areas. Households bear significant commuting costs to enjoy the amenities of suburban areas, and are willing to pay significant amounts to live in areas with low crime and well-funded schools.

The quality of China's official statistics is frequently being questioned. From the 1998 'wind of falsification' to China's output performance during the U.S. financial crisis, researchers and the media alike rarely trust Chinese official statistics. This paper reviews past and ongoing suspicions of Chinese GDP data and concludes that there is little (if any) evidence for falsification of Chinese GDP data or for systematic biases in the data. The paper furthermore asks the question of which specific national income accounts data China's National Bureau could possibly falsify without being detected, and provides two significant checks of such potential data falsification.

Official estimates of unreported outflows of capital from the PRC – capital flight – are biased by incomplete data on international transactions, and the resulting data errors may have led to the adoption of inappropriate policies by the Chinese government. This paper - a substantial extension of the author's 2004 China Economic Review publication - tests the accuracy of PRC international data on trade, transfers, foreign direct investment, and banking transaction by comparing them to counterpart data for the twenty-six year period, 1984-2010. There are two important results. When Chinese international trade data are compared to that of twenty-two of China's major trading partners, the results show a large and growing gap between the two estimates consistent with capital flight. On the other hand, comparing PRC and counterpart data on international banking transactions reveal a gradual convergence of PRC estimates with those of its banking counterparts. Reflecting the importance of Hong Kong as a capital and trade entrepôt for the PRC, a comparison is also made for trade and capital data between the PRC alone and the PRC and Hong Kong combined. The discrepancies between reported PRC trade and that of its trade counterpart nations were mostly offset by those of Hong Kong until 1998. With respect to policy, it appears that while the PRC imposition of capital controls in 1998-1999 led to a large reduction in officially reported capital flight, the results based on counterpart data were much smaller and short-lived.

Many authors have attempted to estimate China's aggregate and provincial capital stock statistics. Some authors have also reported capital stock estimates for industrial sub-sectors at the national level. This paper adds to the existing literature by estimating provincial capital stock at the sub-sector level. It extends the author's own work of the estimates of capital stock for the three sectors (agriculture, industry and services) in Chinese provinces. The raw data are drawn from various statistics yearbooks and reports. These statistics are checked, corrected and reconciled for the final estimation of a capital stock series. In particular great efforts are made to ensure that 1) data from different sources are consistent with each other, 2) official data are adjusted or corrected according to the standard accounting practices and 3) conventional methods are adopted so that benchmark comparison is possible. The data series covers subsectors at the two digit level for China's provincial economies. Preliminary analysis using the estimated data will also be reported. The final capital stock data series together with employment and value-added statistics at the same level will be available for public access.

A new panel data set on the estimates of human capital stock in China has been under construction since 2008. The data provide human capital stock estimates at the national level and provincial level from 1985 to 2010. Through 2013, the data have covered 22 provinces in China. The project is the result of cooperation between the China Center for Human Capital and Labor Market Research (CHLR) at the Central University of Finance and Economics (CUFE) with the participation of a large number of scholars and graduate students from the US, Canada, and China. The updated data are released on annual base with the "China Human Capital Report." The project has been supported by the China NSF, CUFE and other agencies. The estimation of human capital stock is based on the Jorgenson-Fraumeni life-time income approach. The data provide a comprehensive human capital measure in China beyond the traditional partial measurement based on education. The data show the distribution of human capital across Chinese provinces as well as the dynamics of human capital covering most of the reform era in China. This paper provides detailed description of the data, its rich information on human capital, such as total human capital, per capita human capital, labor force human capital, by urban and rural as well as by gender. As an illustration of its utility, we use the data to investigate the economic growth convergence among Chinese provinces using this new human capital measurement and compare the results with traditional education-based human capital measurement.

The Japanese economy has been mired in subdued growth and deflation for more than two decades. This paper examines the economic causes and consequences of Japan's lost decades in light of both the stylized facts of the slowdown in growth and the existing literature on Japan's stagnation. After providing an analysis of the stylized facts of stagnation, including the slowdown in total factor productivity, Japan's diminishing global role, demographic trends and labor market characteristics, the effects of globalization of production and increased trade, and the mixed record of Japan's fiscal, monetary and structural policies, it offers alternative policy recommendations to lift Japan out of its current malaise. It is argued that the Japanese authorities should prioritize polices that strengthen aggregate demand and gradually allow the yen to depreciate. Japan's fiscal and structural policies should focus on promoting public well‐being without being unduly obsessed with fiscal consolidation since, as a country with monetary sovereignty, the government of Japan can always service its debt and the Bank of Japan can keep interest rates on government bonds low as long as it deems necessary.

Credit flow outside of traditional bank lending, or the "shadow banking", has quadrupled since 2008 and reached $3.2 trillion or 40 percent of GDP at the beginning of 2013 in China. The shadowing banking system is acclaimed by some commentators as a welcome supplement to bank lending, which increases access to credit for those that are shunned from the state‐dominated banking system. In addition, shadow banking institutions, such as trusts, and their issuance of wealth management products provide a viable venue for households to place their savings. However, the growth of the shadow banking may pose high risks for China's financial stability due to the lack of regulations and the opaque underlying assets of these wealth management products. Furthermore, a large share of shadow banking credit flows to the property market, leading to the overheating of property price. This paper will investigate the recent surge of shadow banking in China and analyze its impacts on China's financial stability and macroeconomic performance.

This study empirically analyzes the impact of the United States' bank recapitalization program, the centerpiece of the United States' $700 billion Troubled Asset Relief Program (TARP), on bank portfolios. Our findings demonstrate that the program did not achieve the stated policy objective of stimulating bank lending and, particularly, preventing foreclosures. On the contrary, we find evidence that recipient banks shrunk their assets, particularly heavily risk-weighted assets such as loans. This affected loan growth in aggregate as well as to specific sectors: agriculture, real estate, and, most significantly, business loans. The cuts in lending were more significant under TARP 2, the second round of the program. This finding is robust to various empirical specifications, including two-stage least squares estimation using instrumental variables. The empirical results suggest that TARP recipients cut back on lending more than other banks and that the cuts in lending were larger the more capital the banks received.

Sound national accounting has become an important backbone of Post Keynesian macroeconomic thinking. An essential part of this accounting framework is the three sector balance identity that illustrates that not all economic sectors can be in surplus or deficit at the same time. This identity was used successfully in the US to detect clues of unsustainable economic growth. When the domestic private sector became a net borrower it was an important sign that private debt dynamics were not sustainable. This paper extends the same analysis to other countries to see if one can draws similar conclusion. Canada and Australia are examined more carefully.

The literature on social entrepreneurship focuses on changing the dynamic that creates need deprivation by creating value through a variety of ways not exclusively measured through market exchange or government programs. Social entrepreneurial individuals and enterprises close the duality between the profit and non-profit sectors by linking ends and means and exploring novel solutions to social economic problems that go beyond what we have traditionally considered the public and private sectors. Opportunities for problem solving of this sort come about during specific punctuations and waves in history when the prevailing wisdom weakens, revealing the failure of the status quo to solve social economic problems. These punctuations increase opportunities for new ways of thinking and the appetite for accepting new ideas. No one knows for sure how long these punctuations will last, but we do know that these punctuations produce waves of activity that feeds on itself. In the context of the economic turmoil communities have been going through during the current economic crisis, this is an opportunity for social economics to make contributions by exploring innovative ways of alleviating deprivations. Research on innovative social enterprises and on the work of individual social entrepreneurs can thus benefit the development of social economic scholarship. I will examine the relationship between social entrepreneurship/enterprise and social economics by exploring the role of social enterprise and social entrepreneurship in the social economy. Particular emphasis will be accorded to women social entrepreneurs working to bring about change in their communities.

The most common critique of social enterprise is that eventually they must sacrifice their social or environmental objectives under the financial pressure of survival. The objective of this project is to address this critique from a number of perspectives and use spatial analysis of the Greater Kansas City Metropolitan Area to develop an alternative monetary asset structure (AMAS) designed to alleviate the social enterprise sector from the existing financial constraints it currently faces in a monetary production economy. This objective will be pursued through an analysis of money focusing on public banks, complementary currencies, and the Federal Reserves definitions of collateral and a quantitative, qualitative, spatial (SQ2) analysis of the impact on neighborhood vulnerability/stability of social enterprise. In order to develop the SQ2 method of analysis, data will be collected from the neoliberal period (1980-present). The data sets will consist of both attribute and spatial data from the Greater Kansas City area in the social enterprise fields of housing, education, healthcare and the arts as well as socio-economic data from the American Community Survey, Center for Economic Information (UMKC) and the U.S. Census. Using geographic information systems software, these data will be analyzed using a variety of techniques to estimate and identify spatial: autocorrelation, patterns, and diffusion of the variables. This analysis will help to quantify the non-monetary returns of social enterprise. In combination with the findings of the analysis of complementary currencies and the debt instruments of public banks, it will be proposed that the spatial externalities generated by social enterprise can be used as collateral in balance sheet transactions, similar to those conducted by the Federal Reserve in quantitative easing, helping to alleviate the financial constraints on social enterprise and allow economic recovery to drop 'jobless' as its defining adjective.

The history of workers' cooperatives has been one of social entrepreneurship hampered by lack of capital. This history has recently been changed in several innovative ways, and together they create opportunity for more concrete results from workers' co-ops. This paper investigates these new opportunities. The most obvious barrier to worker-initiated entrepreneurship is lack of capital that can be used for equity financing. The growing income and wealth disparities in the United States have only exacerbated this problem. A capitalist economy requires capitalists, or substitutes for them. A related barrier to cooperatives seeking financing is that they don't fit the conventional capitalist norm. The relationship between capital and workers is inverted: worker-owners hire capital, and hire and fire managers. Crowd funding through online social networks may prove to be a way around these barriers, although these networks have not yet become a viable way of raising long-term equity. Several cooperatives of differing scale, however, have recently had notable success by using existing securities laws to raise short- and long-term capital from their networks of supporters, beyond their cooperative membership circle. Companies such as Equal Exchange, Namaste Solar, and Real Pickles have raised millions of dollars in preferred stock offerings to outside investors on terms that enhance employee and farmer ownership, rather than transferring power to the financiers. This paper will look at these innovations in cooperative financing and discuss whether they represent a sustainable solution to the problem of cooperative financing.

As a concept, social entrepreneurship has managed in recent years to capture the imagination of practitioners, policy makers and commentators alike. While this is evidently not the result of it being clearly and rigorously defined (e.g. Bacq and Janssen, 2011), there is a growing recognition that successful social entrepreneurship results from the transformative intersection of social service provision and social activism (Martin and Osberg, 2007). This paper studies the case of a Brighton based Community Interest Company, The Good Life for All, and its piloting of a community reward currency during 2012. While the delivery focus of this pilot as such is non-transformative, the financial context of this delivery, in its trialling of a community currency, is. The case allows us therefore to cast light on the intersection of alternative finance, broadly conceived, and social entrepreneurship. At the heart of this intersection, one finds commitments at various levels among the stakeholders of the pilot to a recasting of market transactions into relational economies that call into question the rhetoric of conventional market exchange, while at the same time being premised on that rhetoric. Put into context, this phenomenon is characteristic of a number of other recent ventures experimenting at the margins of conventional finance, and points to a potential shift in focus of how post-crisis civil society has begun to engages with and transform the financial and monetary sectors as they stands.

As scholarly and practical interest in social entrepreneurship increases, a relevant question is how we can excite future generations of leaders to explore social entrepreneurship while in college or university. This paper details the story of the Rollins Microfinance Fund, the first undergraduate social entrepreneurship-related student organization at Rollins College, Florida. The organization was developed in 2010 by a group of students taking a course titled Globalization and Gender, and since that time the group has become more diverse, now encompassing both graduate and undergraduate students of various disciplines at Rollins. The paper discusses the activities of the group (which focus on loaning money to entrepreneurs in developing countries through Kiva), and lessons the group leaders have learned along the way as they have worked to increase awareness of microfinance throughout the campus community.

Behavioral finance has focused primarily on cognitive biases and unconventional preferences over gambles, but financial judgments and decision-making are heavily influenced by moral attitudes about what is appropriate behavior with regard to saving for the future, taking risks, and taking advantage of other individuals. We review here the basic psychology of moral attitudes, including the six fundamental moral foundations that underlie much of human moral attitudes, and distinguish between basic financial norms that align fairly closely to the moral foundations, and financial ideologies that elaborate more adventurously from the foundations. We then critically review existing theory and evidence regarding how moral attitudes affect the behaviors of investors, advisors, managers, firms, and market prices. We also discuss some important financial ideologies that are infused with moral attitudes, such as the anti-greed ethic, growth versus value ethics, the anti-speculation ethic, the entrepreneurial ethic, pro-thrift/anti-lender ethics, anti-short-termism. We also discuss how moral attitudes affect financial regulation, and suggest directions for future research.

We study the impact of cultural aversion on international economic relations by analyzing market reaction to two major adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure decline disproportionately during each event window; Chinese companies with high Japanese exports similarly suffer relative declines. The effect on Japanese companies is concentrated in industries dominated by Chinese state-owned enterprises, where there is greater incentive and ability to intervene, while the negative impact on Chinese firms is primarily for consumer-focused companies. Our results suggest an important impact of cultural frictions on economic relations, and highlight that institutional context is important for understanding the mechanisms underlying this effect.

In this study, we propose a linguistic-based measure of CEO integrity, defined as honoring one's word, based on CEOs' excessive use of causation words. We validate our linguistic-based integrity measure using the results of a proprietary survey given to CEOs and their employees that includes the employees' perceptions of their CEOs' integrity. We document a negative association between (1) the extent of causation words in CEO survey responses; and (2) employees' perceptions of the extent to which their CEOs honor their word, suggesting the linguistic-based score captures the construct of integrity. After validating the measure, we derive CEO integrity scores for a large archival sample by measuring unexpected use of causation words in the annual shareholder letter. Because accruals are "placeholders for cash flows" (Wahlen et al., 2010), we use accruals to represent a CEO's word regarding cash flows of the firm. We test the prediction that the financial reports of firms with high-integrity CEOs will exhibit better accruals quality. We document the influence of CEO integrity on financial reporting by showing a positive association between our linguistic-based integrity score and both an accrual-based and a market-based measure of accruals quality.

Using a large sample of U.S. individuals, we show that trust is an important determinant of an array of household financial decisions and outcomes including debt management. Individuals with a higher level of trust are less likely to be in debt, miss payments, file bankruptcy, or go through foreclosure. Their households have lower financial leverage, higher retirement savings and assets, and greater net worth. We show a causal impact of trust on financial outcomes by extracting the component of trust correlated with an individual's early life experiences, and also by purging out the component of trust correlated with prior economic success. The effect of trust channels through the beliefs formed in response to the trustworthiness of people one deals with, as well as through personal values of trust and trustworthiness rooted in the family and cultural background. Trust has a more pronounced effect among females and those who have lower education or income. Our further evidence suggests that enhancing individuals' trust, and to the right amount, can improve household financial well-being.

Most papers on high-dimensional statistics are based on the assumption that none of the regressors are correlated with the regression error, namely, they are exogenous. Yet, incidental endogeneity arises easily in a large pool of regressors in a high-dimensional regression. This causes the inconsistency of the penalized least-squares method and possible false scientific discoveries. A necessary condition for model selection consistency of a very general class of penalized regression methods is given, which allows us to prove formally the inconsistency claim. To cope with the possible incidental endogeneity, we construct a novel penalized focused generalized method of moments (FGMM) criterion function and offer a new optimization algorithm. The FGMM is an extra filter that excludes all incidental endogenous predictors. To establish its asymptotic properties, we first study the variable selection consistency for a general class of penalized regression methods. These results are then used to show that the FGMM possesses the oracle property even in the presence of incidental endogenous predictors, and that the solution is also near globalminimumunder the over-identification assumption. Finally, we also show how the semi-parametric efficiency of estimation can be achieved via a two-step approach.

We propose robust methods for inference on the effect of a treatment variable on a scalar outcome in the presence of very many controls. Our setting is a partially linear model with possibly non-Gaussian and heteroscedastic disturbances where the number of controls may be much larger than the sample size. To make informative inference feasible, we require the model to be approximately sparse; that is, we require that the effect of confounding factors can be controlled for up to a small approximation error by conditioning on a relatively small number of controls whose identities are unknown. The latter condition makes it possible to estimate the treatment effect by selecting approximately the right set of controls. We develop a novel estimation and uniformly valid inference method for the treatment effect in this setting, called the "post-double-selection" method. Our results apply to Lasso-type methods used for covariate selection as well as to any other model selection method that is able to find a sparse model with good approximation properties. The main attractive feature of our method is that it allows for imperfect selection of the controls and provides confidence intervals that are valid uniformly across a large class of models. In contrast, standard post-model selection estimators fail to provide uniform inference even in simple cases with a small, fixed number of controls. Thus our method resolves the problem of uniform inference after model selection for a large, interesting class of models. We illustrate the use of the developed methods with numerical simulations and an application to the effect of abortion on crime rates.

In this paper, we obtain asymptotic approximations to the squared error of the least squares estimator of the common component in large approximate factor models with possibly misspeci…ed number of factors. The approxima- tions are derived under both strong and weak factors asymptotics assuming that the cross-sectional and temporal dimensions of the data are comparable. We develop consistent estimators of these approximations and propose to use them for model comparison and for selection of the number of factors. We show that the estimators of the number of factors that minimize these loss estimators are asymptotically loss e¢ cient in the sense of Shibata (1980), Li (1987), and Shao (1997).

This paper studies detecting and disentangling structural instabilities in dynamic factor models, with a simultaneous estimation of the number of unobserved factors. The method allows for changes in factor loadings and in the number of factors. The specification of factors and the specification of factor loading instability are unified in a high-dimensional sparse system. Applying adaptive shrinkage estimation to this sparse system, we design a one-step model selection procedure that not only liberates researchers from sequential testing methods but also achieves uniform control of the family-wise model selection error over an increasing number of series. We show consistency, rate of convergence, and super-efficiency of this shrinkage estimator and derive conditions for consistent model selection. For efficient computation with large data sets, the proposed procedure is a convex optimization problem after the principle components are used for dimension reduction.

We demonstrate how commodity producers can take strategic speculative positions in derivatives markets to soften competition in the spot market. In our game, suppliers first choose a portfolio of call options and then compete in supply functions. In equilibrium firms sell forward contracts and buy call options to commit to downward sloping supply functions. Although this strategy is risky, it reduces the elasticity of the residual demand of competitors, who increase their mark-ups in response. We show that this type of strategic speculation increases the level and volatility of commodity prices and decreases welfare.

We investigate the estimation of models of dynamic discrete-choice games of incomplete information, formulating the maximum-likelihood estimation exercise as a constrained optimization problem which can be solved using state-of-the-art constrained optimization solvers. Under the assumption that only one equilibrium is played in the data, our approach avoids repeatedly solving the dynamic game or finding all equilibria for each candidate vector of the structural parameters. We conduct Monte Carlo experiments to investigate the numerical performance and finite-sample properties of the constrained optimization approach for computing the maximum-likelihood estimator, the two-step pseudo maximum-likelihood estimator and the nested pseudo-likelihood estimator, implemented by both the nested pseudo-likelihood algorithm and a modified nested pseudo-likelihood algorithm.

There is an extensive literature on the estimation of production functions. A common feature in these studies is that, within an industry, all firms are assumed to have the same production technology but face idiosyncratic (Hicks neutral) productivity shocks. Different industries are allowed to have different technologies. In reality, firms within an industry may have different production technologies depending, for example, on their age, size, history of skill-biased technological changes, or whether they produce for the local market or are engaged in international trade. In fact, the new wave of international trade studies has documented substantial heterogeneity in production technologies at the firm level (see, for example, Bernard and Jensen (1995, 1999) or Melitz (2008)). In this light, we allow for random coefficients for inputs in the production function without specifying their distribution, and show that the coefficients are non-parametrically identified for each firm using short panel data. Sample counterparts of the explicit identifying formulas yield closed-form estimators of the heterogeneous coefficients. We perform Monte Carlo experiments to show how the estimators perform in small samples. Theoretical large sample properties are also discussed. Our identification strategy relies on the structural restrictions similar to those commonly used in the literature on production functions. In other words, we can deal with more general heterogeneous models without materially strengthening existing identifying assumptions. First, the invertibility of the intermediate input choice function is used to proxy the unknown heterogeneous coefficients. Second, the frictions in labor and investment choices are in turn used to disentangle the correlated proxy from endogenous inputs. Third, the assumption that the Hicks neutral technology follows a first-order Markov process disentangles the correlated technology from endogenous capital growths. These three main identifying assumptions together with an empirically testable rank condition establish that all the heterogeneous coefficients are explicitly identified for each firm.

In this paper we develop a structural model in which exporters are competing in supply functions and study the nonparametric identi…fication and estimation of productivity distri- butions and marginal costs in this framework. Our model is able to reconcile the existence of multiple sellers, multiple prices, and variable markups that we observe in disaggregated bilateral trade data while also incorporating features such as strategic pricing and incomplete information, which are usually missing in models of exporter behavior. Our identi…fication and estimation methodology makes an important contribution to the empirical share auction literature by showing that the underlying structure is identifi…ed nonparametrically even if we do not observe the entire schedules, but only the transaction points instead; whereas the methodology in the literature of empirical share auctions depends heavily on the fact that the entire bid/supply schedule is observed. Moreover, in view of the recent studies in international trade that have shown the sensitivity of the gains from trade estimates to the parametrization of productivity distributions it is important to maintain a ‡flexible structure for productivity distributions and also marginal costs. We apply our model to the German market for manufacturing imports for 1990 using disaggregated bilateral trade data, which consists only of trade values and traded quantities. We recover the destination-source specifi…c productivity distributions and destination-source specifi…c marginal cost functions nonpara- metrically. Our empirical results do not support the distributional assumptions that are commonly made in the international trade literature such as Fréchet and Pareto. In particu- lar, we …find that the productivity distributions are not unimodal; low productivities are more likely to occur as expected, but there is not a single mode. Our results provide important insights about cross country and cross destination differences in productivity distributions, trade costs and markups.

This paper studies the design of US Treasury auctions focusing on the role of primary dealers that bids on behalf of indirect bidders when making the market. We develop a framework of continuous-time uniform price auctions in general economic environments that allow players short positions, interdependent values, and information asymmetries among primary dealers and indirect bidders and derive a linear equilibrium in closed forms. Primary dealers use information contained in bids to update their estimates and can reduce volatility of auction prices that are important for public debt management. Direct bidding can enhance competition and participation but also can affect the market risk premium.

The Chilean economy experienced a decade of sustained growth in aggregate output and productivity after the 1982 financial crisis. This paper analyzes the role of resource allocative efficiency on total factor productivity (TFP) in the manufacturing sector by applying the methodology of Hsieh and Klenow (2009) to the establishment data from the Chilean manufacturing census. We find that a reduction in resource misallocation accounts for about 46 percent of the growth in manufacturing TFP between 1983 and 1996. The improvement in allocative efficiency, moreover, is essentially driven by a reduction in the cross-sectional dispersion of output distortion. In particular, a reduction in the least productive plants' output subsidies is the most important reason for the reduction in resource misallocation during this period.

We develop a dynamic lifecycle model to study the increases in college completion and average IQ of college students in cohorts born from 1900 to 1972. We discipline the model by constructing historical data on real college costs from printed government reports covering this time period. We nd that increases in college completion of 1900 to 1950 birth cohorts are due primarily to changes in college costs, which generate a large endogenous increase in college enrollment. Additionally, we nd strong evidence that cohorts born after 1950 underpredicted sharp increases in the college earnings premium they eventually received. Combined with increasing college costs during this time period, this generates a slowdown in college completion, consistent with empirical evidence for cohorts born after 1950. Lastly, we claim that the rise in average college student IQ cannot be accounted for without a decrease in the variance of ability signals. We attribute the increased precision of ability signals primarily to the rise of standardized testing.

Employment protection (EPL) has a well known negative impact on labor flows as well as an ambiguous but often negative effect on employment. In contrast, its impact on capital accumulation and capital-labor ratio is less well understood. The available empirical evidence would suggest a non-monotonic relation between capital-labor ratios and EPL: positive at very low levels of EPL, and then negative. We explore the theoretical effects of EPL on physical capital in a model of a firm facing labor frictions. Under standard assumptions, theory always implies a motononic negative link between capital-labor ratios and EPL. For a positive link to arise, a very specific pattern of complementarity between capital and workers protected by EPL (senior workers, as opposed to unprotected new entrants, or junior workers) has to be assumed. Further, no standard production technology is able to reproduce the inverted U-shape pattern of the data. An extension of the model with specific skills investment is instead able to reproduce the inverted U-shape pattern. EPL protects and therefore induces investments in specific skills. We calibrate the returns to seniority by using estimates from the empirical literature. Under complementarity between capital and specific human capital, physical capital and senior workers having accumulated specific human capital are de facto complement production factors and EPL may increase capital demand at the firm level. The paper concludes that labor market institutions sometimes have a positive role in a second-best environment.

This paper presents a theory of factor income shares. I first develop micro-foundations for a unified aggregate production function which incorporates a frictional process of matching workers and firms. Entrepreneurs with productivities drawn from a Pareto distribution hire capital and compete for workers. Wages are determined by Bertrand competition. In contrast with the classic result of Houthakker (1955-56), and more recent papers by Jones (2005) and Lagos (2006), the aggregate production function is Cobb-Douglas only in the limit as frictional unemployment disappears. The basic framework is extended to a dynamic labor market environment. Factor shares are endogenous and depend crucially on unemployment, workers' reservation wage, and the entrepreneurs' productivity distribution. Using annual data on unemployment rates and eligibility for unemployment insurance, I calibrate the model and show that it can explain much of the behavior of factor shares in the US from 1951-2003. The correlation between the data and the model's predictions during this period of over fifty years is 0.69 for the perfect foresight equilibrium and 0.73 when workers are myopic.

We study a model to explore the (dis)connect between market efficiency and real efficiency when firms learn information from the market to guide their investment decisions. Whether the two efficiency concepts are aligned depends crucially on what information is contained in the market. Market efficiency concerns how much information the market reveals about the overall firm value. However, improving real efficiency needs the market to reveal much information that is relevant for investment decisions. As a result, an informationally efficient economy may not operate efficiently from the perspective of real investment. We characterize conditions for this disconnection to happen. Our analysis highlights the delicate link between market efficiency and real efficiency, and it has important implications for financial regulations.

A widely held view posits that when speculators drive up the futures price of a commodity, real demand must fall. This paper develops a model to contrast this view through an informational feedback effect. Our model builds on two practical observations: 1) Futures prices of key industrial commodities such as copper and oil became barometers of global demand in the recent decade as a result of the rapid economic expansions of emerging economies; and 2) comple- mentarity exists in industrial producersÂ’production decisions as a result of their need to trade produced goods. In the presence of information frictions and pro- duction complementarity, an increase in commodity futures prices, even if driven by non-fundamental factors, signals strong global economic strength, and may thus induce increased commodity demand.

We show that the stock market valuation of peers matters for Â…firms' Â’investment decisions. In a large sample of fiÂ…rms, corporate investment is positively related to the market valuation of peer Â…firms selling related products. Consistent with a model where managers use the stock prices of peers as a source of information, this relation is stronger when the level of informed trading in a Â…firm'Â’s stock is weak. Also, the link between the investment of a Â…firm and its own stock price is weaker when the level of informed trading in its peersÂ’' stocks is high, or when the demand for its products is more correlated with that of its peersÂ’' products. Furthermore the investment of private Â…firms depends on their peersÂ’' stock prices, but much less so after they go public. Overall, our results provide new insights on how fiÂ…nancial markets affect the real economy.

Feedback from stock prices to cash flows occurs because information revealed by firms' stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting where stock prices are affected by fundamental information, observed by some investors, as well as by unobserved shocks to stock market participation. The model is consistent with a number of regularities documented in the macro finance literature and generates new, potentially testable, implications.

We study the effects of competition on loan rates in microcredit markets using a new database from rating agencies, covering 379 for-profit and nonprofit micro finance institutions (MFIs) in 67 countries over 2002-2008. First, we find competitive pressures from increased market share of for-profits. Second, we find that nonprofits are relatively insensitive to concentration changes, while they appear to sustain their competitive advantage stemming from proprietary information on borrowers. In contrast, for-profits charge significantly lower rates in less concentrated markets. We show that this effect is consistent with an information dispersion mechanism.

Banks promote economic growth by facilitating relationship-specific investment between suppliers and buyers. We motivate this novel channel from banking to real economy by interlinking arguments from both research on relationship-specific assets and signalling role of banks. A supplier would be reluctant to undertake relationship-specific investment if she cannot observe financial stability and planning horizon of buyer. A strong banking sector is well-suited to address these information asymmetries. Empirical results from 28 industries in 90 countries confirm that industries dependent on relationship-specific investment from their suppliers grow disproportionately faster in countries with a strong banking sector.

This paper re-examines the empirical relationship between financial and economic development while (i) taking into account their dynamics and (ii) differentiating between stock market and banking sector development. We study the cointegration and causality between the real and the financial sector for 26 countries. Our time series analysis suggests that the evidence in support of a finance-led growth is weak once we take into account the dynamics of financial development and growth. We show that causality patterns depend on whether countries' financial development stems from the stock market or the banking sector. Stock market development tends to cause growth, while a reverse or bi-directional causality is present between banking sector development and output growth. We also bring evidence that causality patterns differ between market-based and bank-based economies suggesting that financial structure influences the causal direction between financial and economic development. Thus, the relation between financial and economic development is likely to be more complex than suggested in earlier studies.

Using the simple geometry of the classic, open-economy trilemma, this paper introduces a new measure of the stability of international macroeconomic arrangements, a measure that reflects the simultaneity of a country's choices of exchange rate stability, financial openness, and monetary sovereignty. Applying the new stability measure to post-Bretton Woods data, we find that the combination of fixed exchange rates and financial market openness is the most stable arrangement within the trilemma, and middle-income countries have less stable trilemma arrangements than either low or high-income countries. We also find that in low-income countries, large official holdings of foreign exchange reserves correspond to greater trilemma stability. The paper also characterizes international macroeconomic arrangements in terms of their semblance to definitive policy archetypes; and, it uses the trilemma constraint to provide a new gauge of monetary sovereignty.

We examine how firms with employee ownership programs weathered the recessions of 2001 and 2008 in terms of employment stability relative to firms without employee ownership programs, and also whether such firms were less likely to lay off workers when faced with negative shocks more broadly. The firm data we use to examine the relationship between employee ownership and employment stability come from two sources: 1) Standard and Poor s Industrial CompuStat database on publicly traded companies, which contains information on firm characteristics including total employment, and 2) Form 5500 pension data collected by the U.S. Department of Labor, which contains detailed information on employee ownership in defined contribution pension plans and Employee Stock Ownership Plans (ESOPs). These data represent a comprehensive sample of publicly-traded firms, which is an improvement over datasets drawn from special surveys suffering from small sample sizes and bias from self-selection of respondents. A further advantage is that we are able to follow firms over time, allowing use of panel methods in our econometric analyses to help control for unobserved firm-specific effects. The findings show strong evidence that employee ownership firms are less likely to reduce employment in the face of economy-wide and firm-specific negative shocks.

Over the last several decades, contemporary studies of broad-based employee stock ownership and profit sharing have focused on the impact of these practices on company performance and employee attitudes and compensation in the firm. This presentation will discuss insights from our new book (Blassi, Freeman, and Kruse, The Citizen s Share: Putting Ownership Back into Democracy, Yale University Press, 2013) to show that the idea that citizens need to own a meaningful share of the economy has a long and storied heritage in American history. Many of the Founders of the American republic  who disagreed on other issues of political theory and practice  agreed that broad-based ownership is essential for liberty and the functioning of a democratic republic. We will review the theories behind this viewpoint as they have evolved from the American Revolution to the present, and will provide a history of public policies, including George Washington s first labor policy (on the American cod fishery), Homestead Act, and policies on employee stock ownership and profit sharing from 1900 to present. We will show that these concepts are as much about significant political ideas of accomplishing a  property-owning democracy (the term used by John Rawls) as about HR or labor practices within firms. We will ask the question: could the entire economy be updated in order to apply the traditional 18th and 19th century  republican ideas of wide property ownership to corporations? We will answer this question by recommending policies that would move the U.S. toward broader ownership and consider whether the social science evidence supports or conflicts with applying broader ownership economy-wide.

The conditions under which profit sharing affects workplace productivity have never been fully understood. This paper uses a three-year panel and a five-year panel of Canadian establishments to examine (1) the link between adoption of an employee profit sharing plan and subsequent productivity growth, and (2) whether this link is affected by various contextual factors, particularly use of work teams. Overall, we find a significant link between adoption of a profit sharing program and subsequent productivity growth in both panels, but only among establishments that utilize employee work teams.

According to efficiency wage theory, wages often exceed the market-clearing rate so as to encourage productivity and efficiency, lower turnover, etc. However, efficiency wages are seen as a market failure in the sense that the allocation of resources is not Pareto optimal, and one result is unemployment. It is thus worth looking into the factors that lead to efficiency wages. One such potential factor is worker control, especially in the context of employee ownership. Would workers pay themselves more if they had the power, or would they pay themselves less, as owners, out of a longer term concern for the welfare of the firm? Are the majority of employee owners (who do not have the power to set pay) nonetheless paid an efficiency wage? What effects do efficiency wages have on the attitudes and performance of employee-owners? This study aims to look at the relationship between employee ownership and efficiency wages by looking at workers and firms across a variety of jobs and industries, comparing employee-owners and non-owners in partly and wholly employee-owned firms, unionized firms, and non-unionized firms.

In January 2012, Connecticut's paid sick leave law - the first statewide measure of this kind in the United States - went into effect, requiring many of the state's employers to provide employees with one hour of paid sick leave for every forty hours worked. Based on a survey of 250 covered employers along with site visits and in-depth interviews with managers conducted in 2013, this paper assesses the impact of the law on employers in such areas as productivity, profitability, turnover, absenteeism and worker morale. It also explores the ways in which the work of absent employees is covered and how employers cover the cost of compliance with the new law. The results are analyzed against the background of previous literature on the impact of paid family leave and paid sick leave on employers elsewhere in the United States.

Over the past 30 years, female labor force participation has increased rapidly while both federal and state legislation has been passed to encourage work as well as to improve affordability, availability and quality of child care. The combination of these policies (as well as gains in female wages) has made it much more financially beneficial for low-income mothers to enter the labor force. Exploiting state-level variation in the timing, amount and eligibility requirements of child care policies, we provide estimates of the impact of these policies on maternal employment at both the intensive and extensive margins, particularly among low-income mothers. We analyze the impact of these policies separately for two parent and single parent families. Using a difference-in-difference approach we compare mothers with young children to mothers of school-age, older and no children. We find that child care subsidies and Head Start enrollment have had positive effects on the employment rates of mothers of young children, while subsidies slightly decreased annual hours worked and Head Start has had a large positive effect on annual hours worked. Regulations improving quality have had mixed effects suggesting they may have heterogeneous effects on different families by income, education and family structure.

The United States remains the only advanced economy that does not guarantee workers the right to paid leave from work, in addition to not providing a legal framework through which to request flexible working arrangements. Despite the public attention to paid leave and workplace flexibility, relatively little academic research has systematically explored which workers are more likely to have access to this benefit, in part due to insufficient data on the subject. An efficiency wage or power-oriented theory of the labor market would suggest that the most highly skilled, and thus highly valued, workers would be the most likely to have access to a whole host of paid leave and flexibility benefits. Alternatively, compensating wage differentials theory would argue that workers with the greatest need for paid leave and flexibility, such as those with poorer health or caregiving responsibilities, will be more likely to self-select into jobs where these benefits are offered. Utilizing data released in 2012 as part of the Bureau of Labor Statistics 2011 American Time Use Survey, we use probit modeling to predict which workers are the most likely to have access to paid leave and workplace flexibility offered through their employer.

"Home care workers constitute a large, geographically dispersed, low-wage workforce. Home care workers and their clients are among the poorest and most vulnerable members of society. This research examines the process by which the Service Employees International Union (SEIU) Local 775, along with home care workers, and community groups successfully pressed for social and political changes in the state of Washington. Their victories include establishing a quasi-public employer of record for collective bargaining purposes, organizing 26000 home care workers, achieving substantial improvements in compensation, and giving home care workers and clients a voice in the process through which their services are delivered. Specifically, this research draws on interviews with leaders of SEIU Local 775 in Washington. They discuss issues such as the challenges that they faced, the lessons that the labor movement can learn from their successes, and the impact of unionization on home care attendants. In addition, this research analyzes Local 775 s archival data including publicity materials and the campaign strategy employed to establish a statewide public authority and negotiate a first contract. In organizing home care workers, the SEIU and its partners used a variety of tactics including policy borrowing and tinkering, a ballot initiative, lobbying, and legislative politics. The keys to success in this case include an emphasis on providing civic education to coalition members, engaging coalition members in political action, and managing perceptions of legitimacy by forming alliances with other social groups. Specifically, the SEIU engaged in  symbolic management by framing home care workers demands as public needs, portraying home care workers interests and goals as congruent with those of the community, and assembling broad-based coalitions around shared goals for the community. "

This presentation will discuss campaigns to organize domestic workers for lasting change. She was instrumental in mobilizing her fellow domestic workers to win the Domestic Workers Bill of Rights in New York. She has helped build bridges between sectors of excluded workers within the U.S. through testimony at the Excluded Workers Congress, and has worked to build a global domestic workers movement through collaborations with Grassroots Global Justice and the Association for Women in Development.

Home care workers constitute a large, geographically dispersed, low-wage workforce. Home care workers and their clients are among the poorest and most vulnerable members of society. This research examines the process by which the Service Employees International Union (SEIU) Local 775, along with home care workers, and community groups successfully pressed for social and political changes in the state of Washington. Their victories include establishing a quasi-public employer of record for collective bargaining purposes, organizing 26000 home care workers, achieving substantial improvements in compensation, and giving home care workers and clients a voice in the process through which their services are delivered. Specifically, this research draws on interviews with leaders of SEIU Local 775 in Washington. They discuss issues such as the challenges that they faced, the lessons that the labor movement can learn from their successes, and the impact of unionization on home care attendants. In addition, this research analyzes Local 775's archival data including publicity materials and the campaign strategy employed to establish a statewide public authority and negotiate a first contract. In organizing home care workers, the SEIU and its partners used a variety of tactics including policy borrowing and tinkering, a ballot initiative, lobbying, and legislative politics. The keys to success in this case include an emphasis on providing civic education to coalition members, engaging coalition members in political action, and managing perceptions of legitimacy by forming alliances with other social groups. Specifically, the SEIU engaged in symbolic management by framing home care workers demands as public needs, portraying home care workers interests and goals as congruent with those of the community, and assembling broad-based coalitions around shared goals for the community.

This presentation will discuss the poverty level wages and poor working conditions in the warehouse industry. It will also explain ongoing campaigns to organize and mobilize warehouse workers to advocate for policy changes aimed at creating stable permanent jobs with regular hours, a living wage, strengthening and enforcing health and safety, wage and hour, and anti-discrimination laws.

This paper examines the effect of immigration directly on the overall utility of natives. To the best of our knowledge, this is the first paper to explore such nexus. Combining information from the German Socio-Economic Panel dataset with detailed local labor market characteristics for the period 1997 to 2007, we investigate how changes in the spatial concentration of immigrants affect the subjective well-being of the German-born population. Our results suggest the existence of a robust, positive effect of immigration on natives' well-being. The presence of confounding local labor market characteristics has a negligible impact on the estimates. Furthermore, we find substantial evidence that the effect of immigration on well-being is a function of the assimilation of immigrants in the region. The effect of immigration is higher in regions with an intermediate level of economic assimilation and is essentially zero in areas where immigrants are either least or fully economically integrated. We conduct robustness checks to address the potential endogeneity between subjective well-being and immigration. Our tests indicate that natives are not crowded out by immigrants, and that the sorting of immigrants to regions with higher SWB is weak. This suggests that our main findings are not driven or strongly influenced by reverse causality or selectivity.

Over three dozen countries including the United States now implement large scale cash transfer programs to alleviate poverty. Early programs in Mexico, Brazil, Columbia, Honduras, Turkey, Cambodia, and Nicaragua provided money to poor families conditional on their sending children to school or bringing them to health centers on a regular basis. In more recent years, countries have begun to implement unconditional cash transfer programs. There is an ongoing debate about the impact of conditionality with mixed evidence of their benefit. We take a new approach to this debate by investigating the impact of perceived conditions in an unconditional program. Beliefs vary with respect to the conditions required to receive cash in Zambia's unconditional cash transfer program with 39 percent believing they need to feed their children, 34 percent believing that they need to keep their children clothed, 17 percent believing that they need to attend the health clinic, and 9 percent believing their children need to attend school. We exploit this variation in perceived conditionality to study heterogeneous program impacts over a two year period on several topics such as food security, early childhood development, and material needs, using a large randomized controlled trial of Zambia's cash transfer program. Our sample includes 2,500 households randomly assigned to the treatment or control condition, making it one of the largest cash transfer RCTs in Africa. This paper will contribute to the debate on conditionality and help policymakers better understand how to design cash transfer programs to target desired outcomes. It investigates how people respond when they believe there are conditions, even if these conditions do not really exist. The research will shed light on the debate about the effectiveness of conditions in a cash transfer program.

Time preference is a provocative topic which is thought to influence behavioral choices not just for savings and investment but in a range of other domains as well. Several studies by economists have established a link between wealth and low discount rates. We use a social experiment to test whether the Government of Zambia's cash transfer program affects inter-temporal choice. In the face of credit constraints, a steady and predictable source of income such as what this program and others like it provide can alter individual time discounting by making recipients less myopic and more forward looking, and thus more willing to delay current for future consumption. A cash transfer program may also alter a person's expectations about her future quality of life and make her happier, two conditions that can affect inter-temporal decision-making and the desire to invest in the future. We find that the program impacts time discounting, happiness and future expectations but that the latter do not mediate the effect of the former. This is the first study to investigate the impact of a cash transfer program on inter-temporal choice behavior.

The Zambia Child Grant Program's (CGP) goal is to "reduce extreme poverty and the intergenerational transfer of poverty" in program households (AIR 2011). The CGP is an unconditional cash transfer that targets all households with a child under the age of 5; this is one of several targeting schemes for cash transfer programs currently being piloted in Zambia. We use a local economy-wide impact evaluation (LEWIE) model to simulate local spillovers from the CGP program. By stimulating demand for locally supplied goods and services, cash transfers have productive impacts. These effects are found primarily in households ineligible for the transfers. This finding is not surprising, given that the eligibility criteria for the CGP favor asset and labor-poor households. Beneficiary households receive the direct benefit of the transfer plus a spillover effect of 0.17 Kwacha per Kwacha transferred, while non-beneficiary households earn 0.62 Kw per Kw transferred. The productive impacts vary by sector. The cash transfers stimulate the production of crops by 0.47 transferred. The largest positive effect is on retail, which has a multiplier of 1.91. Increasing demand stimulates these four sectors by putting some upward pressure on prices. The higher the local supply response, the larger the real expansion in the local economy and the smaller the resulting inflation level will be. Normally impact evolution of cash transfer programs only considers impacts on beneficiary households. Our Zambia CGP simulation uncovers large income and production multipliers in both beneficiary and non-beneficiary households. These results are important to policy-makers who often must choose between supporting a variety of social programs. The tradeoff between local supply response and inflation documented in this study suggests that complementary policies, focusing on production in ineligible as well as eligible households, may increase real income spillovers.

Today, more than ever in the Information and Communications Technology (ICT) sector, we have a variety of self‐selecting packages of plans from which to choose. One must select among the various plans of cellular phone packages, broadband services, and mobile wireless devices "hot spot." What broadband plans for DSL service, how many minutes for cellular service, what level of use for wireless data, etc.3 However, with the push for "competition" and deregulation, the ICT oligopolies have not been subject to price controls. Indeed, pricing regulation of these firms has been neglected. We estimate the loss in consumers' surplus based on existing tariffs versus efficient prices. Given the significant negative welfare effects, we propose that ICT firms should be required to bill their consumers the "best" price structure for their usage ex post, and not require consumers to select a package ex ante. This pricing policy would allow the society to reap the saving and welfare benefits of nonlinear pricing.

The purpose of this paper is to study the economic effects of different pricing mechanisms in the UK, France, the Netherlands and Finland. Based on game theory and bargaining theory, this paper attempts to analyze the equilibrium of the retail prices for fixed-to-mobile calls, call origination charges, call termination charges and the division ratio of the retail revenue between fixed and mobile operators, and then compare their levels and the welfare effects under different regimes.

Over the last 20 years, cell phones have come to dominate the telephone markets. In 1983, the first commercially available cell phone was introduced, and from 1990 through 2011, the world wide market grew from 12.4 million to over 6.4 billion, and now have an 87 percent penetration rate. In this analysis, I examine household telecommunication decisions from 1994 through 2011 In the model, individuals can choose: 1. To not have any telephone service; 2. Landline only; 3. Cell phone only; or 4. Both a cell phone and a landline telephone. I estimate the model with a standard logit model, but also with a mixed logit model that allows for the evolution of product quality over time. I estimate the model for each year of the data, and present estimates of parameters over time. I find significant changes. First, the adoption rates of cell phone only vary dramatically over consumer characteristics e.g., income, age, gender. This gives a litany of results e.g., early in the data, middle age higher income people tended to own cell phones in conjunction with landline phones. However, by the end of the data, the primary cell phone only consumers are young, males, while middle age higher income tend to own both cell and land line phones, while the elderly have a clear preference for land line phones.

The study examines the relevant economic concepts of surplus and externalities, paying particular attention to the difference between marginal and inframarginal externalities which have sometimes been confused in the network neutrality debate. I address the three main sources of spillovers that are relevant here: general purpose technology, network effects, and innovation. Examination of these sources establishes three main points about the spillovers: that they are relevant to the Internet, that they are likely to be large, and most important, that there is an inverse relationship between privately appropriable surplus and public benefits through spillovers.

This article makes die case that the global economy has gone through five crises since the 1970s to the present. This implies not only that the world economy is a real entity, but also that the usual view that poses national economies as units of economic analysis is an approach with major limitations. The paper discusses the concept of "economic crisis" and provides data indicating that the world economy, not national economies, is the major unit to be analysed when trying to understand the economic reality of our time, and particularly the reality of crises. These crises are discrete, countable phenomena, distinctive states of an entity that can be properly called world economy, or world capitalism. Data on capital formation, on growth of the world output, of monetary aggregates, of unemployment rates and on industrial activity indicate five major "dips" of the global economy, i.e., world recessions, in (i) the mid 1970s, (ii) the early 19SOs, (iii) the early 1990s, (iv) the early 2000s, and (v) the Great Recession that provisionally can be dated 2007-2009. To a large extent business cycle chronologies of national economies such as those produced by the NBER, the OECD, or other institutions are largely consistent with these five crises of the world economy which, obviously, had different manifestations in different nations and economic regions.

There is a sizeable literature that looks at the change in production and distribution relations after financial crises. This literature mostly focuses on developing country experiences as they have been victims of various sorts of financial crises in the last couple of decades. In this paper, we look at some outcomes of the financial crisis of 2007-08 for the U.S. economy. We seek to delineate the immediate effects of the financial crisis on the rest of the economy, notably on the distribution of income and assets, as well as the legislative framework surrounding the economy, including the policies elaborated to deal with the crisis. To this end, we identify different socio-economic groups, such as sections of capital, labour, etc. and analyze how their fortunes were affected by the crisis, to see how the costs were shared and if some of them benefited in some ways.

Marxist discussions of the relationship between financial and real cycles suffer from three weaknesses: (a) financial developments are almost always reactions to real sector developments; (b) financial crises can trigger but not cause real sector crises; (c) the 2008 financial crash played only a triggering role in the ensuing Long Recession. I would argue, by contrast, that (a) in the era big finance, finance capital does not necessarily shadow or merely react to industrial capital, it also behaves independently; (b) financial sector crises can be transmitted (through debt deflation) to the real sector; (c) the 2008 financial crash played not only a triggering but also a causal role in the ensuing Long Crisis.

In the Appalachian region, median household income is below the United States (US) average, poverty rates are higher, and labor force participation is lower. The most recent economic downturn had, and continues to have, an adverse impact on the incomes of a number of the US households. Using data from the American Community Survey (ACS), this paper investigates the impact of the most recent recession on Appalachian household incomes, relative to the US income distribution.

The 2007 economic crisis demonstrated clearly that something had gone terribly wrong in the economics profession. With the legitimacy of professional economic knowledge and professional economists in question, what did other forms of economics knowledge and practitioners have to offer in that moment? In this paper, I investigate the evolution of non-professional economic knowledges before and after the economic crisis by examining internet memes as a form of informal economic discourse, and an important vehicle for conveying and transforming popular understandings of economics. Such "economics of the everyman", I argue, exceeded the professional in relevance during this crucial time.

This paper discusses the nature of state capitalism in emergent markets. It argues that in its present form, a primarily non-democratic and non-transparent state capitalism does not challenge the logic of capital accumulation nor adequately address issues of steadily high income inequality and the alienation of labour. Thus it cannot be viewed as a heterodox alternative to a neoliberal state. The regime of state capitalism could, however, restructure national economies along more progressive lines if the authoritative state, especially when pressed from below, uses its power to promote economic and political democracy. Experiences of BRIC countries are discussed as cases in point.

In the wake of the global financial crisis, the combination of low interest rates and slow growth in advanced economies has led to massive capital inflows to emerging markets, including Turkey, where interest rates and growth have been relatively higher. Among countries that adopted various regulations on these capital inflows, Turkey has been cited with its unusual policy mix of low interest rates combined with active reserve requirement management policies. This study provides a quantitative assessment of the effectiveness of these macroprudential regulations. In particular, by utilizing regression and VAR analyses, we test the impact of changes in reserve requirements and interest rates on the composition and maturity of capital flows. Our results show that the active use of macroprudential policies in Turkey increased the monetary policy space significantly and improved the maturity structure of net capital flows, which helped reduce the vulnerabilities associated with financing the large current account deficit.

Since remittance has been a critical factor for poverty reduction as well as to maintain external sector balance in Nepal over the past decade, it is crucial to examine its role in the Nepalese economy in detail. For this purpose the paper will first examine the recent trends in global remittance flow as well as remittance flow to Nepal. Second, it will contextualize the present migratory phenomenon and its impact on the social and economic situation of rural Nepalese women. Third, it will question the sustainability of remittance flow and recommend alternative employment generation policies for Nepal.

The Decent Work agenda by the International Labour Organization provides a basis by which to monitor and compare countries as they work toward improving the overall quality of employment. It is common for research on decent work to involve country level averages while it is less common to employ the framework to understand industry level challenges and sex disaggregated criteria for decent work. Factors that affect the probability of finding decent for women and men are different, primarily though not exclusively due to gender based occupational segregation. Also, the consequences of failing to make progress on quality employment outcomes are different for men and women. This paper explores these questions from the perspective of industrial level characteristics with an eye toward discovering the links related to FDI, sources of FDI, export orientation, concentration, levels of R&D;, and inventory management schemes.

This study evaluates the contribution of relative price factors (associated with the CFA franc fixed exchange regime) and non-price factors in the lack of competitiveness of franc zone economies. Our dependent variable - the productivity index is explained by a set of price and non-price factors in a panel database covering countries in eight major blocks during 1981-2010. We estimate a two-way fixed effects model using a Least Squares Dummy Variables (LSDV) regression with standard errors clustered by groups within the different economic blocks.

Rural-Urban disparity has been an increasingly important social phenomenon in Ghana, since the country launched its Structural Adjustment Program (SAP) in 1983. Like many developing countries in sub-Saharan Africa (SSA), Ghana has two segregated economies: the rural and urban. Providing empirical study that shows the shifting nature of this divide is probably the key to understanding the most important labor market issues facing the country. Although the country has over the past two decades championed a leadership role on the Africa continent in terms of economic growth and poverty reduction, a great number of the rural population still lack decent work opportunities. Indeed, the fifth round of the Ghana Living Standard Survey (GLSS) shows that the rural population accounts for over 60 percent of the nation's total population. Notwithstanding, this largest segment of the population have been disadvantaged periodically in terms of education, occupation, and acc ess to quality health care. This study uses data from the last three rounds of the GLSS (i.e., the GLSS rounds III (1991-92), IV (1998-98), and V (2005-06)) to answer the following questions: What are the patterns of education attainment and employment choices of the full-time employed rural and urban dwellers? Can education explain the occupational choices of these two groups? What are the economic rewards of education and occupation choices? In order to answer these questions, the study assesses the effect of rural-urban dummy on education and occupation choices of individuals in our sample, using multinomial probit and ordered probit regressions. Moreover, simple regression and Recentered Influence Function (RIF) method of Firpo, Fortin, and Lemieux (2009) are used to assess the effect of rural-urban dummy on the mean and unconditional quantiles of wages such as the median, tenth and ninetieth quantiles. The results of this study show that the period between 1991-92 and 2005-06 has been a period of dramatic changes for urban dwellers in terms of their education attainment rates. The illiteracy rate of these urban dwellers in the labor market reduced by half, while at the same time, the proportion of senior high school and university graduates increased substantially. However, the study provides a static picture of the rural population's educational attainments. The illiteracy rate of the rural dwellers in the labor market for the period has slightly increased, while the proportion of senior high school and university graduates in the rural communities have barely seen any improvements. As a result, rural dwellers have significantly increased the gap with urban dwellers in their relative representation in white and blue collar occupations. Moreover, on the one hand, the median wage gap between the rural and urban dwellers have narrowed during this period, while on the on the other hand, the median consumption gap between them have widened. In conclusion, I find that the gap in occupation choices and wages between the rural and urban dwellers in Ghana's labor market is mostly due to differences in attributes, especially education and labor union membership. The convergence patterns in wage have not been uniform for all the income deciles. The reported estimates of the coefficients on rural/urban dummy from Recentered Influence Function (RIF) regression of log wage on rural/urban dummy, age, and aged squared, and a constant indicate more variations in wage levels among the low income individuals than high income individuals. Finally, the results of this study suggest that intergenerational mobility rates of urban dwellers have risen faster than their rural counterparts between 1991-92 and 2005-2006.

National development required significant outlays of increasingly scarce financial resources. Yet, there exists limited understanding of how the success of development Strategies and the contributory roles of various stakeholders can be measured. Within the development literature, much attention has been devoted to developing methodologies for carrying out developmental initiatives. In Nigeria, these methods are designed to aid master strategists and policy makers align their strategies with those of developed economies of the west. Within this context, the fundamental questions are, how has financial reporting systems adapted to changing developmental circumstances in Nigeria, and how has the auditing and allied professionals influenced the process of adaptation? This paper identifies some of the current development challenges facing Nigeria and spells out the areas in which the auditor can enhance the process of socio-economic development. This is against the background that the auditors and allied professionals play their traditional technical role of financial reporting, as measured by its contribution to national economic and social advancement. It is also aimed at building a rationale and theoretical basis for defining success with respect to development initiatives. Specifically, this paper theoretically develops the pathways through which auditors can complement governments' efforts at meeting the needs of Nigeria's changing development circumstances. This paper which is presented in four parts develops a general framework for understanding the dynamic nature of development initiatives and some associated challenges, besides examining the main development challenges facing Nigeria today.

In the last fifteen (15) years, most countries in the West African sub-region have experimented democratic governance (representative governance); elections have been held more than once, for example, in Ghana, Senegal, Nigeria, Cote d'Ivoire, Togo, Benin, The Gambia, Liberia and Sierra Leone with marginal violence; most of the elections were adjudged by international and national observers to be free and fair. Some scholars have attributed the satisfactory growth rate (about 7%) and macroeconomic stability to the practice of democratic governance in these countries. Using panel data, this paper attempts to ascertain empirically whether democratic governance has translated into growth and development in the selected countries. Has democratic governance impacted positively on the standard of living of citizens in the selected countries? What has happened to the quality of education, provision of health, levels of income, employment, among others during the period of democratic governance? It is expected that the results of the paper would assist policy-makers and other stakeholders in making decisions on how democratic governance can enhance economic development.

The development landscape in ECOWAS is changing, with the emergence of partners from the South or the BRICS as they have become widely known. China has emerged as a salient source of investment in ECOWAS region, but questions remain on the impact and implications of that investment for growth and structural change in ECOWAS countries. This paper discusses trends in Chinese investment in the ECOWAS region, and analyzes its impact on trade, infrastructure, growth and structural change in member countries. It also reviews the investment policies of ECOWAS countries toward Chinese investors, and proposes mechanisms by which member countries can take full advantage of Chinese investment. The growing trade and investments in ECOWAS are often supported by grants or concessional loans from the Chinese government, as part of the country's "Going Global" strategy. This strongly enhanced engagement is partly the outcome of the increased economic role and power of China on the global stage, and partly the result of China's interest in Africa's robust natural resource base to fuel its surging economy The proposed paper is important because there is an ongoing debate on the impact of Chinese investment in Africa in general, and ECOWAS in particular. Some scholars argue that much of Chinese investment in Africa is directed toward energy and minerals. These are sectors with little or no linkages with the rest of the economy. Other analysts contend that Chinese investment in large-scale infrastructural projects such as roads, dams, and power plants helps spur growth and structural change. Chinese investment is also believed to be an important source of technology and skills for Africa. The paper hopes to contribute to the ongoing debate on Chinese investment in ECOWAS by using data-driven evidence, as well as fixed-effects panel regressions. Moreover, China's impact on African economies and indeed ECOWAS has started to reach beyond narrow infrastructure for-resources deals and now touches upon a wide array of sectors and development issues. For example, the creation of Chinese-operated Special Economic Zones in several ECOWAS countries has the potential to provide a remarkable boost to the manufacturing capacity of many ECOWAS countries. In this context, it is timely to take stock of China-ECOWAS relations and discuss in detail the opportunities and challenges for both sides.

Using a panel dataset, I investigate whether the human capital of matched general partner and portfolio company teams influences clean-tech venture capital and private equity outcomes in Africa. After controlling for the selection effect that occurs when general partner and portfolio company teams assortatively match to each other, evidence indicates that the human capital of matched teams influences clean tech exits via initial public offerings, trade sales, and secondary sales.

We utilize a two-stage optimal control model to theoretically show the necessary and sufficient conditions for a manufacturer to adopt business model of vertical integration or production contracts, given that the manufacturer will accumulate knowledge on production technology over time. A second objective is to provide some basic comparative dynamic results for the problem. Our preliminary results show that: 1. when there is no return to scale effect on self-production, there exists an optimal switching time that the contractor will switch from self-production to contract farming; 2. the optimal contract farming share of processing input is increasing in the difference between unit cost of vertical integration and of contract farming.

This paper examines the effect of heterogeneity in risk preferences and land quality on the extent of vertically integrated production and the share of biomass production under different type of contracts when returns from crops are risky. Our findings suggest that farmers with a lower land quality and a higher degree of risk aversion are willing to lease their land for biomass production. A biorefinery will prefer to be more vertically integrated and grow its own energy crop when biomass yield and price risks are high to avoid paying a high risk premium to risk averse farmers. It will also prefer to be more vertically integrated when the variability in returns to crop production is high and risk averse farmers are more willing to choose leasing land for energy crop production as a safer option. We also found that the biorefinery can earn a higher prot by offering a menu of different types of contracts particularly when risk preferences are highly diversified

This paper discusses the current state of contract theory and its usefulness for conceptualizing issues related to agricultural contracting. Specifically, I will discuss the limitations of current theory, and what methodological improvements are needed to enhance the usefulness of the theory to agricultural economists. The lack of methodological development in contract theory within the agricultural economics community has limited the role of agricultural economists in providing research based guidance on important contemporary policy issues. I argue that what is needed is a new class of applied contracting models that are able to capture the higher ordered features of real world agricultural contracts while delivering robust and generalizable comparative statics predictions. Such models would be useful both for making analytical predictions and for providing a foundation for generating testable hypotheses to guide empirical work.

In developing countries, entering higher end market to receive higher returns and to reduce transaction cost are two main reasons for contract farming. A common feature of agricultural production in developing countries is the fact of large number of peasants working on small size farms with low technology. Lower education levels and less urban employment opportunity leave a high share of population in the rural area. They lack of the knowledge to produce and market the high quality product demanded by consumers with higher willingness-to-pay. Contracting with a competitive processor, peasants can receive technological as well as marketing support, which will help them to adopt modern farming techniques. This paper will focus on the benefit of contract farming in modernizing agricultural production section in developing countries, using China as a case.

The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology-furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to "standardize" the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia. Then, using a portfolio balance approach we model the effects of imposing capital controls on short-term flows. We find that there should exist country-specific characteristics for capital controls to be effective. From this simple perspective, this rationalizes why some capital controls were effective and some were not. We also show that the equivalence in effects of price- vs. quantity-capital control are conditional on the level of short-term capital flows.

This paper shows that in a small open economy with downward nominal wage rigidity pegging the nominal exchange rate creates a pecuniary externality. The externality causes unemployment, overborrowing, and depressed consumption. Ramsey optimal capital controls are shown to be prudential in the sense that they tax capital inflows in good times and subsidize external borrowing in bad times. Under plausible calibrations, this type of macro prudential policy is shown to lower the average unemployment rate by 10 percentage points, to reduce average external debt by 10 to 50 percent, and to increase welfare by 2 to 5 percent of consumption per period.

This paper analyzes the role of capital controls and exchange rate intervention as an insurance device in emerging economies where financial markets are underdeveloped and factor mobility across sectors is imperfect. Emerging economies frequently experience large fluctuations in exchange rates, e.g. because of capital inflow surges and reversals or because of fluctuations in the prices of their main exports. Exchange rate fluctuations lead to significant redistributions between factor owners in the traded and non-traded sectors, especially workers and small firms that cannot easily move across sectors. Since these agents often have imperfect access to insurance markets, income fluctuations generate significant reductions in their welfare. Stabilizing the exchange rate via capital flow management measures acts as a second-best insurance device and substitutes for formal risk markets. We present evidence that many countries that have recently imposed capital controls or accumulated reserves were primarily motivated by concerns about redistributions between the tradable and non-tradable sectors rather than by the standard efficiency considerations emphasized in the existing literature. We also analyze how increased factor mobility or the introduction of new insurance mechanisms such as better social insurance systems reduce the need for capital flow management measures.

We examine optimal monetary policy under prevailing Chinese policies - including capital controls, nominal exchange rate targets, and costly sterilization of foreign capital inflows. China's combination of capital controls and exchange rate pegs disrupts its monetary policy, precluding adjustments that could maintain macroeconomic stability following a set of shocks that mirror its experience during the global financial crisis. However, comparing different policy regimes in a consistent DSGE framework, we find that the bulk of welfare gains achieved under full liberalization can be obtained by liberalizing either the capital account or the exchange rate.