AEA Poster Session
Poster Session
Friday, Jan. 3, 2025 7:00 AM - 6:00 PM (PST)
Saturday, Jan. 4, 2025 7:00 AM - 6:00 PM (PST)
Sunday, Jan. 5, 2025 7:00 AM - 1:00 PM (PST)
A 12.4% Stroke Reduction: The Benefit of Receiving Health Check Results Outside the Reference Range (I1)
Abstract
Health check programs account for 44% of the spending on preventive care in OECD countries, yet there is little evidence of the health benefits of these programs. In this paper, we study the health effects of being diagnosed as hyperlipidemia patients in health checks. Our regression discontinuity design exploits the cholesterol reference range using the administrative data from 6 million health checks in Taiwan. We find that the diagnosis reduces the short-term likelihood of hospitalizations and emergency visits due to complications by 0.156 percentage points, a 14.5 percent relative change. According to the causal forest estimator, the top 20% participants who benefit most receive health benefits 10.8 times greater than the average. Among a rich set of covariates, age captures most of the treatment effect variation. For the oldest 20%, the health benefit is 3.900 times stronger. We show that these heterogeneity results suggest that the average health benefits can be improved by selecting patients more precisely, and age will be the best addition to the reference range.A Critical Matter: Geoeconomic Fragmentation, Minerals and the Energy Transition (F5, Q4)
Abstract
The clean energy transition implies a shift from the use of fossil fuels to critical minerals. Does this make the global economy more or less vulnerable to geopolitics? We introduce fossil fuels and critical minerals, namely cobalt, copper, lithium and nickel, into a non-linear, multi-country New-Keynesian dynamic general equilibrium model with a traditional and a renewable energy sector. Exploring a novel data-set of production and bilateral trade flows, model calibrations allow us to study the potential macroeconomic impact of trade restrictions in counterfactual scenarios. We find that the energy transition could make the global economy more vulnerable to trade restrictions. Global GDP losses are substantially larger in a net-zero emissions scenario with restricted critical minerals trade than in a baseline scenario with restricted fossil fuels trade. Markets for critical minerals are more vulnerable to disruptions because global production, consumption and trade are geographically more concentrated than for fossil fuels.A New Narrative on Bank Leverage: Suggestive Evidence from France, Indonesia and Japan (G3, G2)
Abstract
Through a descriptive analysis on bank balance sheet and income statement of banks in France, Indonesia and Japan, I document three observations: (1) banks are increasing their equity cushion via accumulation of retained earnings, (2) they prefer low leverage even at the expense of maintaining the same level of Return of Equity (ROE) and they continue lowering their leverage throughout 2013-2019, (3) the different level of their leverage is likely due to different constraints in each country, and yet all banks in the three countries saw their leverage went down throughout 2013-2019 as the result of increasing equity cushion aggressively via retained earnings. This suggests a new, albeit unjustified new narrative of "equity begets equity" post Basel III, providing further avenues for theoretical studies on bank behaviour. The observation that banks prefer to raise equity over maintaining their ROE suggests a possible shift in the banks' objective from achieving the highest ROE to levering down; as banks view low leverage to be a positive signal to investors amid stagnancy in their net income.Accounting for the Evolution of China’s Production and Trade Patterns (F1, O1)
Abstract
This paper studies how changes in factor endowments, technology, and trade costs jointly determine the evolution of production and trade patterns in the presence of heterogeneous firms. Using firm-level data, we find that Chinese manufacturing production became more capital-intensive while exports became more labor-intensive from 1999 to 2007. We estimate a continuum Ricardian and Heckscher-Ohlin model with heterogeneous firms to account for such evolution. Counterfactual simulations show that trade cost reduction increased firms' export participation across industries and China's trade openness. Capital deepening made Chinese production more capital-intensive, but biased technological changes toward labor-intensive sectors provided a counterbalancing force. Over time, the continued deepening of capital and biased technological change made China more similar to the rest of the world (RoW), which significantly weakened its comparative advantage and reduced its trade openness despite a rising exposure in RoW to Chinese imports.Adaptability and Rural-Urban Educational Inequality: Evidence from the COVID-19 (I2, H0)
Abstract
The spread of COVID-19 has prompted school closures and shifts in teaching modalities across most countries, impacting over 90% of the world's student population. Nevertheless, there is limited empirical evidence exploring the changes in rural-urban educational inequality induced by the pandemic. This paper investigates the enduring effect of the COVID-19 on educational inequality, by estimating how the pandemic affected the rural-urban gap in college access (China’s National College Entrance Exam, NCEE, the sole determinant of university admission) and high school access (Provincial High School Entrance Exam, HSEE, almost the sole determinant of high school admission). Using a unique administrative dataset covering one city’s NCEE and HSEE participants from 2017 to 2023 and employing a difference-in-differences strategy, we find that the COVID-19 significantly lowered the HSEE scores or rural students relative to their urban counterparts (both overall scores and across nearly all subjects), particularly among males, resulting in an increase of 11% in the rural-urban gap in HSEE scores. The tracking sample reveals a notable widening of the gap in college admission probabilities between urban and rural students with similar HSEE scores. However, for elite high schools, the gap in NCEE scores between urban and rural students significantly narrowed by approximately 2.9% after the pandemic. These findings hold robust across parallel trend test and various specifications. Results from mechanism and qualitative analyses suggest that this might be attributed to rural students (most of whom reside in school) experiencing lesser social disruptions during the lockdown period and exhibiting stronger adaptability to the pandemic (e.g., time management). Our back-of-the-envelope calculations indicate that, as a consequence of the COVID-19, more than 12.3% rural students lost the opportunity to enter high school, leading to substantial future income losses and widening the rural-urban gap in human capital.Advertising and Consumer Decision-Making in the Experience Good Market (L1, M3)
Abstract
The study explores the impact of brand-level information contained in media advertising on consumerdecision-making when purchasing non-durable experience goods. Utilizing a random coe!-
cient discrete-choice model on the ready-to-eat cereal industry, I consider the e”ects of advertising
via nationwide media on consumer choices. Building on previous studies, I propose a new group
of instrumental variables for addressing endogeneity and incorporating demographic household
information on the consumers who purchased. I discuss strategic marketing implications for businesses,
arguing that high brand awareness comes from extensive advertisements through multiple
channels. The results suggest that carbohydrate-related features, in particular, need to be carefully
advertised to children-orientated ready-to-eat cereal products. In addition, advertised brands have
higher loyalty, and consumers are less sensitive to their prices.
Agency Problem in Learning: Evidence from Drug Innovation Market (O3, I1)
Abstract
Biotech companies acting as agents for the investors are subject to limited liability and hidden action in the research and development (R&D) of drugs. This paper studies the agency problem between venture capitalists (VC) and biotech firms in the U.S. pharmaceutical industry. To understand the welfare effect, I present a model of drug development choice where biotech firms suffer a lower cost from drug R&D failure compared to big pharmaceutical firms, leading them to push low-quality drugs to the next stage in drug development. Using data from public admin clinical trials and deals between investors and firms, I estimate the effect of negative clinical trial results on trial attrition probability. I find that upon receiving negative clinical trial results, biotech firms are 12.3% more likely to push the drug to the next trial than big pharmaceutical firms. I suggest that both finer financial contract design and FDA criteria design improve efficiency.Allocating Servicing Rights Amidst Agency Conflicts: The Micro Effects of Macroprudential Regulation (G2, G5)
Abstract
Servicing rights have become increasingly separated from the financing and origination of loans and are traded in a private market across servicers with different incentives from investors or borrowers. Using a near universe of consumer credit records, we document novel facts about the allocation of mortgage servicing rights (MSRs) and identify the effect of macroprudential regulation on their allocation to servicers. We show that banks are more likely to allocate MSRs to non-banks following a regulatory increase in banks’ cost of holding MSRs, with more transfers of MSRs on subprime and delinquent loans. Our model rationalizes these findings and demonstrates how servicing rights traded in a private market can be allocated to servicers facing larger agency conflicts, causing welfare losses to borrowers and investors. Our empirical findings support this theoretical argument: loans impacted by the regulatory change have higher foreclosure rates, driven in part by re-allocation to non-banks who foreclose more aggressively than optimal for either borrowers or investors. The results suggest that Basel III’s MSR rules decreased social welfare by re-allocating MSRs to conflicted servicers, with the largest negative effects on subprime borrowers.Ambiguity in Repair Service Offers: A Significant Barrier to Consumer Engagement in Product Repair (M3)
Abstract
Extending the lifespan of electronic devices through repair can significantly reduce negative environmental impacts. However, despite consumers reporting a strong preference for repair, actual repair rates remain relatively low. Previous research suggests that uncertainty surrounding various aspects of repair service offers, such as repair costs and outcomes, discourages consumers from choosing repair. However, no studies have systematically investigated how varying degrees of ambiguity in repair service attributes influence consumer preferences. This study examines the impact of ambiguity regarding repair success rates and total repair costs on consumer repair preferences. We conducted a dual-response choice-based conjoint analysis with 237 German consumers, manipulating the degree of ambiguity in the repair success rate and total repair cost attributes of hypothetical repair offers. Further attributes included repair service provider, repair time, and warranty. Ambiguity attitudes were assessed using an urn task. Among the attributes, total repair costs was by far the most important, followed by warranty and repair success rate. Results show that providing repair cost and success rate information, even when ambiguous (e.g. wide cost ranges), substantially increases preferences compared to offering no information at all. Ambiguity-averse participants exhibited significantly stronger preferences for less ambiguous attribute levels like narrow cost ranges, fixed prices, and higher certainty of successful repair. A market simulation revealed that providing some cost and success rate information, even if imprecise, nearly doubled repair service demand compared to no information. The findings suggest that the lack of transparency about potential repair outcomes and costs that is common in real-world repair offers acts as a major barrier, discouraging many consumers from choosing repair. Offering even rough estimates can make repairs more appealing and encourage consumers to repair rather than replace products.Anchoring Households' Inflation Expectations when Inflation is High (E5, E7)
Abstract
Many advanced economies experienced persistently high inflation following the COVID-19 pandemic and the Russian attack on Ukraine. This led to concerns about the de-anchoring of inflation expectations in the population. De-anchored medium-term inflation expectations might raise the persistence of the inflation surge, thus further challenging central banks' efforts to return to the inflation target.This paper explores communication strategies for anchoring households’ medium-term inflation expectations in a high inflation environment. We conducted a survey experiment with a representative sample of 4,000 German households at the height of the recent inflation surge in early 2023, with information treatments including a qualitative statement by the ECB president and quantitative information about the ECB’s inflation target or projected inflation. Inflation projections are most effective, but combining information about the target with a qualitative statement also significantly improves anchoring. The treatment effects are particularly pronounced among respondents with high financial literacy and high trust in the central bank.
Another Way of Teaching Microeconomics: Impact Evaluation of the CORE Project (B5, I2)
Abstract
Taking advantage of a random assignment to a conventional introductory microeconomics course or to a course based on the CORE Project in Uruguay, we provide causal evidence regarding the effects of CORE on academic performance, motivation, social preferences, and economic opinions of students. We show that CORE students have higher rates of approval in the introductory microeconomic course, lower rates of approvalin a calculus course, and no differential rates of approval in an advanced microeconomic course. Additionally, we find that CORE students believe to a greater extent that the introductory micro course they received contributed to their academic/professional formation. We do not observe differences in
economic opinions but we find that female CORE students are less altruistic and present higher negative reciprocity than their counterparts, while male CORE students have lower negative reciprocity.
Antihypertensive Medication Adherence and Medical Costs, Health Care Utilization, and Labor Productivity among Persons with Hypertension (I0)
Abstract
Hypertension increases the risk for heart disease and stroke, two leading causes of death for people in the U.S. Nearly half of U.S. adults have hypertension and over three quarters of those with hypertension have uncontrolled high blood pressure. Adherence to antihypertensive medications, which means taking medications regularly as prescribed, plays a critical role in hypertension control and the subsequent prevention of cardiovascular disease. Limited evidence exists on the association between adherence to antihypertensives with total medical costs, healthcare utilization, and labor productivity. We linked administrative MarketScan commercial claim and employer-provided payroll databases and identified individuals aged 18–64 years with a hypertension diagnosis or antihypertensive drug claim in 2019. Individuals were defined as adherent if they had ≥80% of the medication possession ratio (MPR) of the prescribed antihypertensive medication from seven therapeutic classes. We used negative binomial, generalized linear models, exponential hurdle models, along with propensity score overlap weighting methods, to examine associations between antihypertensive adherence and healthcare utilization (number of emergency department [ED] visits, inpatient admissions), productivity-related outcomes (sick absences, short-term disability [STD], long-term disability [LTD]), and total medical costs, adjusting for age, sex, comorbidities, urbanicity, and census region. Results were reported as average marginal effects. Medication adherence during 2019 was associated with 168 fewer ED visits, 93 fewer inpatient admissions, 57 fewer sick absences, 2,056 fewer STD days, and 725 fewer LTD days per 1,000 patients. Additionally, those who adhered to antihypertensives had a $1,483 reduction in total medical costs, $322 reduction in STD costs, and $97 reduction in LTD costs per patient. These results held irrespective of patients’ sex and urbanicity of residence, but the association was stronger for men and those residing in urban areas. These findings highlight the importance of additional benefits of medication adherence and of supporting medication adherence among patients with hypertension.Assessing Market Beta Estimates (G0, C3)
Abstract
Beta is a key risk indicator in the financial economics literature. When estimating betas, researchers encounter various choices, including selecting a statistical method, the type of and frequency of data, and deciding whether and how to adjust betas for outliers. Different choices can yield very different beta estimates. Comparing these different estimates is challenging because true market betas are unobservable, and therefore unavailable as a benchmark for assessment.The literature often benchmarks beta estimates against future out-of-sample betas, assuming these estimates approximate true betas. However, this assumption remains untestable due to the unobservable nature of true betas. An alternative approach involves testing whether the estimated betas are priced in the cross-section. Yet, being priced in the cross section of stocks is neither a necessary nor sufficient property of a good estimator of true beta: There is ample evidence supporting rejection of the pricing of beta. In addition, an estimated beta could be priced because it is correlated with another priced factor even if it is a poor estimation of true beta.
We propose a method for assessing beta estimate accuracy against true, unobserved betas. Starting from a very general asset pricing process for returns, we derive the implied covariance between estimated and true betas, which is used to obtain the slope coefficient of a hypothetical regression of true on estimated betas and a measure proportional to the regression’s R2. These measures are used to assess the accuracy of different beta estimates. We provide simulations and empirical evidence. Empirically, we find that option-implied betas perform significantly better than traditional alternatives,
Crucially, our method requires minimal assumptions about the underlying asset pricing model and the properties of beta.
Asset Purchase Programs and the Exchange Rate (E5, G1)
Abstract
I study the recent COVID-19 experience with asset purchase programs (APPs) for a group of emerging market economies (EMEs) on the dollar exchange rate compared to a group of major advanced economies (AEs). I construct a comprehensive event set that covers 7 AEs and 23 EMEs, including 6 Asian economies, which implemented APPs between 2020-2021. Then, I conduct an event study analysis based on daily data for the impact of APPs on the dollar exchange rate. I identify a particular anomaly that while in the aftermath of the global financial crisis, APP easing surprises cause currency depreciation during the COVID-19 period, these same easing surprises cause currency appreciation. I consider controlling for confounding factors, including the actions of the Fed obtained from factor analysis, policy actions of other AEs, and concomitant policy actions of the country itself. I find that for AEs, the significant coefficient for the appreciation of the exchange rate disappears when a factor controlling for SWAP lines is included, but it remains significant for EMEs. These results are robust to extensive robustness checks, including evidence from CIP deviations and options markets. To explain the results, I discuss a potential mechanism where I argue that deviations from the Long-Run Uncovered interest rate parity (LR-UIP) condition drive the different exchange rate response to APPs in EMEs as compared to AEs. This research offers valuable guidance for EME policymakers considering APPs in their policy toolkit, shedding light on APPs’ ability to stabilize exchange rates.Automation Threat and Labor Market Power (J4, O3)
Abstract
This paper examines the role of automation threat in firms’ wage-setting power. I first show that firms set wages in German manufacturing, where the labor market is characterized by moderately flexible industry-region, occupation group, and firm-level collective bargaining, by estimating the wage markdowns—the wedge between the marginal revenue product of labor and the wage; average worker receives 79 cents on the marginal euro. Allowing for job task heterogeneity among workers, I also show that workers performing routine (nonroutine manual) tasks are subject to the lowest (highest) degree of monopsony power. Leveraging the estimated wage markdowns and automation threat proxied by exposure of local labor market regions to industrial robots, which is not necessarily equivalent to the actual adoption of robots, instrumented by plausibly exogenous shift-share push factors, I find that the automation threat likewise has occupation and region-specific effects on labor market power. Robot exposure increases employer power over routine task-performing workers who face the highest risk of displacement by industrial robots in regions with low union coverage in East Germany, which has spatial frictions and historically weaker worker protections. I then develop a simple theoretical model of wage bargaining with heterogeneous workers to formalize the role of automation threat in the bargaining process via its impact on the firm’s outside option. The model also provides a new insight suggesting that the bargaining type—separate and joint bargaining—is crucial in mediating the heterogeneous effects.Bank Lending in an Unprecedented Monetary Tightening Cycle: Evidence from the Euro Area (E5, G3)
Abstract
This paper examines the behavior of credit to non-financial corporations during a period of monetary tightening. We focus on the ECB's response to persistent post-pandemic inflation and model the relationship between the business cycle, monetary policy, and financial intermediation in the euro area. We find that the sharp decline in credit growth in 2022-23 was abnormal relative to historical regularities, according to a simple VAR-based counterfactual. Taking into account survey-based indicators of credit demand and supply allows us to rationalize this dynamic, pointing to a large role played by the interest rate and bank lending channels during the current tightening cycle. In a context of tight corporate and bank liquidity, we argue that a further deterioration in banks' risk perceptions could lead to an additional tightening of credit conditions, even in the absence of additional policy rate hikes or an acceleration in the contraction of the Eurosystem's balance sheet.Bank Lending to Nonbanks: Implications for Nonbank Financial Stability (G2, E5)
Abstract
This paper explores the dynamics of banks' lending to nonbanks, a novel channel that has fueled recent growth in nonbank assets. Using a comprehensive supervisory dataset from the U.S. and exploiting a variety of different balance sheet shocks, we find that banks increasingly direct their lending portfolio to nonbanks. Following an unanticipated regulatory shock to their capital positions, banks shifted lending towards nonbanks. Nonbanks with existing credit arrangements from bank lenders, in turn, lend more to corporate borrowers, participate more in syndicated loan deals with their bank lenders, and are less likely to sell their loan participation shares. Interestingly, the shift in lending towards nonbanks is particularly strong during periods where economic shocks put pressure on the core capital positions of banks, such as the Basel III regulatory shock, the Oil Shock of 2014 and the Covid-19 shock in 2020. The findings highlight bank capital constraints as an important factor in shifting banks lending to nonbanks.Battle for Attention and Intra-Platform Competition (D2, L9)
Abstract
In the platform economy, an increasing number of merchants are adopting live-streaming methods to attract consumer attention, which has significantly impacted traditional merchants who rely on search methods to conduct business, leading to intense competition within the platform. This paper utilizes the Salop model to characterize the dual-dimension competition between live-streaming merchants and traditional merchants in terms of attention and product pricing, and analyzes its impact on consumer welfare, merchant profits, and social welfare. To this end, the paper constructs a five-stage dynamic game involving the platform, live-streaming merchants, search merchants, anchors, and heterogeneous consumers. It analyzes the behavior of the two types of merchants competing for platform attention, and the price competition between live-streaming anchors and traditional merchants in selling products, as well as the welfare impact of these competitive behaviors on all parties involved. The main findings of the paper are as follows: when live-streaming merchants have a traffic advantage, they will activate only a small number of anchors to alleviate market competition pressure and maximize profits; a decrease in the attention cost of watching live-streamings will increase the equilibrium total traffic and reduce traffic premiums without affecting the product market; conversely, a decrease in the attention cost of searching will lead to a decline in the equilibrium total traffic and simultaneously lower both traffic and product market premiums. Additionally, the paper finds that in different market environments, the intensity of competition within the platform and the direction of change in consumer surplus and social welfare are differently correlated, and there is a strong consistency of interests among the platform, merchants, and consumers. This provides valuable insights for the governance of the platform and the stimulation of the long-term vitality of the platform economy.Bayesian Fairness: Reward Rule and Disappointment under Information Asymmetry (D8, D2)
Abstract
We develop an axiomatic foundation for the classical problem of paying workers in settings where their actions are not observed by the employer. The latter observes the distribution of workers’ abilities, has precise or imprecise information on the level of output, and demands fairness. We first characterize workers’ pay thanks to a set of axioms developed under conditions of uncertainty and information asymmetry, assuming the employer is Bayesian. This characterization leads to a closed-form reward rule called the informational Bayesian value (IBV). Then, we analyze worker disappointment under the IBV and find that average disappointment is equal to zero for each worker. This latter result is robust to considering all inputs-based types of disappointment, including ex-post, interim, and ex-ante disappointment. The analysis implies that a worker is never disappointed in the long run when the pay rule utilized in an organization under information asymmetry is fair.Beyond New Orleans: The Neighbouring Labor Market Impact of Hurricane Katrina (J6, R1)
Abstract
This paper investigates the labor market effects in parishes adjacent to the impact zone of Hurricane Katrina in Louisiana, utilizing an extensive dataset that covers over 95% of the workforce to examine employment and wage trends over a decade. Unlike existing studies focusing on the disaster's immediate effects, this research expands the analysis to the economic aftermath in neighboring areas, where post-Katrina migration acts as a natural experiment for studying demographic impacts on local economies. Contrary to many existing narratives in the economics of migration, our findings indicate a significant boost in employment, a 5% increase in average weekly wages, and a reduction in the unemployment rate by 3% over the following decade. The mechanism behind these changes is illustrated through an increase in the count of establishments, serving as a proxy for labor demand. This study contributes new insights into disaster economics and migration by presenting empirical evidence that contradicts traditional narratives, highlighting positive labor market transformations and economic resilience resulting from migratory movements. Given the rising frequency of large-scale natural disasters, examining their impacts beyond the immediate disaster zone, with a focus on the labor market, is crucial to address the challenge posed by 21.5 million climate refugees per year.Beyond the Flypaper Effect: Crowding-In from Federal Investment in Public Transit (H7, R4)
Abstract
Addressing environmental and energy security challenges faced by the United States, the Bipartisan Infrastructure Law of 2021 (BIL) greatly increased federal funding for transportation. Yet, the efficiency of such investments is uncertain. Previous literature has found both crowding-out and crowding-in of other types of funding. I contribute to this debate by analyzing federal investment in public transit, which is a substantial part of BIL. Using a spike in federal transit funds due to the American Recovery and Reinvestment Act of 2009 (ARRA), I estimate their effect on local investment decisions. Since most of the monies was allocated using a pre-existing formula and local characteristics, my exogeneity assumption is transparent and consistent with multiple robustness tests, including an instrumental variable design. I find a particularly strong "flypaper effect": each additional $1 of ARRA grants increased total transit expenditures on capital by $10 in the following ten years. In the first five years, the differential expenditures are majorly driven by the increased application for other discretionary federal programs. In the following five years, expenditures from state programs have the biggest effect. This suggests that additional federal funds lead to large expansionary efforts by local authorities that persist long after the initial funds are spent.BigTech Credit, Small Business, and Monetary Policy Transmission: Theory and Evidence (E5, G2)
Abstract
This paper provides both theoretical and empirical analyses of the differences between BigTech lenders and traditional banks in response to monetary policy changes. Within our model, which incorporates Knightian uncertainty in portfolio selection, BigTech lenders possess a relative informational advantage that decreases in firm sizes, resulting in a lower level of ambiguity when lending to smaller rms. The model suggests that the key distinction between BigTech lenders and traditional banks, in terms of their reactions to funding costs shifts induced by monetary policy changes, lies in the extensive margin rather than the intensive margin, and this difference is more pronounced in an environment of easing monetarypolicy. Utilizing a micro-level dataset comprised of small business loans from both types of lenders, we present empirical evidence that supports our theoretical framework. Our findings indicate that the BigTech lender is more responsive than traditional banks in forming new lending relationships during periods of monetary policy easing, meanwhile, differences in loan amounts are not statistically significant. We also provide discussions on other loan terms and the impact of regulation policies.
Bridging the Gap: Impact of Female Leadership on Gender Gap in Lesotho (J7, J4)
Abstract
Gender gap in employment and wages remains a persistent challenge in many countries, hindering the economic growth and development. Previous studies have shown that female leaders can have a positive impact on creating opportunities and pro-female conditions for other women in work environments. Using administrative payroll data from 2016 to 2022 and panel regressions, this paper examines the impact of top-level female leaders on subordinate women employees in Lesotho’s civil service, whether their presence helps narrow the gender gap in employment and wages, and contribute to a more equitable workforce. By leveraging rich administrative data, this study overcomes limitations associated with self-reported surveys, ensuring robustness and reliability in the findings. Our preliminary findings suggest that female leaders increase the probability of female employment, after controlling for district and grade of the employee. However, we don’t find female leaders leading to a narrower wage gap. These results have important implications for debates on women’s leadership in the public sector.Can Command-and-Control Policy Be Efficient through Accurate Targeting? Evidence from an Energy-saving Program in China (L5, Q4)
Abstract
This paper studies how the efficiency of command-and-control policies can be improved through more accurate targeting taking into account heterogeneous compliance costs among regulated entities. We study this question using China’s “TOP 10K” energy-saving program as a quasi-experiment, which mandates major energy consumers to meet firm-specific caps by 2015, and the caps varies by local government discretion based on firm- and industry-specific characteristics. Using a detailed firm-level dataset from a national tax survey from 2007 to 2014, with a difference-in-difference design, we estimate the impacts of this energy-savings program on various firm-level outcomes. Motivated by reduce-form evidence, we then build a structural model of industrial firms’ compliance and production facing firm-specific energy saving targets and use the model to back out firms’ compliance costs. Our empirical results indicate a significant reduction in energy consumption among regulated firms, with varied effects on output and employment, but no overall improvement in energy efficiency. The structural estimates show that the shadow cost of energy-saving regulation is a function of energy stringency, a firm’s output elasticity with respect to inputs and capital, energy price, and market demand and price. With estimated model, we simulate alternative policy scenarios, including a hypothetical tradable permit system, capital subsidies, and market-based input taxes and output subsidies. Our results highlight that the efficiency of such regulations hinges on how well the policymaker is able to take into account heterogeneous compliance costs among regulated entities and the spatial heterogeneity in emission reduction benefits. This research suggests that well-designed command-and-control policies can achieve comparable cost effectiveness of market-based approaches, especially in contexts lacking suitable market institutions.Can Trade Shocks affect Crime Rates? – Evidence from Renegotiated NAFTA (F1, J0)
Abstract
In this paper, we examine the effects of trade-induced economic changes on crime rates in the US. Previous studies have established that trade generally yields positive economic outcomes from a broad economic standpoint, yet it can also lead to unforeseen negative impacts. We exploit the labor demand shock generated by the U.S.-Mexico-Canada Agreement (USMCA), also known as the Renegotiated NAFTA, as a natural experiment to analyze how changes in employment in the manufacturing sector affected violent and property crime rates. Using a difference-in-difference analysis, we document that those states with a greater percentage of manufacturing occupations experienced a temporary increase in crime rates following the USMCA. Our results indicate an overall increase in crime arrests by 3.31 percent relative to the mean. Detailed analysis of the data revealed that arrests for violent crimes and property crimes rose by 3.94 percent and 5.46 percent relative to the mean, respectively. Next, we investigate the channels through which trade-induced labor market shocks may have affected crime. Our analysis yields several important policy implications, such as subsidizing job-skills retraining programs. Additionally, it also makes a case for the recent Infrastructure Investment and Jobs Act, more commonly referred to as the Infrastructure Bill.Central Bank Communication with Non-experts – Results from an Experiment (C9, D8)
Abstract
This study examines the impact of direct central bank communication, akin to ECB press conferences, on monetary literacy and expectations among non-experts. Using randomized controlled trials (RCT) involving 3,373 visitors to the ECB Visitor Centre, we explore whether central banks can influence non-experts through direct communication and whether citizens’ monetary literacy or trust play a role in this respect. Our findings indicate that direct central bank communication significantly increases non-experts' monetary literacy scores. It also improves policy effectiveness in aligning non-experts’ medium-term inflation expectations with the ECB’s inflation target, facilitated by an enhanced understanding of the objective or increased trust in the ECB’s monetary policy. Tests with German speakers suggest that communication in the native language can strengthen the effects on anchoring of private inflation expectations. By shedding light on the effectiveness of communication strategies with diverse audiences, this research provides valuable insights for central banks aiming to optimize their outreach activities with the public.Child-Related Transfers, Means Testing, and Welfare (E6, H3)
Abstract
Should government transfers to families with children be means-tested or universal? We revisit this question and provide new insights from the Australian policy settings where family earnings and demographic characteristics determine eligibility and benefit of the child-related transfers. We first document key empirical facts on the childcare programs and the distinct age-profiles of mothers’ labor supply in Australia. Next, we build a dynamic general equilibrium overlapping generations model of single and married households with children to quantify the implications of the status quo means-tested system and potential reforms for female labor supply, macro aggregates, and welfare. Our results indicate that strict and complex means-test rules can result in significant adverse effects on female labor supply and human capital accumulation. A universal child-related transfer system improves the aggregate efficiency and welfare and is supported by the majority; however, the resultant high tax burden leads to a welfare loss for single mothers who are the intended beneficiaries. A simple incremental increase of the childcare subsidy rate can boost both efficiency and welfare, while also achieving a more equitable distribution of welfare gain. However, this approach yields a lesser overall welfare improvement compared to the universal scheme and lacks majority support.Collective Action and Government Strategic Expropriation: Evidence from China (P2, H8)
Abstract
In their seminal paper, Acemoglu and Johnson (2005) argue that a nation's property rights frameworks have a more profound impact on its long-term development than its contract systems. This is due to the substantial challenges involved in modifying state behaviors to prevent expropriation, in contrast to the relatively easier task of adjusting contract terms and clauses to navigate contractual systemic impediments. In reality, collective action by the public often serves as the last resort in changing government attitudes and behaviors. This study explores how collective actions by Chinese businesses and citizens have successfully pressured the government to cease its expropriation on the private sector during procurement processes.It is hardly surprising that, in the absence of judicial independence and adequate legal recourse, the practice of local governments withholding payments to private suppliers is rampant in China. This situation frequently leads to a rise in account receivables for suppliers, causing cash flow problems, defaults and asset liquidation. Firms struggling with liquidity issues are likely to delay wage payments, prompting employee protests, often at the government's doorstep, creating significant pressures for social stability and shaping public discourse.
Our analysis demonstrates that this pressures to maintain social stability has significant influence on governmental conduct. After collective incidents, not only do companies directly involved in these events witness a significant reduction in their outstanding receivables from government orders, but the effect also extends to other local businesses, especially those with larger workforces. Companies with political connections are favored and prioritized in repayments. Governments under higher debt pressures exhibit the same enthusiasm for repayments, indicating that the issue lies in the willingness rather than the capacity to repay. Additionally, we have ruled out the influence of officials' tenures and local economic conditions on these outcomes.
Commission Fee Structure and Innovation in Digital Platforms (L4, L5)
Abstract
This paper quantifies the welfare effects of regulating commission fees in digital platforms, focusing on third-party app developers' innovation and pricing decisions. I employ a comprehensive dataset of music apps within the Apple iOS store in the United States from October 2018 to February 2024 to estimate app users' demand and app developers' cost parameters. The paper reveals key findings with three policy counterfactual simulations where I sequentially solve for optimal innovation and pricing decisions. First, a cap on commission fees promotes innovative efforts by third-party app developers and improves social welfare. Second, when the platform adds a unit fee scheme under the fee cap, developers partly pass unit fees on to app users by increasing in-app purchase prices. Third, a hypothetical buy-out of a streaming app by the platform leads to a significant decrease in the innovative efforts and market share of the acquired app. Notably, welfare analysis without quality adjustment is predicted to underestimate the impact of fee cap on social welfare by 0.91\% - 2.06\% points compared to the full-stage model estimates. This research highlights the importance of considering quality changes along with price fluctuations when evaluating regulatory intervention in digital platforms.Comparing Costs of Career and Technical Education Courses in Michigan (I2, H7)
Abstract
Due to declining post-secondary enrollment and skepticism regarding the value of higher education, students and policy makers have increasingly turned to career and technical education (CTE) for workforce development. CTE courses provide clear pathways for students to earn professional credentials, and substantial evidence indicates that enrollment in CTE increases long-term earnings. Nevertheless, little research has considered the relative costs of different CTE subjects for school districts. Whereas subjects such as EMT training, automotive technology, and construction trades have large fixed costs for equipment, courses such as entrepreneurship, accounting, and IT likely have lower costs. These differences could create financial barriers to offering particular CTE courses, even when the course could provide long-term financial benefits to students.Using data on CTE school finance from Michigan, this paper compares the overall costs associated with CTE course subjects and computes the level of encroachment of CTE on general education expenditures. Michigan school finance data identify total CTE expenditures as well as per-pupil average costs for each CTE subject in each school district between the 2020-21 and the 2022-23 academic years. Using these data and descriptive information on each school district, I identify factors associated with higher CTE course costs including whether a school district has a career center, how long a district has offered a course, and how many students are enrolled.
In addition to identifying these cost factors, I also estimate the effects of state aid for CTE on school districts' decisions to offer CTE courses. State aid to school districts for CTE in Michigan is tied to particular CTE course subjects, and this aid is allocated based on a priority ranking. This aid directly mitigates CTE course costs, and I use changes in course prioritization to estimate the effects of cost reductions on district CTE course offerings.
Convenience Yields and the Foreign Demand for U.S. Treasuries (F3, G2)
Abstract
This paper investigates the role of convenience yields in determining the yield sensitivity of the foreign demand for US Treasuries and the equilibrium interest rates of government bonds. I build a portfolio choice model featuring an investor with standard mean-variance preferences (banks), and another that derives a non-monetary payoff from holding US Treasuries (insurances). The model can explain why insurances hold US Treasuries even if they offer negative excess returns and poor hedging properties against income risk. It predicts that preferences for non-monetary payoffs reduce yield sensitivity for a given level of risk aversion, and that equilibrium excess returns react less strongly to debt supply in the presence of convenience yield investors. Structural parameters recovered from an estimation of the model on data from European banks and insurances reveal that the preference for non-monetary payoffs reduces the yield sensitivity of insurances by 60%. It also explains 50% of the difference in the sensitivity to excess returns across sectors. However, it accounts for only 2% of the decline in Treasury excess returns in response to an increase in eurozone debt supply.Coping with the Unexpected: A Forward-Looking Measure of Firm Resilience (C5, G0)
Abstract
This paper analyzes the resilience of U.S. listed firms. The environment in which firms operate is inherently uncertain and new types of risk or crises may emerge. Do firms bounce back after an unexpected crisis? And what types of firms are more resilient than others? We first develop a novel measure of firm resilience. Our measure is return-based and it is forward-looking. A key advantage is that we do not need to focus on one particular crisis in order to classify firms as resilient or non-resilient. Our resilience measure captures the extent to which a firm’s conditional downside risk after an extreme loss differs from its downside risk after a typical underperformance loss. If the two are similar, the firm, in terms of its downside risk, bounces back after experiencing an extreme loss. In other words, the firm is resilient. Our resilience measure is inspired by the $\Delta CoVaR$ measure of Adrian and Brunnermeier (2016),, who develop a Conditional Value-at-Risk measure to capture systemic risk across financial institutions. Instead, we construct our measure at the individual firm level. Using weekly stock return data, we estimate time-varying firm resilience and document substantial cross-firm variation. We validate our measure by linking cross-firm variation in ex-ante resilience to post-crisis firm performance, focusing on three different types of crises: the 2000 Internet Bubble, the 2008 Great Financial Crisis and the 2020 Covid-19 outbreak. Finally, we link resilience to lagged firm characteristics. Besides the expected link with leverage, we find a key role of innovation. Firms with higher R&D investments, more patents and a higher economic value per patent are significantly more resilient.Crowding in or Crowding Out? Evidence from Discontinuity in the Assignment of Business R&D Subsidies (H2, O3)
Abstract
We employ a regression discontinuity design to study the effects of a flagship business R&D subsidy programme in the Czech Republic on R&D investment, patenting and economic performance of the supported firms. The R&D subsidies stimulated R&D expenditure in small and medium-sized enterprises (SMEs) but not in large firms. In SMEs, public funding succeeded in crowding in private R&D investment, and 1 unit of public subsidy was associated with about 2.5 units of additional R&D expenditure. The positive effects on R&D expenditure of SMEs were sustained after the original projects ended, possibly thanks to subsequent subsidies from the same funding provider. SMEs receiving large subsidies relative to their pre-treatment sales also saw sustained increases in patenting, sales and employment. We do not find any evidence of positive effects of the subsidies on large firms and show that financing constraints play an important role in explaining the effect heterogeneity.Customer Unionization and Supplier CEO Compensation (G3, J3)
Abstract
I use a regression discontinuity design to examine the causal effect of customer unionizations on their dependent suppliers’ chief executive officer (CEO) compensations (e.g., total compensation, and cash and equity-based compensation). After labor unionization at major customers, suppliers may experience higher operating risk because unionized customers have lower operating flexibility. Because operating risk increases uncertainty about future free cash flows, suppliers have a lower ability to pursue risky investments and a higher probability of losing major customers. Therefore, I hypothesize that suppliers strategically reduce CEO risk-taking incentives by sharply cutting option-based compensation, leading to a decrease in CEO total compensation. I find the consistent evidence that after customer unionization, suppliers reduce their CEO total and equity-based compensation by 15 percent and 18 percent respectively but increase CEO cash-based compensation by 4.5 percent. The reduction in CEO total compensation is due to a large cut in option-based compensation, i.e., the proportion of stock options in the CEO total compensation and the number of options granted to the CEO. The results are robust when I use alternative measures of CEO compensation (e.g., cash and equity-based compensation divided by total compensation). This effect is more pronounced when the customer either (1) has stronger union coverage, (2) has had a longer relationship, (3) is located closer, or (4) is more important to its supplier. Higher operating risk is a channel through which customer unionization affects suppliers’ CEO option-based compensation. I find that customer unionization leads to a 22 percent increase in supplier operating risk while a decrease in supplier stock price and customer rent extraction are unlikely to impact suppliers’ CEO compensations. Lastly, the increase in CEO cash-based compensation is consistent with Dai et al. (2020)’s finding that CEOs require higher cash-based compensations because their workloads increase after business risks increase.Decomposing SNAP Accessibility: Divergent Effects on Household Food Expenditure (D1, Q1)
Abstract
This study investigates the dynamics of household expenditure on fresh products in response to changes in the Supplemental Nutrition Assistance Program (SNAP) store landscape. Anchored in a structural econometric model that integrates both mental accounting principles and consideration of nutritional knowledge, our analysis reveals spending behaviors among US households. In our findings, we observe distinct impacts of SNAP accessibility changes across various food categories, with a particularly interesting trend noted for fresh products. Specifically, the introduction of new SNAP stores is linked with a decrease in fresh product expenditure, while closures of such stores lead to an increase, defying common expectations. These patterns underscores a critical reassessment of value perceptions among SNAP beneficiaries, potentially influenced by mental accounting mechanisms that prioritize the allocation of benefits and cash spending differently. Moreover, by simulating scenarios of benefit adjustments, we offer predictive insights into how changes in SNAP policy might shape future spending trends.Digital Technology, Meritocracy and Rent-Seeking, Experiment in China (P0)
Abstract
The development of digital technology enables governments to collect vast amounts of data to enhance the quality of public services. Yet, concerns arise that such digital initiatives by governments might lead to increased power centralization and privacy infringement. In developing countries, such as China, local governments make significant investments in deploying digital technology, including the extensive installation of cameras for comprehensive street monitoring. This raises the question: What motivates government officials to actively support and implement these digital initiatives?One explanation suggests leveraging digital technologies creates discreet rent-seeking opportunities. Top achievers in civil service examinations, ideally rewarded with higher pay according to traditionally held meritocratic principles, confront the stark reality of their modest salaries further diminishing due to government financial problems. This contrast, along with the potential efficiency gains from digital governance, makes rent-seeking justifiable.
We conduct a randomized experiment among 2,000 Chinese civil servants, applying two types of informational interventions—meritocracy and income. The meritocracy intervention inquires how many competitors they defeat in the civil service examination, whereas the income intervention asks if their recent salaries have been lowered. Civil servants then face a choice between fully automated and semi-automated devices for collecting data on enterprise fire safety. Compared with the fully automated device that autonomously uploads data to senior government levels, the semi-automated option requires manual intervention to decide on data uploads, creating rent-seeking opportunities.
Our findings indicate a preference for the semi-automated option under the income intervention, with a more pronounced pattern when combined with the meritocracy intervention. Our list experiment finds that these civil servants indeed understand that semi-automated systems offer more opportunities for rent-seeking, and they show greater tolerance for corruption after the intervention. We also dismiss alternative explanations such as technology idolization, distrust in technology, desires for power, and pro-social behaviors.
Disenfranchised and Defunded: Shelby County v. Holder and Racial Disparities in Government Finances (H7, D7)
Abstract
The Voting Rights Act of 1965 (VRA) caused dramatic changes in the political economy of the United States South, leading to greater equality between white and non-white citizens across a range of political and economic outcomes. In 2013, the Supreme Court of the United States struck down a core provision of the VRA that had enabled federal oversight of elections in states with a history of discriminatory voting practices, leading to a wave of voter suppression laws that decreased the political participation and political power of racial minorities across the South. Using data from the US Census Bureau, I document that this decline in political power for minority citizens has increased racial inequality in state-level public spending. First, I document that states that were previously covered by federal oversight under the VRA have decreased intergovernmental transfers to local governments. Using a triple-difference design, I then show that this decrease in transfers is concentrated among cities with larger non-white populations. This decline in transfers is not compensated by an increase in federal funds or local taxes, leading to a decrease in overall spending.Do Grocery Feedback Systems Enabling Access to past Consumption Impact Individual Food Purchase Behavior? (D1, D9)
Abstract
In an era of increasing applications providing insights into historical behavioral data, from activity tracking to energy consumption analysis, the question arises: Does exploring personal data reshape consumer behavior? We empirically investigate how access to detailed information on past food purchases via the "My Purchases" service, launched in 2018 by S-group, a Finnish grocery chain, affects consumers' subsequent food purchasing patterns. Our unique dataset comprises over 84,000 quarterly food category-specific observations on Finnish consumers’ purchases and their feedback application usage from August 2018 to January 2021.Our study compares purchase patterns of two consumer groups: those who adopted the 'My Purchases' service between May 2019 and December 2020 and a control group who never used the service. We used a matching approach to create a control group with similar background traits (i.e., the same municipality, gender, age group, household type, and the household’s annual purchases in S-Group). Data covers pre- and post-service adoption periods at a detailed individual-quarter level up to January 2021. We utilize a three-stage estimation approach following Sun and Abraham's (2021) methodology to mitigate potential bias from the staggered adoption design. This enables us to estimate cohort-specific average treatment effects on My Purchases service adopters, reflecting the average differences in food purchases compared to non-users.
We find compelling evidence that an app offering visual and numerical information on past purchases, including monetary and health-related aspects, influences future purchase patterns. We observe food item-specific and gender, age, and household-type-specific differences in the effects of this digital feedback application. Noteworthy is the pronounced and comprehensive impact on fruit and vegetable purchases, driven by the heightened salience and specificity of information related to this category. Overall, our empirical findings suggest that digital applications providing individuals with summarized information on data concerning their own past choices may yield significant behavioral implications.
Do Public Safe Assets Still Crowd Out Private Ones? (E6, H6)
Abstract
The U.S. financial sector competes with the government over access to funding, engaging in liquidity transformation by writing safe and liquid claims against risky and illiquid assets. Private liquidity creation, albeit central to the financial system, threatens financial stability when it becomes excessive.The U.S. Treasury, on the other hand, despite its susceptibility to funding crises, monopolistically issues the world's safest and most liquid asset. Previous empirical evidence suggests that Treasury supply, as it satiates the demand for safety and liquidity, reduces the convenience yield, thereby discouraging financial intermediaries from engaging in liquidity transformation. As such, Treasuries have the potential to crowd-out financial sector short-term lending.
Yet, identifying the impact of Treasury supply on the financial sector's ability to lend is challenging. First, the possibility for the US Treasury to be somewhat discretionary by adjusting its debt issuance in response to fluctuating liquidity needs creates reverse causality. Second, with its LSAPs aimed at easing borrowing costs at the longer end of the yield curve, the Fed has donned a hat as a conductor of debt management policy since the GFC. The coexistence of LSAPs and debt-financed fiscal stimuli in response to the 2007–2008 crisis—with joint effects on term premia and liquidity premia—not only testifies to undeniable confoundedness but also to conceivable antagonism, warranting caution when examining whether the recent surge in Treasury supply has evicted privately produced liquidity.
We tackle these identification issues by using an instrument based on intraday futures price changes around Treasury auction announcements, allowing us to address endogeneity concerns and isolate the effect of Treasury supply on financial sector lending. Our analysis not only confirms the presence of the crowding-out effect but also finds it to be more salient than previously estimated. We place these findings in the context of the Fed’s LSAPs.
Do They Have an Second Chance? Evidence from the CEOs' Post-turnover Labor Market Outcomes (G3, J2)
Abstract
This paper studies how the labor market treats minority individuals who have experienced career setbacks. Using a sample of CEOs who underwent involuntary turnovers, we examine whether minority CEOs are more or less likely to secure a second opportunity as top executives in other firms after being forced to leave their previous positions. To address this question, we manually collected CEOs’ post-turnover positions and incomes from the S&P 1500 firms for up to 10 years post-departure. We find that when grouping minority CEOs, including female and ethnic minorities, together, there are no significant differences in their opportunities for a successful return to public firms compared to their counterparts. However, female and Black CEOs are less likely to secure another executive position and have lower total job tenure at both public and private firms’ post-involuntary turnover. Results from cross-sectional analyses suggest that these disparities are less likely to be driven by ability differences across gender and ethnic groups but more likely to be driven by the availability of job opportunities. We also find that female CEOs have lower total incomes in the first three years post-turnover, while Asian CEOs have higher total incomes in the same period. Our study contributes to the literature on diversity, equity, and inclusion in the labor market for top executives and sheds light on the general minority group situation in the labor market.Does Environmental Information Provision Deliver? Experimental Evidence from China (Q5, I3)
Abstract
Public provision of environmental information is becoming prevalent worldwide to promote public awareness of environmental risks to protect health, but there is a lack of causal evidence on its effectiveness. This study examines how the provision of air quality information affect the behaviors and health of students in China. We conducted a large-scale experiment which randomly selects students in Chinese middle schools into multiple information interventions. The interventions include information on ambient air quality, adverse impacts of air pollution (health or test scores), advisories on defensive measures against air pollution (indoors and outdoors), and potential (costs) benefits of (not) taking defensive measures (loss vs gain). We find significant increases in defensive measures among students due to the advisories with costs, particularly for the adoption of air purifiers in response to the adverse impacts on test scores. Reassuringly, there is no negative impact of the treatment on their mental health, suggesting that the promoted avoidance behaviors help mute potential impacts of the air quality information. The results provide novel and useful insights into information provision, risk perceptions and behaviors, and highlight the importance of behavioral advisories with avoided losses in ensuring the effectiveness of information programs on air pollution and beyond.Does Merging Small Bankruptcy Courts Increase Their Efficiency? (K2, G3)
Abstract
We estimate the impact of a 2009 reform that merges small bankruptcy courts on the quality of their rulings. A conceptual framework enables us to link difference-in-difference estimates to the impact of the reform on Type 1 error (restructuring a non-viable firm) and Type 2 error (liquidating a viable firm). We apply this framework to an (almost) exhaustive sample of 600,000 bankruptcy cases in France that started between 2000 and 2019. The reform unambiguously reduces Type 1 errors while having no impact on Type 2 errors. Post-merger courts’ behavior depends more on that of the absorbing court than on that of the absorbed one.Does Performance Pay Increase the Risk of Worker Loneliness? (J3, I3)
Abstract
Available evidence shows that performance pay aligns objectives of workers and firms by increasing wages and productivity. However, performance pay can also cause unintended costs borne not only by workers but also by firms and society. Since Adam Smith’s discussion of piece rates, worker health deterioration has been recognized as a significant cost. I study whether performance pay leads to worker loneliness, a significant health concern.The feeling of loneliness is on the rise globally and is acknowledged as a rising public health concern. Loneliness is associated with numerous chronic illnesses and mental health problems such as heart and lung diseases, stroke, depression, and stress. Despite the broad literature on loneliness and its consequences, economists have paid less attention to establish a relationship between different job designs and worker loneliness. This study is the first to examine whether and how performance pay increases the risk of loneliness.
There are at least four channels through which performance pay may increase worker loneliness. Workers receiving performance pay are (1) spending less quality time with family and friends, (2) more likely to feel stressed, (3) less likely to exert helping effort to colleagues and be cooperative, and (4) prioritizing work over private life. Overall, all these channels hint at a positive association between performance pay and loneliness.
I use German Socio-Economic Panel to investigate the association between performance pay and loneliness directly. I find that performance pay is positively associated with both incidence and intensity of loneliness. Correspondingly, performance pay decreases the social life satisfaction of the workers. Investigating the potential moderating factors reveals that the association between performance pay and loneliness is particularly large for private sector employees. The findings also hold in instrumental variable estimations addressing the potential endogeneity of performance pay and in several robustness checks. Finally, implications are discussed.
Drought and the Specialty Crop Production in California (Q1, Q5)
Abstract
More frequent severe droughts worldwide in recent decades, coinciding with intensified climate change, pose a significant threat to global food security. One location where the increasing impact of droughts on agriculture is particularly concerning is California, which is the largest producer and exporter of specialty crops in the United States. Because of California’s importance in the national and international markets, impacts on specialty crop production due to droughts may have far-reaching economic consequences.In this study, we estimate the impacts of drought, as defined by the U.S. Drought Monitor (USDM), on specialty crop total outputs in California during the 2000–2021 period, utilizing extensive county-level panel data. Specifically, we estimate the marginal estimates of an additional week of drought in a given year, at various intensity levels, on the output of fruits and vegetables. To characterize the impact of droughts, we develop a unique annual county-level, crop-specific measure of drought occurrence by combining the cropland data layer and drought distribution layer.
Our empirical strategy mainly relies on panel data models with multilevel fixed effects that exploit spatial and inter-temporal variability in drought conditions and specialty crop total outputs. We also leverage objective weather indicators as instrumental variables to address possible endogeneity issues. Overall, we find that the total outputs of specialty crops exhibit a significant negative response to droughts, ranging from -1.2% to -2.2% for an additional week of drought. This reduction in total outputs is attributed to the combined effects of declining yields per acre and harvested acreages under drought conditions. Evidence of response heterogeneity suggests that water-intensive crops and crops with low returns are most affected. These results highlight the importance of enhancing drought-related risk management and provide implications for designing cost-effective policies for future adaptation decisions.
Econometric Model of Russian Federation: Forecasts and Reality (C3, E1)
Abstract
The article presents the forecasts and post-forecasts results of the author's macroeconomic econometric model which consists of 24 equations and 60 identities that describe the relationships between 107 variables, 23 of them are exogenous. The parameters of the model were estimated on the basis of 1999 – 2021 quarterly data.The model showed that:
1. The main reason of the stagnation of Russian economy is low total factor productivity.
2. Russian economy preserves its strong dependence on the global economy.
3. The fiscal policy has a strong impact on its dynamics.
Statistical data that are present for 2022 and H1 2023 allow making a post-forecast which show the forecasting properties of the model and indicate structural breaks in the estimated equations. The results are the following.
1. The model gives rather good forecast of inflation. The majority of price indicators were in the range of 5 – 10 % annually.
2. The actual growth rates of GDP, personal incomes and consumer expenditures were 2 – 3 times lower than forecasted by the model.
3. The gross capital formation was significantly larger than forecasted.
4. The actual ruble weakening was two times more rapid than the model calculated.
5. The export and import growth was much lower than forecasted by the model.
What were the reasons of these divergences? The future work will show if it is a structural break or the equations need the specification change.
Endogenous Firm Location with Delaunay Triangulation (F1, R0)
Abstract
Economic models struggle to capture spatial competition among firms, often treating firm location and number of firms as predetermined factors. This paper develops a novel framework to address this by leveraging real-world data and geometric tools.We begin by using satellite data to pinpoint actual firm locations worldwide, eliminating assumptions about their distribution. By treating these locations as starting points, we construct Voronoi diagrams. Each Voronoi cell represents a market hub, the geographic area where a specific firm is the closest supplier to any consumer. This approach captures the concept of firms' spatial competition for customers within these hubs.
To further analyze competition, we connect neighboring firms based on proximity. Imagine a network of triangles, where each triangle shows firms close enough to be considered rivals. This network ensures realistic distances, avoids unrealistic competition scenarios, and incorporates all firms for a complete picture. This mesh of triangles is called Delaunay triangulations.
Based on this map and network, we define rules for firms entry and exit. These rules consider factors such as firm profitability, customer demand, production & trade costs and competition from nearby firms. By simulating firm adjustments and entry/exit decisions, we reach a stable market structure reflecting the optimal configuration for trade within this network.
This framework allows us to explore how firms participate in global trade network similar to GVCs. Thus, we develop insights on industry-nation participation in trade by examining the network structures formed by different firms. Additionally, we study how transportation networks and trade costs influence firms’ location decisions and overall market dynamics. By comparing the optimal number of companies from our model to the actual number observed, we gain insights into potential market inefficiencies.
We integrate this framework into a GE model and derive, analytically and numerically, the ideal number and location
Energy Price Shocks, Value-Added Allocation, Productivity, and Credit Risk (D3, G3)
Abstract
I study how manufacturing firms adjust their value-added allocation when faced with a shock, such as an energy price shock or more generally a commodity price shock. Relying on a unique firm-level database over the period 2000-2019 and an identification strategy based on a shift-share instrument, I show that, (i) overall, wage bill and dividend payments are little affected by commodity price increases, at least in the short run. Most of the adjustment is borne by net cash flow (net of dividends), leading to real effects on firms’ default risk. A one-standard-deviation increase in firms’ commodity costs leads to more than 10% increase in firms’ default probability. But (ii) those results depend on the characteristics of the shocks such as their sign or duration. For longlasting shocks or repeated increases, the adjustment is more evenly allocated between wage bill and internal cash flow; dividend payments remaining little affected: for short-term increases, internal cash flow bears around 81% of the adjustment, wage bill around 16% and dividends around 2%. In the case of longer increases, wage bill bears 40% of the adjustment, the cash flow around 60%, dividends remain unaffected.(iii) This paper has several implications for policy-makers, particularly in terms of financial stability in a context of the climate-related transition risk and increasing macroeconomic volatility.Enhancing the Precision of Vast Historical Datasets via Deep Learning and AI: A Case Study on Mitigating Misinterpretation Challenges within the 1950 U.S. Census (C8, N1)
Abstract
This paper addresses the substantial challenge of digitizing vast historical documents, with a particular focus on the 1950 U.S. Census data inaccuracies. In collaboration with the Minnesota Population Center, this study confronts the overcount of approximately two million individuals, attributed primarily to the misinterpretation of handwritten texts. By deploying advanced deep learning algorithms, this research aims to identify and correct prevalent errors, such as the misreadings of "No One" as "Noah" and "Vacant" as "Vincent," which significantly compromise data fidelity. These algorithms demonstrate a remarkable 95% accuracy rate in pinpointing and amending key visual indicators of erroneous data, underscoring the profound capabilities of deep learning tools in enhancing the reliability and interpretability of complex data sets.Furthermore, the paper delves into the application of generative AI for the intricate task of linking complex individual names across historical documents. This involves the formulation of sophisticated algorithms adept at recognizing and associating diverse name representations. This approach significantly improves the precision of tracking and analyzing individual data across multiple historical records, with an accuracy rate of approximately 91%.
In summary, this research signifies a notable advancement in the field of historical data collection and analysis, introducing cutting-edge tools for the accurate digitization and interpretation of historical records. By elevating the accuracy of mass historical data digitization, this study has substantial implications for scholars and researchers dedicated to examining economic trends and social changes over time.
Entrepreneurs’ characteristics and firm size (L2, D8)
Abstract
We use a novel database to investigate how personality traits of entrepreneurs are associated with the size of the firms they run. Research has so far concentrated on analyzing how the personality of entrepreneurs influence decisions at the early stage. Due to data limitations research could not examine how traits are associated with firm size as central measure of entrepreneurial success.Developing a venture into a large firm is associated with risky decisions. Yet, it is not clear whether more risk tolerance makes entrepreneurs grow firms large. Moreover, the complex decision-making processes of getting firms large will require core abilities of entrepreneurs. Again, there is no evidence whether these elements of personality, that are captured by the so called “Big-Five” traits, are important for entrepreneurial success in terms of firm size.
Investigating such characteristics requires a scarce data combination as firm data have no information on characteristics of their owner-managers, while population surveys lack information on owner-managers of larger firms. The German Socio-Economic Panel started in 2019 to include a novel sub-sample that closes this gap.
In our analysis, we find that personality matter for firm size. High levels of risk tolerance, for which previous research showed to increase the likelihood of firm exits, is positively associated with firm size for entrepreneurs remaining in the market. High scores in extraversion and in conscientiousness are also associated with larger firms, the latter observation being remarkable, as previous research had shown that high levels in conscientiousness may be related lower entrepreneurial incomes. Contrasting, high levels of openness for experience, main driver of founding ventures is more strongly associated with solo-entrepreneurship and small firms. Overall, we show that growing firms large is associated with traits that are different from those who increase the likelihood of entrepreneurial entry or survival.
Evaluating the Impact of Fertilizer and Crop Prices on Phosphorus Concentrations in Great Lakes Watersheds (Q5, Q1)
Abstract
Nutrients such as Nitrogen and Phosphorus (P) are the most widespread stressors for water pollution across different water bodies in the US. In the Great Lakes region, which is sensitive to P loads, P management is a significant concern. Across the Great Lakes Basin, after initial success with P load reduction, total P (TP) concentrations have been relatively stable since early 1990s or decreasing in some watersheds, and soluble P (SP) concentrations have increased widely. While extensive nutrient management measures have been undertaken in the Great Lakes region, P load improvements from managing point-sources may have been confounded by increases in nonpoint source loads and increased precipitation. In this study, we use data from 1990 to 2022 for 226 watersheds across the Great Lakes region and first analyze the TP and SP trends across these watersheds. We then address the following two questions – i) “Did the Renewable Fuel Standard play a part in reducing the efficacy of P management programs in the Great Lakes region?”, ii) “Are the P pollution elasticities in watersheds with respect to P price estimates consistent with the estimates of existing literature after accounting for recent fertilizer price fluctuations?” We use a panel data at watershed level with TP and SP concentration in watershed as dependent variable and use a wide range of controls involving temperature, precipitation, land use changes, soil P levels, crop prices, P prices, soil erosion, and manure P use. Initial results suggest that P elasticity estimates are consistent with literature, but more elastic in recent years, after accounting for price fluctuations. Our analysis would be of interest to AEA members through highlighting the unintended consequences of existing policies, efficacy of policy instruments such as P tax and the need for climate-resilient region-specific policies.Eviction Policy and the Rental Market: Evidence from Covid-19 Moratoria (R0, I3)
Abstract
During the Covid-19 pandemic, state and federal moratoria halted eviction filings across the United States. Using variation in state policies and monthly rent data from over 2000 U.S. ZIP codes, I show that stronger tenant protections were associated with lower rent hikes in 2020 and 2021. I find that the average moratorium is associated with 2-4% lower rent by 2022. Rents increased less in counties with greater drops in eviction filings, even within states with comparable de jure protections. Rents and moratoria are linked more strongly in subpopulations at greater risk of eviction. Home values are unaffected by moratoria. This paper provides novel evidence that rents may respond to eviction policy.Exchange Rate Disconnect in General Equilibrium: the Role of Trade Shocks (F4, F3)
Abstract
Standard macro models fail to explain why real exchange rates are volatile and disconnected from macro aggregates. This paper presents a simple two-country, two-traded-good Real Business Cycle model that can solve this puzzle. The model assumes shocks to total factor productivity and ‘trade shocks’, modeled as exogenous shifts in a country’s local spending bias. These trade shocks capture, in a reduced form way, preference/technological shifts between domestic and imported goods and changes in trade costs/protectionism. Estimated trade shocks exhibits wide cyclical fluctuations that are weakly correlated across OECD countries. The paper shows that trade shocks are a more powerful source of fluctuations in the real exchange rate and the trade balance than productivity shocks. A positive shock to a country’s local spending bias appreciates the country’s real exchange rate and boosts its output. By contrast, a positive productivity shock depreciates the real exchange rate (while also raising domestic output). A model with joint productivity shocks and trade shocks can generate a realistic correlation between real activity and the real exchange rate, i.e. a correlation that is close to zero.Trade shocks also help to explain the empirical volatility of the real exchange rate and the trade balance. The paper considers a widely discussed alternative explanation for exchange rate volatility and exchange rate disconnect: shocks to the uncovered interest parity (UIP) condition, i.e. financial shocks (see, e.g., Kollmann, 2002; Itskhoki and Mukhin, 2021). Bayesian model estimates suggest that trade shocks are more important drivers of the real exchange rate and the trade balance than UIP shocks.Fatal Car Crashes and Marijuana Legalization in Michigan (K2, D0)
Abstract
An increasing number of states are legalizing recreational use of marijuana. There are concerns about its impact on road safety. Those may have policy consequences. This empirical study uses the experience from Michigan to test whether recreational marijuana legalization has had any significant impact on cannabinoid-related fatal crashes. Those are the ones, in which at least one of the drives has tested positive for a cannabinoid. A difference-in-difference estimation is applied in a panel data setting. Michigan is used as the treatment group, where recreational marijuana has been legalized. The control groups are the states of Ohio and Indiana, which did not have recreational marijuana legalized at the time. The treatment effect is found to be insignificant, thus there is no evidence that legalization and retailing of marijuana have significantly impacted the number of cannabinoid-related fatal crashes.The study can be extended further by including control variables that are related to fatal accidents and can add more explanatory power, although that may not be necessary for DID to work. The results, however, are robust and I do not expect explanatory variables, such as weather, will overturn them. More clusters can be included for more robust inference. We can include more states that have legalized cannabis in the said period as treatment groups and states that have not as control groups. Synthetic difference-in-differences could be used for that purpose.
Feigning Fairness: The Loss from a Voluntary Gender Quota in Public Service (J7, P5)
Abstract
Quota favoring non-disadvantaged groups in recruitment can influence the applicant pool and subsequent job performance. While women represent a larger share among new hires of local tax departments through China’s civil servants’ examination, men dominate in both overall quantity and leadership positions within the departments. Since 2016, many county tax departments have implemented a one-to-one gender quota to increase the ratio of male new hires. This paper assembles novel civil servant exam data alongside county-level tax revenue data to study the impact of the one-to-one gender quota on civil servant recruitment and performance. Using geographical and temporal variation in the quota’s introduction through a staggered difference-in-difference strategy, I find that the one-to-one gender quota on entry-level civil servants results in decreased job performance within the tax department. The quota also led to a significant decline in the number of applicants per vacancy and in the written exam cut-off score of new hires. Empirical evidence suggests that the reversed gender quota discourages applicants, particularly women, from applying to positions, consequently diminishing the quality of new hires. Additional results from internal promotion data further indicate a decrease in the probability of promotion for women as the male ratio among colleagues increases. This study sheds light on implicit gender discrimination in recruitment and underscores its detrimental impact on civil service performance.Finance, Production and International Trade: A Microfoundation for Unemployment and Imperfect Credit Market (D2, F2)
Abstract
This paper builds up a Heckscher-Ohlin-Samuelson model of production and trade where capital is introduced outside the production process as a financial capital or credit as per the classical Ricardian wage fund framework. Stock of credit or financial capital as past savings, finances employment and machines or capital goods used in the process of production with Ricardian fixed coefficient technology. Availability of finance does not affect production or pattern of trade only nominal factor prices. International financial flows will not alter pattern of trade, but movement of labour and machines will. Such results change drastically when we consider a model with unemployment and finance dictates real outcomes much more than before. Introducing finance affects trade patterns with unemployment and especially with imperfect credit markets. Our results are consistent with contemporary empirical evidence and have policy implications for role of financial development and quality of institutions for innovation and economic development. Numerical illustration corroborates this.Financial Frictions and Pollution Abatement Over the Life Cycle of Firms (E2, G3)
Abstract
Using US firm-level data, we document significant differences in pollution abatement activities over the life cycle of firms. Smaller and younger firms are more constrained in financial indicators and have higher emission intensity. In addition, these firms invest more in physical capital and less in pollution abatement; interestingly, their abatement investment accelerates, and their emission intensity reduces as they accumulate more net worth. Motivated by this evidence, we develop and quantify a heterogeneous firm model to study the relationship between financial frictions, physical investment, and pollution abatement activities. In the model, constrained, smaller, and younger firms prefer physical investment over pollution abatement because the returns from the former are higher than those from the latter. The aggregate welfare loss from the sub-optimal environmental regulation due to financial frictions is about 40%.Financial Innovation via Sustainable Lending (G2, G1)
Abstract
We explore the incentives driving banks to introduce Sustainability-Linked Loans (SLLs) as an innovative financial product in the global syndicated loan market. Utilizing a comprehensive dataset of banks leading these deals, we find that multinational banks, particularly those facing heightened reputational risks and ESG-reporting regulations in their home countries, are more likely to offer SLLs than domestically-focused banks. Although multinational banks are more likely to offer SLLs in their home markets, their expansion strategies abroad are characterized by selecting markets where they enjoy a dominant position and have established robust lending relationships. We also find that competitive pressures generally deter the offerings of SLLs. A bank's decision to act as a sustainability agent, assuming a significant role in an SLL transaction, is influenced by similar economic factors. Leading an SLL transaction, especially acting as a sustainability agent, improves a bank's market share in the local syndicated loan market. However, this advantage seems predominantly enjoyed by multinational banks operating in international markets. Our findings underscore the strategy behind banks' introduction of SLL products, aiming to bolster their reputation and competitive stance in global syndicated markets.Firm Response, Adaptation and Resilience - Evidence from Natural Disasters in Pakistan (Q5, O2)
Abstract
How do firms react, respond, and adapt in the aftermath of a natural disaster? This paper provides evidence of the impact of the 2005 Pakistan earthquake on firm-level outcomes along three dimensions: the immediate response of firms to disasters, short-term adaptation strategies, and forward-looking actions that firms undertake to enhance resilience. Using a difference-in-differences methodology with a panel dataset of 390 firms, the paper evaluates the impact of an earthquake which saw capital stock destroyed, supply chains disrupted, and national supporting infrastructure devastated. This destruction led to a notable decline in sales among affected firms, which, in turn, prompted strategic adaptations to facilitate recovery and build resilience. These adaptations included extended production cycles, diversified utilisation of facilities, and increased reliance on private credit markets. Firms also sought to build forward-looking resilience by diversifying across markets. However, there was no evidence of innovation to build adaptability and little to no government support. Consequently, we conducted a policy simulation exercise to determine the optimal policy response.Firms’ Sales Expectations and Marginal Propensity to Invest (D2, E3)
Abstract
We propose a novel and flexible approach to estimate firms’ marginal propensity toinvest (MPI) out of additional income. Our methodology constructs firm-level (transitory)
income shocks using survey-based sales forecast errors for a panel of UK firms.
Investment responds significantly to sales surprises, with a 1 percentage point unexpected
growth in sales translating into a 0.32 percentage point increase in capital
expenditure. We find attentive firms and those with higher ex-ante uncertainty to be
more responsive. This is consistent with sales growth surprises providing firms with
information about their demand. In contrast, we do not find evidence that these results
are driven by financial frictions, uncertainty, or productivity shocks. Finally, we show
that sales growth surprises cause firms to increase their prices.
Flooded House or Underwater Mortgage? The Macrofinancial Implications of Climate Change and Adaptation (G5, Q5)
Abstract
I study the implications of climate change and adaptation on housing and income, and wealth. I embed climate change in a redistributive growth model by introducing exposure of households and firms to extreme weather events, which damage their housing capital and physical capital, respectively. The analysis reveals that climate change is intrinsically redistributive. Low-income workers experience a relatively larger decline in income as climate-related damages reduce their productivity disproportionately. At the same time, the rate at which households with positive savings accumulate wealth rises. Importantly,I show that low-income households who are financially constrained have weaker incentives to adapt to climate change and their failure to reduce vulnerability to climatic impacts exacerbates wealth inequality. While houses exposed to climate risk face a price discount in the market, I demonstrate that the materialization of climate change risk increases house prices as habitat becomes reduced. This general equilibrium effect induces low-income households to allocate a larger fraction of their budget to housing as climatic impacts intensify, translating into a widening of the adaptation gap over time.
Foot Traffic Dynamics Following Natural Disasters (Q5)
Abstract
This paper studies the impacts of natural disasters on economic activity at the local level using data on foot traffic to businesses. We find little evidence that natural disasters impact total foot traffic at the monthly time horizon. However, the share of foot traffic going to public companies increases post-disaster, at the expense of smaller, private businesses. This is especially true for the retail industry, where the link between foot traffic and sales is likely to be the strongest. Furthermore, the share of foot traffic going to private stores post-disaster falls disproportionately in less populous, high minority areas. Some public company business models specifically take advantage of this phenomenon. Dollar stores, which target areas with low population and high natural disaster risk, see a spike in foot traffic share in the disaster month that persists post-disaster. We additionally show that dollar store and retail stocks perform especially well post-disaster.From Classroom to Harvest: The Effect of International Agricultural Price Shocks on Child Labor in Rural China (Q1, J2)
Abstract
This study investigates the effects of agricultural price shocks on child labor in rural China, utilizing a shift-share approach and county-level data from 2000 to 2018. We assess the impact of international price fluctuations of 19 major crops on the middle school student population in counties, which serves as a proxy for child labor. Our findings indicate that a one standard deviation increase in low-skilled crop price shocks leads to a 3.215% reduction in the middle school population, and a 2.763% decrease for medium-skilled crop price shocks. Contrarily, high-skilled crop price shocks result in a 2.101% increase in the middle school population. This pattern also mirrors in the number of schools and teachers in counties with intensive agricultural activities following these shocks. Our analysis further delves into the mechanisms by which agricultural price shocks affect child labor in rural areas. We discover that low-skilled shocks diminish rural households' educational investment, while medium-skilled and high-skilled shocks have no significant impacts. Furthermore, low-skilled shocks stimulate growth and employment in the agricultural sector in the agriculture-intensive regions, but also lead to lower firm wages due to decreased productivity associated with employing less-skilled workers. Our findings indicate that low-skilled agricultural price shocks contribute to an increase in child labor in rural areas. Overall, our study supports the ``opportunity cost of schooling channel," but it also highlights the effects of high-skilled shocks on the increased school population in rural areas.Game Changers: Evidence from Tesla Model 3 Unveiling Announcement (L1)
Abstract
On 31 March 2016, a technologically innovative electric sedan -- Tesla Model 3, which targeted mass-vehicle markets in the U.S, was unveiled. As a game changer, the arrival of Model 3 significantly affected the sedan and hatchback cars rather than cars with other body types. Using eBay used car auction data, we examine how and at what extent this event impacts on the used combustion engine sedan and hatchback cars. We find robust evidence of a significant decrease in the buyers' willingness to pay, approximately 6 percent. This price drop can be interpreted as the buyers lowering their expectations on future residual values of the cars. Our analysis of the heterogeneous effects with respect to the vehicle age and the travelled mileage further confirm the findings.Gender Identity, Race, Ethnicity, and Health Insurance Discrimination in Access to Mental Health Care: Evidence from an Audit Correspondence Field Experiment (I1, J1)
Abstract
Members of minoritized groups typically face discrimination in multiple arenas. This discrimination can cause barriers to arise in accessing mental health care and thus exacerbates the mental health disparities among groups with marginalized identities. Building on our pilot study (Harrell et al., 2024) we conduct an audit correspondence field experiment to quantify discrimination against transgender and nonbinary, Black, and Hispanic people, along with Medicaid recipients, in access to mental health care. We send therapists appointment request inquiry emails from fictitious prospective patients, independently randomizing signals of race, ethnicity, gender identity, and health insurance. We quantify discrimination by comparing appointment offer rates, response helpfulness, and other quality features. We test for sources of taste and statistical discrimination and how discrimination varies by factors such as local demographics and social attitudes, pro- or anti-trans laws, and therapist characteristics.Gender Socialization and Stock Market Participation (G5, G4)
Abstract
We provide a novel explanation for the gender gap in stock market participation. We find that growing up in a male-dominant household, whereby the father has a higher income or more education than the mother, is associated with a higher probability of equity ownership and a higher equity allocation in adulthood.This relationship is stronger for men than for women.
We provide evidence that the primary mechanism driving this effect is learned masculine norms rather than financial literacy, risk tolerance, or trust. Our findings suggest that gender socialization in the household may constrain the behaviors of women to traditionally "feminine" tasks, which impede the opportunity for girls to learn about investing, thereby contributing to the gender gap in stock market participation.
Gender, Income Control, and Information Sharing Among Spouses (O1, D1)
Abstract
This study investigates information sharing between spouses under different income control settings using an abstract incentivized game. We measure the impact of performance of spouses trained by either their husband or their wife under two income control settings individual and joint. We use a 2x2 treatment design where households are randomly assigned to one of four treatment groups. Our results suggest that men share information more frequently with their wives, but men shift behavior significantly under joint income control, where they are less motivated to excel or undergo training, but increase their efforts to train their spouse. Our findings also hint at a potential reason women might be less forthcoming with information: the tendency of men to discount information from their wives. The performance of men who were trained by their wives performed nearly identical to those who weren't, irrespective of the income control scenario.Global Banks in a Trade Shock: From Local Decline to Foreign Boom (F1, G0)
Abstract
We examine how global banks respond to trade shocks and their consequences. When rising imports decrease local demand for import-competing manufacturers, global banks shift their loan portfolios from the domestic to the global market. This behavior amplifies the negative effects of trade shocks on the local economy while stimulating growth in foreign markets. We test this hypothesis using global syndicated loan data, focusing on China’s accession to the WTO and recent episodes of the Trump trade wars.Global Value Chains: Unveiling the Nexus of Productivity and Welfare (F1, O4)
Abstract
The influence of domestic total factor productivity (TFP) growth on national welfare has been well-documented. Yet, the implications of global TFP growth on welfare through the lens of global value chains (GVCs) remains poorly understood. To bridge this gap, we developed a simple yet potent model to explore the TFP-welfare nexus based on growth accounting framework, streamlining the assumptions and parameters needed, facilitating the full integration of production networks. We measure the discrepancy between GDP growth and welfare growth of a nation, and further elucidate how this disparity, namely the terms of trade (TOT) effect, is influenced by global TFP growth. Integrating the concept of GVC TFP into the growth accounting framework enables us to break down the TOT effect into three primary components: global TFP growth, global wage growth, and global capital price growth; to further pinpoint the specific country origins of the three TOT effect components; and to differentiate between the direct and indirect TOT effects. Through the application of our model to the World Input-Output Database, we have gained novel insights into the complex interplay between global productivity and national welfare growth as well as trade policies.Green Neighbors, Greener Neighborhoods: Peer Effects in Residential Green Investments (G5, D1)
Abstract
Are households' green certification decisions causally influenced by their green neighbors? Utilizing neighbors within 0.1 miles in a nearest-neighbor design, I show that households with green neighbors are 1.8 times more likely to obtain a green certificate within one year than those without such neighbors. This influence persists even for secondary properties of multi-property-owning households. Immediate neighbors also tend to share the same certification and lender. Furthermore, the peer effect is more pronounced in areas where community interactions are stronger and where green-certifying houses is financially beneficial. These findings imply that the mechanism is beneficial information transmission, not peer mimicking.Greenwashing: Measurement and Implications (G3, G1)
Abstract
This study employs earnings conference call transcripts and a state-of-the-art machine learning model, FinBERT, to construct a firm-level measure of greenwashing for U.S. public-listed firms. We validate the measure in multiple ways. Our findings reveal a significant increase in economy-wide greenwashing following the adoption of the 2015 Paris Agreement, with firms within the fossil fuel and the broader stranded asset industries experiencing the largest increase. Firms with elevated greenwashing intensity have more future environmental incidents and increased EPA enforcement actions, without a corresponding increase in green innovation. Greenwashing firms experience lower cumulative abnormal returns following their earnings conference calls and produce lower future operating performance. Managers resort to greenwashing as it bolsters corporate environmental ratings and, post-Paris Agreement, reduces the likelihood of forced CEO turnover and its sensitivity to operating performance. Greenwashing firms also have lower future CEO pay-for-performance sensitivity and wealth-to-stock-volatility sensitivity, particularly after the Paris Agreement adoption. They are also more likely to link CEO pay with corporate environmental performance. Lastly, greenwashing firms display reduced future R&D and acquisition activities, lower leverage, and increased cash holdings, reflecting a lower appetite for risk-taking by managers who benefit from increased job security due to greenwashing. In summary, this study introduces a comprehensive greenwashing metric and provides empirical evidence in line with an agency perspective, offering insights into the motivations and consequences of corporate greenwashing.Hiding in Plain Sight: Preferred Habitat Effects in Short-Term Rates (E4, G1)
Abstract
We investigate the causes of the well-known failure of the expectations hypothesis (EH) by analyzing its performance in an idealized setting: repurchase (repo) agreements, the ultra-short term funding market underlying the yield curve. We isolate the source of the EH failure by showing it holds in general collateral repo, but breaks down in the "special" segment. We explain this failure by identifying a preferred habitat of agents who use special repo to fund their positions in fixed income markets. We leverage a regulatory reform which shortened the settlement time of bond markets; trading patterns adjust accordingly in repo, allowing us to observe the habitat move from one maturity to another. A triple-differences identification strategy causally demonstrates that this shock deteriorated the performance of the EH in the affected segment, thus showing that preferred habitat effects are remarkably pervasive and can distort pricing even in pristine conditions, emphasizing the role of market segmentation. Furthermore, our results are indicative of a high degree of leveraging in repo, demonstrating that agents take advantage of the convenience yield provided by the safe asset status of their bond holdings.Household Heterogeneity across Countries and Optimal Monetary Policy in a Monetary Union (E5, F4)
Abstract
The financial situation of households differs substantially across countries, but the implications of this heterogeneity is still vastly understudied. We examine the implications of this asymmetry for optimal monetary policy in a currency union. We build a two-country monetary union model with heterogeneous households leading to inequality due to imperfect insurance. We introduce money through central bank digital currency (CBDC) as a liquid asset for self-insurance against idiosyncratic risk. CBDC is a new instrument which allows the central bank to target heterogeneity within a monetary union. We derive a welfare function with two additional objectives, consumption inequality within and across countries. The more heterogeneous households are, the less important inflation stabilization becomes in favor of stabilizing consumption inequality through providing money. We provide important policy implications as we show that it is beneficial for a monetary union to have a country-specific instrument to compensate for country differentials.How Do Corporate Liquidity and Repurchase Policies Respond to Unionization at Major Customer Firms? (G3, J5)
Abstract
We employ a regression discontinuity design (RDD) to identify the causal effects of labor unionization at a major customer firm on its supplier’s cash holdings and stock repurchases. We empirically test for two opposite, non-mutually-exclusive effects: shielding vs. specific investment. We find that overall, the shielding effect dominates: dependent suppliers reduce cash holdings by 3% of total assets (or 22% of the sample mean) and increase repurchases by 0.5% of total assets (or 38% of the sample mean) to shield the firm from rent-seeking by newly unionized customers. These effects are larger when the customer (1) is more important to the supplier, (2) has greater market power, (3) is located near the supplier, and (4) has had a shorter business relationship with the supplier. But for suppliers with greater specific investment or longer relationship with the customers, the specific investment effect dominates: suppliers increase their financial flexibility to incentivize the customer to preserve the customer’s relationship-specific investment.How Does School Violence Affect Immigrant and Native-Born Children? Exploring Impacts on Mental Health and Academic Outcomes (J1, I2)
Abstract
This paper investigates how school violence affects academic outcomes through the impacts on mental health for native-born American and immigrant children. We highlight that preventing school violence can improve mental health and academic performance, thus enhancing economic prospects and promoting generational social mobility. Applying two-stage estimators following Mallar (1997), we use simultaneous equations to exam the structural relationships of bullying involvement, mental health and academic outcomes. Analyzing the 2022 National Survey of Children’s Health (NSCH2022), our findings reveal that immigrant children are generally less involved as bullies or victims than their native-born children. Yet, children in white immigrant or low-income families are more susceptible to school violence. Controlling factors like parental mental health, attitudes towards children, and life experiences, we find that immigrant children are mentally healthier compared to native-born children, except for white immigrants who experience more significant mental health challenges. Being bullied significantly increases the likelihood of experiencing mental health issues, while being a bully has a converse impact. This effect has no significant difference between immigrant and native-born children. While immigrant children perform better than native-born children academically, those from white immigrant families show worse academic performance. Mental health improves school performance, but this link is weaker in immigrant children.How Does Technology Improve the Role of Financial Sector in Economy? An Empirical Analysis of Global Banks Based on Input-Output Model and Text Mining (O3, G2)
Abstract
The modern financial industry's core mission is to bolster high-quality development of the real economy, with technology as the primary driver. However, research and practice on how technology can effectively serve the role remain limited. Thus, further exploration is urgently required to provide theoretical guidance and decision support for technological development in finance.This study innovatively examines how technology empowers financial services to support the real economy by matching technology supply with business demand. We measure the impact of financial services on the real economy using input-output models and propose a novel approach to measure the degree of technology-business matching based on a knowledge graph. Through a case study of the banking industry, the impact of matching on the efficacy of financial services to the real economy is tested empirically.
Utilizing OECD national input-output tables spanning 20 years, we calculate indicators including pulling and sensitivity effects of the banking sector. We also construct a knowledge graph to link business scenarios with specific technologies, based on over 152,000 English patent text entries. Then, by employing link prediction algorithms, we derive technology-business matching indices for banks. Finally, we use econometric models to investigate the mechanism through which technological innovation affects the efficiency of bank services in the real economy, as well as the moderating effect of the matching indices.
Our findings reveal several insights: First, global banks exert a greater influence on various economic sectors in middle to high-income countries, with a consistent upward trend over the past eight years. Second, developed countries demonstrate "deep penetration" in technology-business matching, while developing countries pursue "comprehensive development," both capitalizing on advantages in areas such as credit assessment and mobile payment. Third, there is a significant asymmetric moderating effect of technology-business matching on bank service efficiency in the real economy, with optimal levels identified.
How to Enforce Platforms’ Liability? (K0, D4)
Abstract
New regulations are emerging to address the increase of illegal content on online platforms, highlighted by initiatives like the Digital Services Act. This paper presents a theoretical model examining how such regulations shift the economic incentives for social media platforms to moderate user-generated content. The model focuses on a strictly liable platform with heterogeneous users who may breach the rules set by a regulator. The larger the audience of the user, the higher the benefit she brings to the platform, but also the larger the societal harm if she violates the rules. The paper argues that oversimplified regulations may worsen the problem of cherry-picking, where platforms penalize only low type users and not high type ones for violations. To combat cherry-picking, one option for the regulator is to stop monitoring content that the platform has already removed, but this could lead to overmoderation. Another strategy involves the regulator enhancing its technology to monitor more content and adjusting fines based on the ex post observable size of the audience of users. Intriguingly, under this approach, the optimal fine might be reduced when more users commit violations.How to “Solve” our National Debt “Problem” (H6)
Abstract
As a society, we’ve allowed our elected political representation to make major changes in our monetary system without ensuring our societal and political framework was structurally solid enough to support them—and have found through trial and error that they were not. It would be interesting to go back in time and listen to politicians rationalize their decision to capitalize “Trust Funds” with "Special Issued Treasury Debt” to “liquidate unfunded obligations” on amortization schedules to remain under their own self-imposed Debt Limits, because the funding technique neither liquidated them nor was it “special.” It had no impact on our underlying obligations or our ability to honor them. We essentially removed the governor from government spending by legally enabling accounting sleights of hand where expenses are shifted from one part of our budget to the Treasury as “interest expense” and from one generation to another as a “Trust Fund.” So, when our interest expense continues to compound, we will need to hold accountable the politicians that chose interest-bearing obligations over noninterest- bearing ones to fund their “special interest” spending and political agendas, and elect more intelligent representation if they truly were unable to foresee this inevitability. If you are holding onto the hope that inflation will depreciate the real value of our compounding obligations, that silver lining disappeared when we added Cost-of-Living-Adjustments (COLA) to a majority of our largest obligations and started issuing Treasury Inflation-Adjusted Protection Securities (TIPS). And since national debt is the result of imbalances between taxes collected and taxes spent, and could be paid down to zero and retired if so desired, the first step to “solve” the national debt “problem” is admitting that we don’t actually have a national debt problem, we have a political problem.Identifying Causal Effects under Kink Settings: Theory and Evidence (H3, C1)
Abstract
This paper develops a generalized framework for identifying causal impacts in a reduced-form manner under kinked settings when agents can manipulate their choices around the threshold. The causal estimation using a bunching framework was initially developed by Diamond and Persson (2017) under notched settings. Many empirical applications of bunching designs involve kinked settings. We propose a model-free causal estimator in kinked settings with sharp bunching and then extend to the scenarios with diffuse bunching, misreporting, optimization frictions, and heterogeneity. The estimation method is mostly non-parametric and accounts for the interior response under kinked settings. We estimate how medical subsidies affect outpatient behaviors in China by applying the proposed approach.Identifying Housing Market Bubbles: Bespoke Bubbles for Diverse Market Structures (R3, E3)
Abstract
This study seeks to resolve the absence of agreement on identifying housing market bubbles by examining and comparing existing approaches within diverse housing market structures. To this extent, we utilize historical Real Housing Price Indices from the OECD and FED Dallas, along with real estate bubble indicators such as price-to-rent and price-to-income, spanning the period from 1975 to 2022, to assess their universality across different housing markets. Using these data, we empirically verify the results of the widely used IMF method and the GSADF test against historical market behaviors. We prove that commonly used real estate indices such as the Real House Price Index (RHPI) from OECD and the FED Dallas International Housing Database do not accurately represent the entire real estate market situation in some countries. Additionally, the study questions the universality of the IMF (2009) method and the GSADF test, demonstrating inconsistencies in the results based on the specific country and market structure. Specifically, we prove that price-to-rent and price-to-income ratios are not universally reliable indicators of housing bubbles across multiple countries. In countries like Germany and Spain, neither rents nor incomes can be considered fundamental indicators, as the decision to own or rent is influenced by institutional factors external to their levels. Moreover, we document that in countries with significant government support and a common rent-to-own ratio, such as France, the price-to-income ratio is more suitable, as the price-to-rent ratio was found to be overly sensitive. Conversely, in countries with skewed income distribution like the UK or the US, the price-to-rent ratio is more accurate and can detect potential risks up to two years earlier. The findings of the study hold implications for researchers and policymakers, as they emphasize the need for tailored bubble detection methods that consider the institutional factors within each unique housing market.Impact of Clan Culture in Peer to Peer Lending (G5, G2)
Abstract
We document that cultural perception influences financial decisions. We examine the implications of clan culture, an important dimension of Chinese culture, on individual lending behavior. Using data from RenRenDai, a leading peer-to-peer lending platform in China, we find that borrowers from regions with higher clan culture are more likely to get loans funded, attract larger bids from lenders, get loans funded faster, are less likely to default, and repay a larger fraction of their loans. These effects are more pronounced when borrowers are riskier, there is greater information asymmetry, and the legal environment is weaker. Our findings are robust to potential endogeneity concerns and to alternative measures of clan culture. Additional evidence is consistent with clan culture acting as a proxy for market trust, social network, and moral norms. Collectively, our findings emphasize the significance of clan culture in shaping individual lending decisions and the creditworthiness of borrowersIncidence of Carbon Pricing in Tanzania: Using Revenues to Empower Low-Income Households with Renewable Energy (D3, Q4)
Abstract
While Tanzania’s greenhouse gas emission levels still seem low by international comparison, thecountry is rapidly carbonizing, and most households still rely on kerosene, charcoal, and firewood for
cooking and lighting. Carbon pricing can be an effective tool to discourage the creation of high carbon
lock-ins, to generate substantial revenues, and to channel them toward sustainable development.
Employing a microsimulation approach that integrates multiregional input-output and household-level
data, we examine the distributional impacts of four different carbon pricing designs and five compensation
schemes on Tanzanian households. We find that national carbon pricing would have progressive
effects but with large horizontal differences. Revenue-financed cash or infrastructure transfers would
effectively mitigate adverse impacts on low- and middle-income households. We suggest the use of
carbon pricing revenues to provide low-income households with access to renewable energy appliances
such as solar lights and solar cookers to empower them through long-term cost and time savings as
well as health benefits. This would contribute not only to alleviating poverty but also to achieving
Tanzania’s electrification and clean cooking objectives.
Income Tax Fluctuations and Uncertainty (E6, H3)
Abstract
Income tax policies in France have fluctuated considerably over time, mainly driven by changes in presidential leadership. I study the macroeconomic consequences of these fluctuations and of the resulting fiscal uncertainty using a simple model of heterogeneous agents calibrated on French data. Aggregate uncertainty and a two-state stochastic fiscal regime capture this income tax uncertainty. This framework shows that income tax uncertainty generally generates recessive effects as labor supply, output, and welfare decrease compared to a deterministic setup. Moreover, this fiscal uncertainty interacts with micro-level income risk (i.e. the idiosyncratic productivities). This fiscal uncertainty is all the more detrimental to output and welfare when the pre-tax income volatility is high. Who suffers most from this tax uncertainty? While for low levels of aggregate uncertainty, the decreases are of roughly the same order of magnitude across the distribution, the bottom of the labor income distribution is particularly vulnerable when uncertainty increases.Independent Directors on Major Board Committees and Their Public versus Private Opposition to Tunnelling Proposals: An Analysis of Chinese Board Meetings (G3, G4)
Abstract
By exploring the whole universe of board voting records in China, we find independent directors with more monitoring power (nomination, auditing, and compensation committee members, hereafter, Monitoring Independent Directors or ‘MIDs’) mitigate tunneling. We find that they are associated with a decline in tunneling-related proposals, while they publicly dissent less often in boardroom voting. Potential negative career consequences of public dissent can help explain why these directors find privately deterring potential tunneling proposals at the committee stage more attractive than public dissent. Once MIDs publicly dissent on tunneling-related proposals, shareholders and media react very negatively. In contrast, negative reactions by regulators and debtholders are generally confined to disclosure issues where they have greater monitoring responsibility and legal standing. Greater MID presence on a board also appears to reduce (substitute for) public dissent by minority-shareholder-appointed directors towards potential tunneling proposals.Inflation Scar and Expectations Formation (E5, E7)
Abstract
We investigate the long-lasting influences of high inflation experiences on future inflation by analyzing the impacts of individuals' lifetime inflation experience on their expected inflation based on the Michigan Survey of Consumers. To summarize individuals' lifetime inflation experience, we build frequency distributions consist of individuals' experienced inflation and estimate a functional regression model that connects inflation expectation of respondents to the distributions reflecting their inflation experiences. Our findings show that individuals expect higher inflation when they have faced higher actual inflation more frequently in their lifetime, even after controlling for average lifetime experienced inflation and demographic characteristics. We also find that realized high inflation since March 2021 has significantly increased inflation expectations, with an impact size of about 0.1 to 0.2%p in July 2022.International Migration Amid Insurgent Violence (O1, J1)
Abstract
This paper uses anonymous cell phone data to measure the change in human mobility following exposure to insurgent violence. Using call detail records from more than 15,000 cell phone users over a 17-month period, I analyze patterns of civilian movement and migration during a period of Taliban insurgency in Afghanistan (2011-2012). These call records, paired with a unique violent events dataset, provide behavioral and economic context in an otherwise data-scarce conflict setting. Results point to a small negative effect of exposure to violence on measures of short-term mobility. Finally, I introduce a method for inferring international migration from call data. Preliminary results suggest an increase in the likelihood of migration with additional exposures to insurgent violence.Investing Like My Parents: Do Parents Affect Children's Risk Taking Behavior? (G5, G4)
Abstract
We show that learning from parents explains heterogeneity in financial decisions later in life. Using parents’ stock market experiences before parenthood as instrumental variables for parents’ stock market decisions, we show that parents' participation and risk-taking positively affects children's stock market decisions. More importantly, exploiting a finding that parents spend more quality time daily with their first child, we find that this parental effect is mainly driven by learning from parents through one's childhood interactions with parents. We also examine the wealth outcomes implied. Our results contribute to the understanding of how family traits passed down over generations could lead to wealth inequality across families.Investment Bank Consolidation and Municipal Finance (G2, L4)
Abstract
Do investment banks possess market power, and does their consolidation have analogous effects as commercial bank consolidation? Using the geographically fragmented municipal bond underwriting market as a natural laboratory and a stacked difference-in-differences specification, I find that the underwriting spread rises by 5.3 basis points after within-market M&As from a sample mean of 103.0 basis points. The effects double for more significant M&As and triple in concentrated markets. While issuers become less likely to use credit ratings, bond insurance, or financial advisors, suggesting some efficiency gains to the M&As, these are too small to offset the rise in the underwriting spread. Effects hold when I examine M&As that are less likely to be driven by local economic dynamics and are absent in my placebo tests of cross-market M&As, commercial bank M&As, or withdrawn M&As. Using Census data, I confirm the detrimental effects of investment bank consolidation on local government financial health.My findings provide a novel perspective on bank antitrust regulations that traditionally focused on deposit-taking and lending activities. President Biden has expressed support for bank antitrust reform (Reuters, 2023) and signed an executive order directing the Justice Department to work with bank regulators to heighten the scrutiny of bank M&A deals (Reuters, 2021). The policy debate (Tarullo, 2022; Kress, 2022) has been informed by research showing that bank mergers cause branch closures, raise borrowing costs and fees, reduce credit access, endanger communities’ financial health and safety, and disproportionately impact low- and moderate-income communities (Garmaise and Moskowitz, 2006; Bord, 2018). My paper highlights an often-neglected aspect in bank antitrust scrutiny, market power in investment banking activities, that is beyond the traditional scope and yet has significant implications for both the security issuance outcomes and issuers’ overall financial health.
Is Internet Essential (and Sufficient) for Financial Inclusion? Evidence from Internet Essentials (G5, D1)
Abstract
We study the causal effect of internet access on low-income households' financial inclusion using granular household-level data and the panel variation of the availability of a subsidized internet accessibility program. Consistent with prior literature, we document a significant positive effect of internet access on employment and income. However, despite the income effect and reductions in information barriers, increased internet usage has no impact on equity ownership and only mildly increases low-income households' propensity to save. Our results suggest access to the Internet alone may not be sufficient for immediate improvement in low-income households' financial inclusion.Linearized GMM Estimator (C1, C3)
Abstract
It is well-known that nonlinear generalized method of moments (GMM) estimators often encounter computational issues when the moment conditions are over-identifying and nonlinear. To enhance computational properties, I propose a novel GMM estimator based on linearized moment conditions approximated around an underlying exactly-identified (or over-identified) parameter estimate. This estimator exhibits improved computational properties while maintaining first-order asymptotic efficiency. The enhancement arises from (i) the ensured strict local convexity and the known optimal value of the GMM objective function for estimating the underlying exactly-identified parameter, and (ii) the availability of a closed-form solution for the final estimate. In a simplified version of the estimator, the closed-form solution alone replaces the second stage of the two-step GMM estimator. For any given standard moment condition, I prove the existence of such an underlying parameter, and introduce a straightforward algorithm for its identification. The added dimensions in the underlying exactly-identified parameter can be estimated one element at a time, separately. The proposed method has been applied to Ahn, Lee, and Schmidt's (2013) panel data model with multiple time-varying individual effects.Long-Run Impacts of Fertility Restriction Policy on China's Gender Gap in Career Advancement (J7, J1)
Abstract
This paper examines the impacts of China's family planning policies in the 1970s (``Later, Longer, Fewer" campaign) on the long-term career advancement of men and women. Using a cohort Difference-in-Difference approach, I identify a significant gender gap in achieving managerial positions among those affected by the policies, with average exposure reducing these disparities by approximately 20\%. The narrowing of the gender gap is more pronounced for women in male-dominated industries, where they typically face greater work disadvantages due to the child penalty. Women more exposed to the family planning policies tend to seek college education, increase labor input, and rely less on offspring for old-age support, with no analogous findings in males, suggesting that human capital accumulation is a key mechanism for the narrowing of the gender gap in career outcomes. This paper underscores the capacity of policy interventions to influence labor market dynamics and foster gender equality.Longevity Pessimism, Misinformation and Pension Choice (J1, C9)
Abstract
To determine the value of a pension, individuals need to consider their survival risk. In this paper, I first elicit survival probabilities for a broad set of target ages, using a representative panel of the 18-70 year-old Swiss population. I document a systematic survival belief bias, which is the stylized fact that individuals underestimate their survival probabilities (compared to actuarial life tables). Then, I show that incorrect information about longevity in general is a substantial component of this bias. Next, I implement an incentivized experiment that requires subjects to make risky pension choices, in which payoffs are not affected by participants' own longevity. I find that longevity pessimism induces earlier and less risky choices about the timing of pension benefits, under annuity or lump-sum pension schemes. Finally, I show that happiness and satisfaction have an indirect effect on pension choices through the channel of longevity pessimism.Lottery Preference of Retail Investors and Stock Prices: Evidence from Two Prices of the Same Stock (G1)
Abstract
Exploiting the price gap between auction trading and block trading of the same stock on the same day in the exchange market and utilizing the unique feature that retail investors can only participate in auction trading, we identify the effect of retail investors’ lottery preference on stock prices. We find that the stock price is significantly higher under auction trading than under block trading and, more importantly, the price gap is larger for stocks with stronger lottery features. The effect is more pronounced when changes in market conditions lead to greater retail investors’ demand for lottery-like stocks. We further show that limits-to-arbitrage contribute to the persistent price gap. The higher the limits-to-arbitrage, the severer the overpricing caused by retail investors’ lottery preference. Finally, using the staggered relaxation of margin trading and short selling restrictions in China as a measure of reduced limits-to-arbitrage, we show that the overpricing under auction trading decreases after the restrictions are lifted.Manufacturing Wages and Labor Productivity, at the Local Level in Mexico, from 2003 to 2018 (C3, O4)
Abstract
The objective is to identify and analyze the main determinants, in addition to labor productivity, of wages in the manufacturing sector of Mexico, during the period from 2003 to 2018. To do this, we employ information from the economic censuses of the Mexican National Statistic Institute (INEGI). Additionally, the information has been complemented with data from the National Search Commission of the Ministry of the Interior and data from the demographic and society section of the INEGI. This study considers the territorial dimension and the impact that the economic characteristics of neighboring municipalities have on local salaries, due to their geographical proximity. To achieve this objective, spatial econometric specifications have been used that take into account the influence that neighboring municipalities have on local remunerations. A model is presented that includes around 5 explanatory variables and 11 control variables at the municipal level. The results indicate that there is a positive spatial relationship between remuneration and labor productivity at the municipal level of 0.28 pp to 0.3 pp., depending on the model and the measure of labor productivity.Marine Fishing Explains Large-scale Behavioral and Psychological Differences in Japan and Worldwide (O0, Q0)
Abstract
Recent scholarship has revealed the profound influence of past economic subsistence, focused primarily on farming and herding, on human culture. This paper adds to this literature by exploring cultural differences caused by marine fishing practices. Leveraging Japanas a natural test case and extending the analysis to 100 nations and 1,265 ethnic groupsworldwide, our data uncover what may be a novel cultural configuration of cultural traitsthat does not fit neatly with the prevailing individualism–collectivism dichotomy. On theone hand, respondents from regions more dependent on marine fishing exhibit holisticthinking and emphasize responsibilities in close relationships—markers of collectivism.They reflect the collective nature of marine fishing, which requires cooperation and mutualresponsibilities in dangerous seas. On the other hand, the respondents do not score higheron survey or Census measures of collectivism, and they draw weaker ingroup–outgroupdistinctions. These are hallmarks of individualism and are due to the flexible labor network and high mobility in marine fishing communities, which often bring fishermen intocontact with unfamiliar others. Alternative mechanisms that coastlines allow—such astrade or transportation—cannot, alone, explain these patterns. Together, these patternsadd nuance to previous studies that have effectively mapped herding and farming ontoindividualism and collectivism, and they potentially point to a hidden dimension of cultural variation.Market Prices and the Mirage of Informed Trading (G4, D4)
Abstract
This study delves into the intricate dynamics of financial markets, with a unique focus on the impact of misperception of informed trading presence on market prices. In a departure from traditional beliefs, our research uncovers a paradox where the mere belief in the presence of informed traders, regardless of their actual existence, can significantly inflate market prices, challenging the notion of market efficiency.Our study is underpinned by a rigorous theoretical framework bolstered by robust experimental evidence. We delve into the mechanisms by which market participants adjust their pricing strategies based on the perceived knowledge of others. A key aspect of our analysis is the distinction between actual informed trading activities and the market's perception of them. We employ a Bayesian model approach to how market makers update their beliefs about asset values in response to trades, which they attribute—correctly or incorrectly—to informed trading.
Our findings indicate that when traders erroneously believe in the existence of informed traders, asset prices increase noticeably. This phenomenon persists even without genuine informed trading, highlighting a psychological bias toward overestimating the precision of other market participants' knowledge. The experimental component of our study, involving simulated trading environments, provides empirical support for our theoretical predictions. Participants' behavior mirrored the anticipated mispricing dynamics, reinforcing that psychological factors play a significant role in financial markets.
This research contributes to the broader understanding of market efficiency and mispricing by shedding light on the impact of collective market beliefs. By illustrating how the illusion of informed trading can drive prices away from their fundamental values, our study calls for reevaluating market efficiency theories' assumptions.
Measuring Assortative in Marriage: Axiomatic and Structural Investigations (C7, D7)
Abstract
An active debate concerns the direction of change in assortative matching on educationin the US, because different measures yield different conclusions. To identify appropriate measures of assortative matching, I adopt an axiomatic approach: Start with the
properties a measure should satisfy and identify the measures that satisfy them. I find
that normalized trace (the proportion of pairs of like types) and the aggregate likelihood
ratio (Eika, Mogstad and Zafar, 2019) satisfy my basic equivalence and monotonicity axioms and are uniquely characterized by axioms with cardinal interpretations. They also
naturally extend to markets with singles and one-sided markets. The relation induced
by the odds ratio is the unique total order on two-type markets that satisfies marginal
independence, but it yields ordinal interpretation only and does not have a multi-type
extension (Chiappori, Costa-Dias, and Meghir, 2024). For multi-type markets, I show
the impossibility result whereby there is no total order that satisfies monotonicity and
the additional requirement of robustness to categorization (i.e., the assortativity order
holds regardless of the categorization of types). I apply the measures to shed light on
the evolution of educational assortativity in the US and other countries.
Mergers and Acquisitions, Market Power, and Efficiency (O4, L1)
Abstract
Mergers and acquisitions (M&A) can cause large changes to industry concentration and firm productivity. I develop a general equilibrium model of imperfect competition where firms can merge with other firms to analyze the impact of M&A on industry structure, firm productivity, and aggregate outcomes. By structurally estimating the model, I find the aggregate level and dispersion of markups that can attributed to M&A supports the view that mergers drive higher market power and do not result in large productivity-enhancing synergies. Despite this, counterfactual analysis shows that mergers tend to increase aggregate productivity and output as they reduce misallocation by reducing the overall dispersion of markups, both within and across industries. Despite a rich one-to-one roommate matching process to determine who merges with whom, I am able to characterize the pattern of matching and detail cases of the model that admit analytically tractable solutions.Middle East Trade Corridor and Its Possible Impact on India’s GDP (F1, F6)
Abstract
The Middle East Trade Corridor (METC) was co-signed by India, the United States and several other countries including United Arab Emirates, Saudi Arabia, France, Germany, Italy and the European Union during the G20 finale event in New Delhi last year. In this paper, we provide a detailed analysis of the erstwhile versions of the corridor through economic history and on the possible impact of this agreement on India’s GDP in the coming years using a customized version of the GTAP (Global trade analysis project). Using this multi-country multi-sector Computable General Equilibrium (CGE) model based on Input Output tables and trade data among other data components sourced from across the world and updated to the year 2023, we shall capture the inter-relationship between the supply chains in all the countries involved in the METC, and the cost savings and efficiency improvements stemming from the implementation of this project.We look at the economic potential in the corridor given the current economic realities of countries in the region, the possible advantages in terms of cost reductions including lower transport costs, easing of infrastructure and regulatory constraints and enhanced trade competitiveness from a global and a more specific Indian perspective. We would also look at the possible impact of this corridor on the state of global trade fragmentation if any given the large economies involved. Some of the questions that are to be explored include: What are the key trade related constraints that METC helps to solve? How does the historical and current perspective of this route make it geographically suitable for consistent trade? Through the combination of qualitative and quantitative techniques we hope to explore the nuances of the METC viz-viz-countries, products, regulation, trade barriers, its historical significance and cumulatively their impact on the Indian GDP in the short and medium term.
Misallocation with Capital Heterogeneity (E2, E1)
Abstract
This paper formalizes the role of capital heterogeneity in studying capital misallocation. We first propose a novel measurement framework incorporating heterogeneity and interactions among assets, then theoretically demonstrate: (1) ignoring capital heterogeneity causes underestimation of the cost of misallocation; (2) finer disaggregation leads to larger measured misallocation. Empirically, we find that the traditional measure assuming capital homogeneity underestimates the misallocation costs by up to 13%. Among different types of assets, equipment contributes the most to aggregate misallocation, up to 52% in the U.S. (and 72% in India). The interaction of different asset-level distortions also plays an important role (12%). Finally, to investigate the potential causes of heterogeneous asset-specific distortions and their joint effect on the aggregate economy, we construct and estimate a firm dynamics model with two categories of capital: equipment and structure. We decompose the equipment and structure misallocation into three main frictions: adjustment costs, information friction, and firm-specific factors. Among these, heterogeneity in adjustment costs and collateral constraints accounts for the large disparity in marginal revenue product of equipment vs. structure, while firm- specific factors can explain why the misallocation of various types of capital is usually correlated.Misperceived Law of Motion in Macroeconomic Expectations (E7, E3)
Abstract
Dynamic macroeconomic models typically involve both an actual law of motion that governs the evolution of macroeconomic indicators over time and a perceived law of motion that represents agents’ perceptions of the actual law of motion. When discrepancies arise between the perceived and actual laws of motion, they give rise to a misperceived law of motion.In contrast to the growing body of literature that provides suggestive evidence to support specific models with misperceived law of motion, this paper provides decisive evidence to detect misperceived law of motion in a broad range of models without relying on specific model structures.
The method is built upon a theoretical observation regarding the cross-covariance matrix of the consensus expectations reported contemporaneously and the corresponding outcomes. In general, the cross-covariance matrix is not symmetric. However, when perceived and actual laws of motion align, it becomes symmetric. This theoretical observation serves as the empirical basis for detecting the misperceived law of motion.
Furthermore, by utilizing the expectations of different variables and their forecasts over multiple horizons in survey data, one can detect various types of discrepancies. Applications of this method to the Michigan Survey of Consumers and the Survey of Professional Forecasters reveal that consumers oversimplify the processes of economic growth and inflation, while professional forecasters overcomplicate the interest rate dynamics.
Modeling the Relationship Between Student’s Perceived Ability to Pay for Postsecondary Education and Postsecondary Enrollment Using a Structural Equation Model (I2, H2)
Abstract
Low- to moderate-income children who are qualified for college are far less likely to attend college and graduate than high-income children due to concerns about the cost of college. Child development accounts (CDAs) are a fast-spreading policy that aims to address this problem by providing savings accounts with some type of contribution for postsecondary education. As of 2022, 128 local- or state-level CDAs exist across 38 states and DC. The most common type of program contribution is a seed deposit of less than $100.Given that the amounts provided by CDAs are typically small relative to the cost of postsecondary education, CDAs theoretically rely on psychosocial mechanisms. Theory suggests that CDAs foster a 'college- or career-going identity' – a vision of one’s future self that includes attending and graduating from a postsecondary school. Research shows that students with more salient college- or career-going identities are more motivated and achieve higher grades in school (Oyserman, 2006).
This research evaluates these proposed psychosocial mechanisms using a nationally representative dataset that follows students through high school and tracks their postsecondary outcomes. Using structural equation modeling (SEM), I model the relationship between a student's perceived ability to pay for postsecondary education and subsequent educational outcomes, including mediators and moderators. My analysis reveals that beliefs about the ability to afford college indirectly significantly affect postsecondary education. This path is mediated by parents' and students' postsecondary expectations in 9th grade, students' perceived utility value of school, and their academic abilities. This evidence suggests that psychosocial levers are mechanisms that economic policy (such as CDAs) can target to increase education outcomes.
These findings have important implications for public policy more broadly. They demonstrate how psychosocial mechanisms can boost the effects of economic policies, generating higher government ROIs.
Monetary Policy and the Dynamics of Wealth Inequality (E5, G5)
Abstract
I provide new evidence that monetary policy plays a significant role in driving persistent wealth inequality in the United States. Using local projections with the Distributional Financial Accounts and high-frequency identification, I find that contractionary monetary policy disproportionately reduces the net worth of the bottom 50% of households by wealth. Heterogeneous portfolios explain the disparity of responses: the top 1% of households suffer from reduced equity prices while the bottom 50% suffer from leveraged house price declines. I show that monetary contractions generate larger net worth responses than monetary easings of similar magnitude, driving persistent wealth gaps.Money, Barter and Direct Search: Its Coexistence and Market Clearance (E4, E5)
Abstract
This paper shows an optimal quantity of money that maximizes welfare in decentralized markets with a direct search mechanism. If the money supply is less than optimal, barter and monetary exchange may coexist when agents engage in a barter exchange as a substitution. This implies that agents barter when there is a shortage of money, alongside trading with money. Without the Walrasian auctioneer, money is shown to attain market clearance within one period. The imperfect information from the agent’s preference leads to a low probability of matching is sufficient for the role of money.Nation Building Through Harmonizing Ethnic Groups: The Role of Information and Emotional Nudges (C9, O1)
Abstract
We evaluate the effectiveness of an innovative intervention designed to diminish prejudicial attitudes while fostering compassion, trust, and collaboration between two ethnic groups in a context where close contact between the two ethnic groups is minimal. To evaluate the efficacy of our intervention, we use a cluster randomized controlled trial aimed at both ethnic groups within the Jaffna and Hambantota districts of Sri Lanka. We examine the influence of two documentary films prepared to raise awareness regarding the lifestyles, cultures, and challenges faced by both ethnic communities, with the overarching goal of reshaping prevailing ethnic norms. We exploit the information, empathy, and emotional channels inherent in documentary videos, facilitating access to novel information while simultaneously eliciting empathy and emotional responses to alter norm and behavioural change. We randomly selected villages into treatment group and control group from both districts. The treatment group was exposed to a documentary focusing on ethnic harmony, while the control group watched a documentary of similar duration centred on rainforests. We also conducted surveys on untreated individuals residing in treated households in treatment villages at baseline and endline, to investigate potential spillover effects of the intervention. We carried out three incentivized lab-in-the-field experiments, encompassing the trust game, ultimatum game, and the prisoner's dilemma, involving participants from both ethnic groups, to assess the levels of trust, compassion, and collaboration. Our findings unveil substantial reductions in prejudicial attitudes within both ethnic groups toward one another. Moreover, we observed significant improvements in attitudes of compassion and collaboration. Our results remained robust, accounting for social desirability bias. The information, empathy and emotional channels emerged as the three important underlying mechanisms driving these changes in outcomes. This research underscores the imperative of fostering positive intergroup relationships within diverse and conflict-prone societies, ultimately advancing the cause of nation-building.News Shocks, Consumer Confidence, and Business Cycles (E3, E2)
Abstract
This paper studies the dynamic effects of changes in consumer confidence on the macroeconomy of the US. I construct a new instrument based on non-economic news to identify exogenous changes in consumer confidence. I document all major non-economic news events for the 1969-2022 period and construct a relative positivity score for them by studying the public opinion polls around them. The relative positivity score is the difference between percentage of people responding positively and percentage of people responding negatively to a news item. Diagnostic tests show that this instrument explains significant variation in consumer confidence and is uncorrelated with economic fundamentals. Using this instrument in a proxy-VAR shows that increase in consumer confidence causes a significant and persistent increase in consumption and output, and a decrease in unemployment. I check the robustness of these results by constructing another instrument that uses data from the Survey of Professional Forecasters to measure the difference between actual and predicted values of economic fundamentals like output and inflation. Using this measure of unanticipated economic news in the empirical analysis confirms most of the baseline results.Not All Policies Are Created Equal: Impact of Different Climate Policy Instruments on Sustainable Investments (E6, Q5)
Abstract
We quantify the dynamic effects of different climate policy instruments for inducing sustainable investments, using a local projection approach that estimates the average change in sustainable investments from pre-policy levels across countries. Policy support, strategies and targets (PST), which account for the lion’s share of climate policies in emerging and developing economies (EMDEs), lead to a 23% increase in sustainable investments in the immediate years after policy announcement, although the effect is short-lived. Regulatory instruments induce a 46% increase in investments from the year prior to policy decisions. Further, we find regulatory instruments induce higher investments especially in electric vehicles and renewable energy. The positive impact of economic instruments on investments, however, is statistically insignificant. Delving into the economic channels, we find that regulatory instruments help sustain the growth of business ventures in the sustainability industries that are more matured at the costs of stifling new business venture activities, whereas policy support, strategy and target policy decisions help stimulate new business ventures in the short run, although the positive effect may be short-lived, and these businesses need not necessarily be able to secure more rounds of funding.On the Persistence of Negative Real Rates: A Habit Formation Approach (E4, O4)
Abstract
Negative real short-term rates occur with much higher frequency after the turn of the millennium than in the 40 years prior. This phenomenon corresponds with a significant drop in growth. Using a standard representative agent consumption-based asset pricing framework with external habit, and persistent and heteroscedastic growth, we structurally link declines in the permanent component of growth to real short rates operating through a plausible utility curvature that is near two. The key behind connecting growth to real rate variation relies on the assumption, used by habit formation models, that surplus consumption is procyclical. Declines in the conditional variance of growth during this period play a very limited role in explaining real rates. Our framework does not appeal to an explicit monetary policy or recursive utility to explain real rate behavior. To avoid look ahead biases in macro data, we build a novel quarterly real time data set for consumption growth and inflation from 1958 to 2023. Predictions from our adapted habit formation framework have a 70% correlation to the real rate and explain almost half of its prepandemic variance. Model real rate projections correctly predict over 60% of quarters when realized rates are negative—consistent with a permanent slowdown. Our nominal short-rate predictions are near perfect.One-Child Policy, Skill-Biased Technology, and Growth Prospect of China (O4, J1)
Abstract
In this paper, we aim to study whether China's one-child policy (OCP) affects the human capital investment of the parents, and if yes, whether the resulting increase in the supply of high-skilled labor induces firms to adopt skill-biased technology. First, we use micro data to show that plausibly exogenous variation in strictness in implementing OCP in 1982 is positively related with a higher fraction of high-skilled workers manufacturing firms in 2004. Firms that hire more high-skilled workers invested more in R\&D and adopted more computers in mid-2000's decade. Second, we employee an overlapping generations (OLG) framework to study the macroeconomic effect of the OCP on the endogenous technology choice and economic growth.Optimal Design of Climate Disclosure Policies: Transparency versus Externality (G1, Q5)
Abstract
Does a more transparent climate disclosure policy induce lower emissions? This paper analyzes the welfare consequences of transparency in corporate disclosure regulation in an environment in which regulatory disclosure constitutes the sole avenue for the verification of a firm's emissions. On the one hand, a potential trade-off between disclosure transparency and externality suggests a non-monotonic relationship between them. On the other hand, increased transparency never makes the firm worse off. These observations imply that (i) increased disclosure transparency cannot induce lower emissions once the disclosure policy is already efficient; (ii) mandating full disclosure is no different from maximizing the firm's private benefit while disregarding the ensuing externality. When the regulator is symmetrically informed about the firm's energy efficiency level, transparency beyond binary disclosure does not lead to welfare improvements. In the presence of information asymmetry, the welfare-maximizing disclosure takes a threshold form: all emissions above the threshold are pooled together, whereas all emissions below are fully disclosed.Optimal Talent Hoarding (M5, J4)
Abstract
This paper develops a relational contracting model to study how the managers can best motivate and keep their workers when the worker's promotion opportunity is the manager's private information. Managers would like to keep the capable workers as long as possible. But doing so unduly will de-motivate the worker. The optimal relational contract has three phases.In the first phase, talent hoarding occurs so that the worker will not get promoted even if the promotion opportunity is available. In the second phase, the worker exerts effort and gets promoted when there is an opportunity. In the third phase, the worker gets promoted when there is an opportunity, but he will shirk.
Effort is efficient in the first phase, while allocation is inefficient. In the second phase, both effort and allocation are efficient. In the third phase, allocation is efficient, while effort is not. More capable workers suffer more from talent hoarding. Higher frequency of promotion opportunity intensifies talent hoarding.
Ordered Probit Model with an Artificial Neural Network for Predicting Potential Consumer Ratings on Amazon Software Reviews (C5, M0)
Abstract
This paper proposes a deep-ordered probit (DOP) model to predict an ordinal dependent variable by combining a classical ordered probit model framework with artificial neural networks (ANNs). An ANN with sufficient hidden nodes in the hidden layer can accurately approximate continuous nonlinear functions in Euclidean space based on the universal approximation theory and capture nonlinear relationships among independent variables while mitigating functional misspecification errors. Accordingly, in this paper, the ANN is used to approximate a nonlinear function for the unobservable continuous dependent variable in the DOP model. Unknown parameters for coefficients and unobservable cut points in the DOP model are estimated through maximum likelihood estimation (MLE). Star ratings in online product reviews are ordinal variables and reflect the strength of consumer preferences. If a seller on a digital platform predicts potential consumers’ star ratings well, then they will know better who is more likely to be satisfied with their product, which can improve business decisions. This paper designs counterfactual predictive experiments to predict potential consumer ratings for Amazon software products without post-purchase information. In detail, the DOP is used to predict potential consumer ratings of Amazon software products in five-star ratings, three classes, and modified three classes. The DOP outperforms the classical ordered probit model for three predictive experiments in the macro-average F1-score. Additionally, uneven distribution of class in the dataset may affect the predictive performance gap between the DOP and the ordered probit model. However, the DOP does not present the predictive performance for the negative class in three predictive experiments. The framework and approaches of the DOP model can be applied to predict ordinal responses in many different domains and be extended to data-driven discrete choice models in the future.Overstaying Their Welcome: Unevictable Tenants, Rents, and Home Prices (O1, R3)
Abstract
I explore the impact of Virginia’s eviction moratorium on rents and home values across the state. Using panel data and a differences-in-differences research design, I show that both rents and home values decreased post-moratorium compared to surrounding states. One might expect landlords to raise rent to compensate themselves for the risk of an unevictable tenant, but my results show that landlords are unable to obtain such compensation. Forced to rent to economically distressed tenants with little recourse, landlords suffer a prolonged and escalating decline in property values that exceeds the benefits of rental price declines reaped by the tenants.Participation, Selection and Indicative Bidding in Auctions with Costly Entry: An Experimental Approach (D4, L1)
Abstract
We test the performance of indicative bidding in auctions with costly entry where potential bidders have incomplete information about their private, affiliated values of the asset prior to entry. We analyze indicative bidding's effectiveness in encouraging participation in the auction and in selecting the participants with the highest valuations to enter the bidding stage. We find that when the entry cost is high, indicative bidding generates significantly more revenue than two benchmark entry mechanisms due to a significantly higher participation rate. When the entry cost is low, the predicted revenue advantages of indicative bidding are dampened by less efficient selection than predicted by theory.Patent Protection and Innovative Entrepreneurship (O3, D4)
Abstract
Does patent protection promote business creation and technological progress? The effect is theoretically ambiguous. We use a unique empirical setup created by Alice Corp. vs. CLS Bank International US Supreme Court ruling, which reduced the strength of software patents, on US startups. Post-decision, software startups faced difficulties securing venture funding and acquisitions, but a decreased rate of non-monetized exits and an increased probability of IPO. This resilience can be attributed to the newfound ability to counter lawsuits. We document a surge in cases seeking patent invalidation specific to software, whereas claims of non-infringement remained constant.Place-Based Policies, Creation and Reallocation Effects on City Exports: Insights from China's Cross-Border E-commerce Comprehensive Pilot Zones (R1, F1)
Abstract
This paper has empirically investigated the effects of China's Cross-Border E-commerce Comprehensive Pilot Zones (CPZs) on city exports, with a keen focus on both the direct impacts within CPZ cities and the spillover effects on neighboring areas. Our comprehensive analysis, underpinned by robust empirical strategies including the DID method, event studies, placebo tests, and concentric ring analysis, confirms that the establishment of CPZs significantly boosts exports in both the CPZ host cities and their surrounding regions.Firstly, our findings reveal that CPZs lead to a notable increase in total exports for cities hosting these zones. Specifically, we observe an 8% growth in exports by the location of exporters and a 4% increase by the location of domestic producers in CPZ cities. This differential impact underscores the CPZ program's varied effects on participants playing different roles in the export industry. Secondly, the investigation into spillover effects unveils that CPZs exert a positive influence on exports in neighboring areas, suggesting the program's broader economic benefits beyond the immediate regions of implementation. The presence of CPZ cities within a province catalyzes export growth in non-CPZ cities, highlighting the program's capacity to foster an enabling business environment and disseminate advanced management practices across wider geographical areas. Moreover, our analysis extends to the creation of export-related new firms, indicating that CPZs not only contribute to export growth but also encourage entrepreneurial activities in the export industry. This finding is particularly pronounced for wholesale and retail firms within both CPZ host cities and neighboring cities. Manufacturing firms are more likely to register in neighboring cities after the CPZ implementation.
Political Fragility: Coups d’État and Their Drivers (O1, P0)
Abstract
The paper explores the drivers of political fragility by focusing on coups d’état as symptomatic of such fragility. It uses event studies to identify factors that exhibit significantly different dynamics in the runup to coups, and machine learning to identify these stressors and more structural determinants of fragility—as well as their nonlinear interactions—that create an environment propitious to coups. The paper finds that the destabilization of a country’s economic, political or security environment—such as low growth, high inflation, weak external positions, political instability and conflict—set the stage for a higher likelihood of coups, with overlapping stressors amplifying each other. These stressors are more likely to lead to breakdowns in political systems when demographic pressures and underlying structural weaknesses (especially poverty, exclusion, and weak governance) are present or when policies are weaker, through complex interactions. Conversely, strengthened fundamentals and macro policies have higher returns in structurally fragile environments in terms of staving off political breakdowns, suggesting that continued engagement by multilateral institutions and donors in fragile situations is likely to yield particularly high dividends. The model performs well in predicting coups out of sample, having predicted a high probability of most 2020-23 coups, including in the Sahel region.Precautionary Motives in Optimal Corn Seeding Rate Decisions (Q1, D2)
Abstract
This study examines the impacts of farmers’ precautionary motives on optimal corn seeding rate decisions. Our conceptual model indicates that precautionary motives alter optimal seeding rate decisions of a risk-averse producer when seeding rate impacts yield variability. Our model indicates that seed is a marginally risk-reducing input if it decreases yield variability, and marginally risk-increasing if it increases it. Our model also demonstrates that under DARA utility, an increase in the seed cost to output price ratio reduces optimal seed use whenever seed is marginally risk-increasing. Conversely, if seed is risk-reducing, the effect is ambiguous. In addition, under DARA utility higher risk aversion and greater yield risks both increase the optimal seeding rate when seed is a marginally risk-reducing input and decrease it when seed is marginally risk-increasing. Drawing upon agronomic field experiments conducted in Ohio and Illinois from 2012 to 2016 and employing a novel flexible production technology, our empirical analysis and simulations reveal that yield variability’s response to seeding rate is U-shaped. Increasing the seeding rate diminishes production risk when the seeding rate is under a specified threshold and amplifies it when that threshold is exceeded. We find that corn seed is marginally risk-reducing in Ohio and marginally risk-increasing in Illinois given the seed and grain prices during the experimental period. As a result, precautionary motives trigger a 0.2% increase in seed use in Ohio and 0.19% decrease in Illinois. We find that implementing crop rotation and no-tillage production practices can aid in reducing yield risks while conservation tillage lead to higher yield risks. Our simulations also indicate that yield insurance decreases the optimal seeding rate for both risk-neutral and risk-averse producers in Ohio and Illinois. Finally, we evaluate the environmental impacts associated with changes in seeding rates with a particular focus on their effects on bird biodiversity.Preparation or Barriers to Entry? A Quasi-Experimental Study on the Effects of High School Science on College Major Choices (H5, I2)
Abstract
This paper evaluates the impact of the FY2011 federal budget cut on secondary Career and Technical Education (CTE) outcomes using a quasi-experimental design. Traditionally, the federal government funded secondary CTE through two types of grants: a general state grant and the Tech Prep grant, as outlined in the Carl D. Perkins Vocational and Technical Education Act of 2006. The FY2011 budget cut led to the elimination of separate budgets for Tech Prep programs, resulting in varied impacts across states, depending on their reliance on federal funds for these programs. This study leverages the variation between states that maintained dedicated Tech Prep budgets and those that integrated these funds into the general state grant prior to the budget cut, employing a Difference-in-Differences approach. Utilizing data from multiple waves of high school surveys, the study examines a broad range of educational and labor market outcomes, thus filling the gap in understanding the effects of federal budgetary decisions on secondary CTE.Pride and Prejudice: LGBTQ Curriculum Laws and School Choices (I2, K0)
Abstract
LGBTQ-related curricular laws are essential to protect LGBTQ students' health and well-being and facilitate their academic success. In this paper, we study how LGBTQ-related curricular laws, including LGBTQ-inclusive curricular standards and negative laws that restrict the discussions of homosexuality and LGBTQ people in school curricula, impact the choice of public schools versus private schools, as these laws generally do not apply to the latter. If these laws significantly change the demand for private schools, we want to know if private schools enter or exit the market accordingly.We employ the data from the 2005-22 American Community Survey and the 2000-22 Private School Universe Survey and link them to the state-level LGBTQ-related curricular laws from 2000 to the present. Given the treatment's staggered nature, we employ the alternative two-way fixed-effect estimator developed by Callaway and Sant'Anna (2021).
Our preliminary results suggest that LGBTQ-related curricular laws do not significantly impact total K-12 school enrollment. However, inclusive laws increase the probability of a school-aged child enrolling in a private school. The increase is more significant in rural areas and among parents without a college degree. We do not find that the private school enrollment increase varies by the school's religiosity, nor do we find a significant increase in market entry of new private schools.
Additionally, we find that the enactment of negative LGBTQ laws leads to a decreased propensity for private school attendance, but the changes are only statistically significant in some specifications. The decrease is likely driven by the repeal of the "No Promo Homo" laws that first emerged amidst the HIV/AIDS crisis in the late 1980s. The newly passed anti-LGBTQ curricular laws were broader and more restrictive. However, they were only introduced in a few states in the last two years of our sample period.
Prospect Theory Revisited: Risk Attitudes and Financial Decision-Making Across Cultural Contexts (G4, D9)
Abstract
Building upon the concept of delta parameter (Crawford & Ostrom, 2005) and prospect theory (Kahneman & Tversky, 1979), we introduce a theoretical model showing how the cultural background of an investor impacts trading decisions. A simulation exercise allows us to visualize a discontinuity suggesting that the cultural background of an individual changes the curvature of the decision function, indicating different sensitiveness to the prospect of a loss or a gain. The theoretical model is tested empirically using Hofstede’s Culture Compass data. The theoretical simulation and empirical test suggest that culture has the potential to magnify such behavioral bias affecting capital market efficiency. we claim that culture influences an individual’s internal valuation of probable gains and losses, which ends up affecting how risky or uncertain situations are approached. The claim is supported with a theoretical model and tested with a simulation incorporating selected information from Hofstede’s Cultural Compass. The simulation suggests that the cultural background of an individual modifies the shape of the decision function. Even if traders have the same degree of risk aversion/tolerance, cultural differences will result in different value appraisals and, hence, trading decisions. The present theory can be generalized to accommodate such effects, but it is questionable whether the gain in descriptive validity, achieved by giving up the separability of values and weights, would justify the loss of predictive power and the cost of increased complexity. The better we understand the relationship between these informal institutions and actual financial decisions, the better these effects can be incorporated in predictive models.Quantitative Analysis of Climate Heterogeneity via an Unconditional Quantile Vector Error Correction Model (C5, Q5)
Abstract
Econometric modelling of climate systems requires procedures that account for the well-documented heterogeneity in climate dynamics across space and time. This paper introduces a novel time-series methodology to analyze heterogeneity in temperature distributions and their association with climate forcings. The approach employs a Vector Autoregressive Model (VAR) for a range of unconditional distributional characteristics of temperature—mean and quantiles—alongside the radiative forcing of Greenhouse Gases (GHGs), including carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). The empirical analysis is conducted across three geographical scales: the Globe, the North Hemisphere, and Europe, utilizing station-level data from the Climatic Research Unit (CRU) during the period 1880-2021. At these scales, the temperature unconditional quantiles represent temperature at different latitudes, and the results are comparable to the predictions of One-Dimensional (1D) Energy Balance Models (EBMs). However, the methodology can be adapted to more general situations with limited spatial variation, assuming there is sufficient cross-sectional or higher frequency data to derive the unconditional distributional characteristics of temperature. The proposed methodology serves various purposes, including: i) estimation of physical parameters like the climate sensitivity, ii) forecasting, iii) identification of shocks and impulse-response analysis, and iv) predictions of temperature under different emissions/concentrations scenarios. Achieving these objectives across different parts of the temperature distribution provides a deeper understanding of global warming dynamics, with significant implications for future research and policy-making. This contribution is related to the literature on the attribution and forecasting of global warming using historical data, as well as to the literature on the estimation and testing of time-series models with (deterministic) co-trending.Rational Bubbles with Competitive Fund Managers (G1, G2)
Abstract
Financial bubbles are often described as the result of behavioral biases and financial constraints. The theoretical model presented in this paper shows how a rational expectation equilibrium (REE), where asset prices can deviate from their fundamental value, can still exist in a world with agents rationally and unbiasedly evaluating an asset's future return. Price deviation is the result of risk-averse fund managers endowed with different information sets who compete to outperform each other. A higher degree of competition leads to larger price deviations and worse risk-adjusted returns. However, competition enhances investors' ability to separate different types of managers, thus creating a trade-off between hampering excessive asset price growth and fostering informed trade identification.Reaching for Income: Dividend-Paying Stock Investments by Insurance Firms (G2)
Abstract
The catering theory of dividends posits that companies issue dividends to cater to investors' desires for high-dividend stocks. Insurance firms, a group of important institutional investors seeking stable income, are a desirable client of these stocks. This makes them a target for companies looking to attract dividend-seeking investors. In this study, we delve into holding and transactions of insurance firms to understand the specific drivers to invest in dividend-paying stocks. We find that insurers invest more in stocks paying dividends, especially those paying high dividends. A decline in dividend payments results in a significant drop in insurance ownership and vice versa. Specifically, a 10 percent drop in a firm's dividend payment leads to a 8% decrease of the holding of insurance firms in such stocks. Our analysis reveals that companies with significant holdings by insurers are more inclined to distribute dividends and less likely to reduce them. This strongly supports the catering theory, expanding our comprehension of investments in dividend-paying stocks. Understanding the preferences and behaviors of institutional investors, such as insurance firms, provides valuable insights for firms when crafting dividend policies.Rewiring Repo (G1, E4)
Abstract
We develop a model of the repo market with strategic interactions among dealers who compete for funding in a decentralized OTC market and have access to an anonymous centrally-cleared interdealer market. This ``wiring'' of the repo market combined with dealer's strategic competition for funding could result in inefficiencies and instability. The model allows us to disentangle supply and demand factors that determine the clearing of excess demand for cash in the centrally-cleared market. We estimate the supply and demand factors along with the supply and demand elasticities. We determine conditions under which the market could become unstable as a result of strategic complementarity of actions and the endogenous market clearing conditions in the centrally-cleared market. Our results are important in designing efficient market interventions to stabilize the market as well as in understanding how monetary policy tools such as the ON RRP and the Standing Repo Facility (SRF) affect repo markets.Risk as Excuses for Selfishness: Evidence from Public Good Games with Rice Farmers in Four Developing Countries (D9, C9)
Abstract
The provision of public goods in developing countries is a central challenge, often placing individuals in social dilemmas. Existing literature has shown that risks related to public goods can undermine cooperation. While conventional theories predict that risks can impact individuals’ decisions to contribute to public goods based on risk preferences, recent literature on moral reasoning suggests that risks (or uncertainties) can also be used as excuses to act egoistically while feeling moral within social contexts―a phenomenon known as excuse-driven risk preferences.In this paper, we investigate how excuse-driven risk preferences affect individual decisions and explore how these preferences could be attenuated or amplified under different risk conditions. We conduct a lab-in-the-field experiment with rice farmers in four developing countries. In the experiment, rice farmers play modified public good games, framed as irrigation games. The experiment begins with a baseline treatment where no risk is associated with either private or public investments. Subsequently, we introduce four additional treatments, each introducing different levels of risk: risk introduced to private investment, risk introduced to public investment, risk in private investment with an additional option of reduced variance, and risk in public investment with an additional option of reduced variance.
We find that compared to the baseline treatment, introducing risks over public investment reduces farmers’ cooperation while introducing risks over private investment increases their cooperation. However, providing an additional option of reduced variance in the public investment restores farmers’ contributions to the public good while the same option in the private investment does not yield the same effect. Econometric analyses indicate that traditional economic theories focused on pure risk preferences or altruism fail to explain our findings, as they do not significantly predict farmers’ cooperation behaviors or switching behaviors. We suggest an alternative explanation: rice farmers employ risk as a pretext for selfishness.
Risk Taking under Assimilation and Contrast: Theory, Experiments, and Applications (D9, G4)
Abstract
Field evidence suggests that gradual changes are often not obvious to agents, but large andsudden changes frequently result in overreactions. I develop, apply, test, and structurally estimate a
portable model of history-dependent decision making under risk that produces this phenomenon (known
as the boiling-frog eect) as the interaction between memory and attention. If a risky prospect looks
similar to the past, it does not catch attention. If it is very dissimilar, it is contrasted away from the
past and receives too much attention. I provide an experimental test of the model and display evidence
of four novel eects of history-dependent risk preferences: (i) assimilation, (ii) contrast, (iii) the boilingfrog and (iv) a recency eect. The model parsimoniously reconciles some pricing anomalies in asset and housing markets and provides a novel comparative static.
Role of Government Policies in Smoothing Borrowers’ Spending during Stress: Evidence from UK Mortgage Moratoria (E2, D1)
Abstract
We use UK transaction-level data to study whether nationwide mortgage moratoria, or paymentholidays (PH), can act as a mechanism for smoothing mortgagors’ consumption following negative
aggregate shocks. We find that both borrowers with pre-existing financial vulnerabilities
and with stronger balance sheets, including buy-to-let investors, had an incentive to access the
policy. This is not surprising since PH were available to all mortgagors and without affecting
households’ credit risk scores. Using a quasi-experimental DiD research design based on eligibility,
we find that the PH allowed liquidity-constrained households to smooth consumption during
the pandemic relative to the control group. By contrast, other mortgagors did not seem to increase
consumption relative to the control group, preferring to save the liquidity relief provided
by PH. Overall, we find evidence that PH were able to support consumption of more vulnerable
households, who are more likely to pull away from consumption during stress periods.
Roll the Boeings: Corporate Risk Aversion an Expected Payoff Model (D2, G3)
Abstract
This paper explores corporate risk management by testing and calibrating a model of the two lotteries choice. Over the past few years, Boeing has had a range of issues with several of its aircraft programs, in both the commercial aviation and military aviation sectors. The highest profile of these is the 737 Max 8. This paper examines public information and reporting to explore the decision-making processes that lead to these issues at Boeing through an economic lens and investigates how corporate decisions fit into our known economic modeling of decision-making.This paper will examine if Boeing was making the highest expected payoff choice selection in its engineering decisions and if it was risk averse, or risk-seeking, in its decision-making regarding what design choices to pursue. The paper will also look to tune and uncover the risk premiums Boeing may be using in these decisions and test if they seem like rational values, or if Boeing has been extremely risk-seeking in chase of profits. Public information including stock price fluctuations and publicly known settlements with families, governments, and other companies in the aviation space, as well as earnings calls and other reporting on costs and earnings of proposed alternatives are used to test my hypothesis.
Several discounted cashflow models will be constructed with several different possible worlds, lotteries, that Boeing may have been choosing from. Values for risk probabilities and risk aversion can then be tuned to see where certain decisions were payoff maximizing for Boeing. Real-world information can then be used to approximate the real-world values of these variables to examine if Boeing made a rational, expected payoff maximizing choice, and if Boeing was extremely risk-seeking in their behavior choosing options with high payoffs, but also high downsides should they be on the losing side of the lottery.
School Starting Age and Lifetime Obesity (I0, I2)
Abstract
This study examines the impact of school starting age (SSA) on lifetime obesity in China. Using regression discontinuity methods, we find a reduced prevalence of adolescent obesity among individuals born immediately after the cutoff date for primary school enrollment. Furthermore, the influence of SSA on obesity proves to be persistent, as evidenced by a decreased incidence of adult obesity among those who entered school later. While existing literature has illuminated the effects of SSA on educational outcomes, and consequently on health, our findings underscore its direct and significant implications for individuals’ health early in life, leading to sustained effects on their overall health status throughout their lifetime.Shattering the Silicon Ceiling: Gender Pay Gaps and Leadership Gaps in the Tech Industry (J7, J3)
Abstract
Purpose: This study aims to investigate the gender pay gap and glass ceiling phenomenon in the Information Technology (IT) sector, aiming to dissect the extent of the discrimination component. It seeks to provide a comprehensive understanding of the intricate dynamics of gender inequality within a crucial sector.Methodology: Analysing a dataset from 115 firms encompassing 80,112 individuals, the study employs counterfactual decomposition across means and distributions to identify discrimination. Designations were individually classified based on average level and subject domain, while companies were categorised by ownership structure and global employee size, allowing for a nuanced analysis of gender disparities.
Findings: The research uncovers a significant gender pay gap of 31.5%, illustrating that while women comprise nearly half of the Junior level jobs, they occupy only 13% of Top-level roles, including merely 2 females each out of 28 CEOs and 51 designations of presidents/vice-presidents. The analysis confirms that the wage gap extends beyond glass ceiling effects, indicating systemic discrimination, both widening at higher income quantiles. Notably, foreign firms exhibit higher gender disparities compared to their Indian counterparts.
Originality: This study uniquely quantifies the gender pay gap and glass ceiling within the Indian corporate structure, utilising a unique dataset truly reflective of the workforce, making it a first in this field's empirical research.
Implications: The study's findings challenge the meritocratic notion of the IT sector by highlighting systematic biases, especially in senior roles. It calls for gender auditing and structural reforms to mitigate the underrepresentation of women in leadership and address biases in the corporate structure.
Shirking Under Political Connections: Evidence on Corporate Environmental Performance from the Low-Carbon City Program in China (G3, Q5)
Abstract
Following the commitment to the “double carbon” goals by the United Nations, China’s deepening low-carbon transformation is poised to significantly impact firms’ decarbonization efforts, including improvements in environmental performance. However, many studies have overlooked the impact of political connections on the effectiveness of low-carbon policies. This study utilized listed firms in China for 20082017 for a comprehensive dataset and evaluated the effectiveness of a low-carbon city pilot (LCCP) policy on firms’ environmental performance from the perspective of their political connections, using a staggered difference-in-differences (DID) model. The results showed that the environmental performance scores of firms with central- and provincial-level political connections decreased after the LCCP implementation, especially in highly polluting industries. Mechanism analysis revealed that firms with access to green subsidies invest in their fixed assets rather than green innovations, which may distort resource allocation and policy effectiveness. Heterogeneity analysis further clarified that the robustness of LCCP implementation strengthened with the number of policy measures introduced by local governments. Conversely, the effectiveness of LCCP through political connections weakened, coinciding with a decrease in the five dimensions of firms’ environmental scores. The findings have important policy implications, suggesting that policy effectiveness may be compromised when influenced by political connections, urging policymakers to consider these dynamics in designing and implementing environmental regulations.Should I Mail or Should I Go: Voting Behavior After a One-Time All-Postal Election (D7, H1)
Abstract
We examine how eligible voters in Bavaria, Germany, change their voting behavior after some of them experience mail-in voting for their first time. Exploiting a natural experiment during the COVID-19 pandemic, when the runoff election in the 2020 mayoral election was an all-postal election, we employ an event study using municipality-level data. The findings indicate a robust but temporal positive effect on total turnout in the first subsequent election, with an increase of 0.5 percentage points, on average, and a lasting positive effect on mail-in turnout, with an increase of 1.1 percentage points. In-person voting is persistently shifted by 0.5 percentage points, on average, towards mail-in voting. The effect is stronger for small municipalities and for municipalities with a low voter turnout in the last federal election. These results contribute to the understanding of how citizens' behavior changes when more information about mail-in voting reduces cognitive costs and habit formation in voting behavior.Skin Tone Penalties. Bottom-up Discrimination in Football (J7, Z2)
Abstract
This paper investigates colorism, racial discrimination based on skin color, in men’s football. Firstly, using machine learning algorithms, we extract players’ skin tones from online headshots to examine their impact on fan-based ratings and valuations. We find evidence of a skin tone penalty, where darker-skinned players face lower fan-driven market values and ratings. Secondly, using algorithm-based ratings and employing a Difference-in-Discontinuities design with geolocated penalty kicks data, we show that lighter-skinned players enjoy a premium higher by 1.25 standard deviations than their darker-skinned peers, conditional on scoring a penalty. Additionally, we find evidence that non-native players with dark skin face a double penalty. Leveraging the COVID-19 pandemic as a natural experiment, we highlight the role of fans’ stadium attendance in algorithm-based results. The findings underscore direct skin tone discrimination in football and highlight fans’ role in perpetuating algorithmic bias.Social Media Influencers' Race on the Adoption of Healthy Behaviors (Z2, I1)
Abstract
This research examines the impact of social media influencers' race, comparing Black and non-Black fitness coach influencers, on the adoption of healthy behaviors among marginalized populations. Through pre- and post-intervention assessments, the study investigates whether the influencer's race significantly influences exercise intentions and health behaviors. By focusing on communities facing barriers to health equity, the research aims to amplify voices by scrutinizing the influence of culturally relevant role models on health behavior. Using behavioral economics such as nudging and choice architecture theories, the study explores how presenting health-related information through influencers of different races may act as a subtle nudge, influencing individuals' exercise intentions and health behaviors. The methodology prioritizes inclusivity and accessibility, recognizing diverse factors beyond racial backgrounds. By setting a precedent for equitable research practices, this study contributes to the significance of Diversity, Equity, Inclusion, and Accessibility (DEIA) principles in research, advancing the pursuit of social justice and overall well-being.Sovereign Default and Labor Market Dynamics (F3, E6)
Abstract
This paper investigates the propagation of shocks through the employment-default-risk nexus. Countercyclical default risk restricts the government's borrowing ability and engenders a procyclical fiscal policy. During a recession, an expectation of future fiscal tightening discourages agents' incentives to create jobs and accelerates job destruction, leading to prolonged unemployment. The slack labor market, in turn, deteriorates the bond market and strengthens fiscal procyclicality. Our model suggests a debt-dependent transmission of shocks and a close connection between default risk and employment inflows and outflows. A time inconsistency problem arises because the government underestimates the adverse impact of higher tax rates on the value of an employment position in past periods. Imposing committed fiscal consolidation lessens the distortion in the labor market, improves debt sustainability, and generates a sizable welfare gain.Spatial Extrapolation in the Housing Market (G5, R2)
Abstract
This paper introduces “spatial extrapolation,” a concept that refers to how economic expectations for one region are formed by extrapolating from the economic outcomes of another geographic area. We demonstrate this unique form of extrapolation by analyzing the purchasing behavior of out-of-town (OOT) homebuyers. Using data from approximately 3 million OOT housing transactions in the U.S. between 2002 and 2017, we find that a 50% increase in five-year hometown house prices leads OOT buyers to pay 2% more for OOT properties. The higher the hometown house price growth, the lower the realized returns and purchase discounts obtained by OOT buyers. To rule out the wealth effect, the paper designs two strategies. First, we classify renters, migrants, and second-home (SH) buyers to control the wealth increase from hometown properties. Second, we estimate geographic heterogeneity in extrapolative beliefs. We find that OOT buyers from higher extrapolation hometowns increase their purchase prices more after the hometown house price growth. Overall, our research highlights the potential spillover effects of extrapolation into other asset markets and provides evidence that extrapolative expectations have broader effects than previously recognized.State Ownership: a Blessing Kitty but a Worrying Lion (F1, G2)
Abstract
We provide firm-level evidence that a private exporter may lower its financing costs by introducing a small (kitty) share of state ownership. However, if the state acquires a lion share, the exporter becomes inefficient. Therefore, there exists an inverse U-shape relationship between a firm's export performance and its share of state ownership. Specifically, a firm with a small share of state ownership has better export performance than a pure private firm in financially dependent sectors. But this superior performance deteriorates quickly and even turns negative, as the share of state ownership increases. These results are not driven by firm, sector, or time characteristics. This paper reconciles these findings with the fact that although a firm with state ownership is less liquidity constrained due to its low financing cost, while inefficiency, a frequent concomitant of state ownership, eventually outweighs this credit advantage as the share of state ownership rises.Step by Step - A Quarterly Evaluation of EU Commissions’ GDP Forecasts (C5, E3)
Abstract
The European Commission's annual growth forecasts play a crucial role in shaping policies and provide a benchmark for many (national) forecasters. These annual forecasts are built on quarterly estimates, which do not get much attention and are hardly known. Therefore, this paper provides a comprehensive analysis of multi-period ahead quarterly GDP growth forecasts for the European Union (EU), euro area, and several EU member states with respect to first-release and current-release data. Forecast revisions and forecast errors are analyzed and the results show that the forecasts are not systematically biased. However, GDP forecasts for several member states exhibit a tendency toward significant overestimating of short-time horizons.Furthermore, the final forecast revision in the current quarter is generally downward biased for almost all countries. Overall, the differences in mean forecast errors are minor when using real-time data or pseudo-real-time data. Additionally, the forecast performance varies across countries, with smaller countries and Central and Eastern European countries (CEEC) experiencing larger forecast errors. The paper provides evidence that there is still room for enhancement in forecasting techniques both for nowcasts but also forecasts up to 8 quarters ahead.
Strategic Pro-Environmental Behavior (L1, H2)
Abstract
Firms with relatively clean production processes (“green” firms) often support the introduction of stringent environmental regulation. This practice is usually considered a tool that green firms use to increase the costs of their polluting rivals, ultimately helping their own competitiveness. While green companies can indeed benefit from the introduction of environmental regulation, this paper shows that polluting firms can also favor environmental policy under certain conditions.We study the production decisions of firms with asymmetric environmental damages and costs, and how their profits are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on firms’ profits, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient firm, given that environmental regulation mitigates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this firm to actually favor the introduction of environmental policy, while the relatively efficient firm opposes regulation. Furthermore, we show that such pro-environmental behavior can originate from polluting firms in the industry.
Pro-environmental behavior has been previously rationalized using arguments on corporate social responsibility and firms’ concerns about their public image among environmentally friendly customers. Our equilibrium predictions suggest, however, that even in the absence of corporate image arguments polluting firms would have incentives to promote a stricter environmental policy. We therefore offer an additional (or alternative) channel to explain recent support for stringent environmental regulation of relatively polluting firms.
Sustainable Investing and Systemic Risk (G1, G2)
Abstract
This paper examines systemic risk in sustainable investing based on the interaction between investor sentiment and mutual funds herding behavior. We first propose a novel measure of systemic herding risk that integrates both idiosyncratic and herding risks within the mutual funds network. We then examine the impact of investor sentiment, measured by the change in investor perception of mutual funds' commitments to sustainability, on systemic risk as measured by our proposed measure. Our results show that investor sentiment adversely affects the systemic risk of mutual funds. Furthermore, we find that waning investor sentiment towards sustainability triggers fire sales in the portfolios of sustainability-themed funds, especially open-end funds, due to their higher exposure to redemption risk. Our results also show that systemic risk in these sustainability-themed funds increases significantly relative to other funds during times of elevated uncertainty and financial stress, akin to the events of the "dash for cash" in March 2020 and monetary policy tightening in 2022. These findings offer valuable insights for macroprudential policymaking regarding the challenges sustainable investing poses to the stability of non-bank financial institutions.Tech Tides Shift: Unveiling the Impact of China’s Robotic Revolution on Migrant Workers’ Destinies (J6, O3)
Abstract
This investigation explores the effects of Robot Replacement (RR) policies enacted by local governments in China, focusing on their impact on immigrant labor across a variety of job tasks. Utilizing a staggered difference-in-difference methodology to analyze data from 234 out of 335 cities (2010-2017) and the China Migrants Dynamic Survey, this study offers a comprehensive assessment of RR policies on varied labor demographics. It reveals that RR policies significantly attract individuals proficient in non-routine cognitive and operational tasks, remarkably without displacing those employed in routine tasks. A key finding is the policies’ appeal to young and middle-aged workers (16-45) from all educational backgrounds, specializing in non-routine tasks, with a pronounced tendency to disproportionately attract male laborers, hence potentially amplifying gender disparities within the labor market. Further investigation into the mechanisms, utilizing firm-level data from National Tax Survey Database, indicates that RR policies enhance the employment, returns to asset, capital-labor ratios, labor productivity, total factor productivity, and R&D investments in local enterprises, simultaneously increasing average employee wages. This study contributes to the ongoing dialogue on the socio-economic ramifications of technological advancements. It uncovers how RR policies differentially attract skilled labor in non-routine tasks without negatively impacting routine task workers. Notably, the inclination of these policies to attract predominantly young, male workers suggests potential areas for policy refinement to address emerging gender imbalances in the labor market. Our findings, while grounded in the specific context of China, a developing country, extend the discourse on technological adoption and labor market dynamics to a global audience. We hope to contribute modestly to a broader understanding of how technological progress can be aligned with social equity goals. The Chinese experience, as detailed in our study, may offer preliminary insights for other countries striving to balance technological advancement with the need for inclusive, equitable economic development.Technological Change and Demand for Redistribution: Micro Evidence and Macro Implications (E6, O3)
Abstract
I study the role of technological change in explaining rising income inequality and non-increasing progressive taxes from 1978 to 2018. Linking occupation-level data with individual responses on preferences for the redistribution of income, I document that occupations that required increasingly more computer-related work experienced a larger decline in preferences for the redistribution of income, even controlling for individual earnings. To rationalize this finding, I develop a tractable quantitative model embedding technological change and voting for redistribution, in which workers who are more exposed to computerization have more to gain from skill investment, and thus are more hurt by more distortive progressive taxes. Therefore, they are more opposed to progressive taxation. A decline in equipment prices leads to an increase in earnings inequality, while the tax progressivity is non-increasing. If workers’ skill acquisition were not allowed or a policymaking process is of equal weight across voters during the technological change, the model generates a higher level of tax progressivity and inequality.Terror and Risk Preferences (D7, C1)
Abstract
Terrorism imposes high economic costs on the affected population, while the observable economic damage is usually small. In this paper, we address this puzzle and argue that conventional studies on the cost of terrorism lack one important channel: adjustment of risk preferences. We show that terrorism impacts the risk preferences of individuals that were in the same region at the time of the attack. Based on a representative sample of the German population, we use the GPS information of each individual and employ a staggered difference-in-differences (DiD) design that compares individuals living in regions that were affected by a terrorist attack and those that were not. Our results reveal an immediate and significant decline in individuals' risk preferences following a terrorist attack. Moreover, we find that the emotion of happiness serves as potential mediator in the relationship between exposure to terror attacks and risk preferences. Additional analyses, relying on the complete news coverage of these attacks, reveal that attacks that are associated with more negative average sentiment cause risk preferences to decrease more strongly.The Costs of Affirmative Action. Evidence from a Medical School Lottery (J1, D6)
Abstract
We quantify how affirmative action in data driven admission selections affects education and labor market performance of students. Our approach exploits lottery-based variation in medical school admissionsin the Netherlands. First, we show that the efficiency costs of data driven affirmative action are small. The average graduation rate decreases only slightly from 65.0% to 64.4% when the share of selected
students with a minority background is almost doubled to match that of a lottery. Second, we find that data-driven selection consistently outperforms lotteries, enhancing outcome efficiency substantially for
any minority group share. From an applied perspective our approach allows practitioners to quantify the effect of affirmative action on the goals universities pursue, as was demanded by the Supreme Court in
Students for Fair Admissions, Inc. v. Harvard College.
The Demand for Safe Assets (G1, D4)
Abstract
Asset valuation hinges on two key elements: First, the private value component reflecting an individual's unique assessment of an asset's worth, shaped by personal preferences, idiosyncratic holding costs, and specific information. Second, the common value assigns a uniform worth to an asset, but agents have different private information about its true value. How do these components determine bidding behaviors in the auctions of these assets and subsequently determine the price in their secondary markets?We address these important questions theoretically and empirically. Our theoretical model outlines asset valuation in a market with both risk-free and risky assets. It incorporates both a private and a common component to individual asset demand. Agents have constant absolute risk aversion (CARA) preferences and access a primary and secondary market for an asset. The primary market is designed as a uniform-price auction (UPA) in which agents can bid to purchase the asset that can be exchanged in the secondary market. Agents are heterogeneous exhibiting an individual value component linked to the specific balance sheet cost to held that asset. The future resale market induces a common component due to the fact that future prices are driven by the average balance sheet cost, which is the same unknown parameter for all market participants. This means that in equilibrium, future resale endogenously induces a pure common value component in the uniform price auction.
We test these theoretical predictions using a unique dataset including bidders’ identities and each individual bid submitted to 520 auctions of Swiss Confederation bonds from 1980 to 2023. As predicted by our model, an increase in bid dispersion (number of bidders) is positively (negatively) associated to future returns and cutoff yields (prices) increase (decrease) with outstanding supply.
The Dissipating Credit Channel: Monetary Policy and Corporate Bond Yields in China (E4, E5)
Abstract
This paper examines the changing transmission of monetary policy to corporate bond yields across credit ratings in China, amidst China’s rapid financial development and monetary policy modernization. We integrates heterogeneous monetary policy tools to a unified shock measure, based on a modified heteroscedasticity approach within a structural vector autoregressive framework. Leveraging this monetary policy shock, together with rating-segmented bond data and a local projection analysis, we reveal a significant shift in monetary policy transmission patterns. The pre-2014 results align with credit channel mechanisms, but since that time, lower-rated bonds exhibit significantly weaker responsiveness, especially to monetary easing. A mechanism analysis further shows that changes in the transmission mechanism for the monetary policy appear linked to China’s ongoing monetary policy reform process.The Earned Income Tax Credit and Occupational Skill Mismatch (H3, J0)
Abstract
By exploring several expansions of the Earned Income tax Credit (EITC), this paper provides an intent-to-treat estimate of job match quality response to wage subsidies. As a conceptual framework, I develop a simple job search model with wage subsidies which assumes that wages are a positive function of the quality of job match, firm, and worker characteristics. The model predicts that increases in the subsidy benefit increase the marginal opportunity cost of search, therefore increasing the search cost. The increase in the cost of search reduces the net-of-cost benefit of holding out or waiting for better job opportunities, creating incentives for job seekers to lower their reservation wages, hence reducing the potential of forming a better job match. The underlying hypothesis of this study based on the predictions of this search model is that the EITC may have an unintended consequence of creating worse job matches in an initial job. Using data from the 1979 National Longitudinal Survey of Youth (NLSY79) and the Occupational Information Network (O*NET), preliminary results show that the EITC increases skill mismatch in an initial job, driven by a mismatch along the math and verbal skill dimensions. These findings suggest that the effort of policymakers to reduce welfare dependency by using wage subsidies to promote employment may lead to unintended consequences such as poor match quality, which the literature has shown has an adverse effect on the long-term wage growth of workers.The Effect of Component Disaggregation on Measures of the Median and Trimmed-Mean CPI (E3, C8)
Abstract
For decades, the Federal Reserve Bank of Cleveland (FRBC) has produced median and trimmed mean consumer price index (CPI) measures. These have proven useful in various contexts, such as forecasting and understanding post-COVID inflation dynamics. Revisions to the FRBC methodology have historically involved increasing the level of disaggregation in the CPI components, which has improved accuracy. Thus, it may seem logical that further disaggregation would continue to enhance its accuracy. However, we theoretically demonstrate that this may not necessarily be the case. We then explore the empirical impact of further disaggregation along two dimensions: shelter and non-shelter components. We find that significantly increasing the disaggregation in the shelter indexes, when combined with only a slight increase in non-shelter disaggregation, improves the ability of the median and trimmed-mean CPI to track the medium term trend in CPI inflation and marginally increases predictive power over future movements in CPI inflation. Finally, we examine the practical implications of our preferred degree of disaggregation. Our preferred measure of the median CPI suggests that trend inflation was lower pre-pandemic, while both our preferred median and trimmed-mean measures suggest a faster acceleration in trend inflation in 2021. We also find that higher disaggregation marginally weakens the Phillips curve relationship between median CPI inflation and the unemployment gap, though it remains statistically significant.The Effect of Government Subsidies on Firm-Level Productivity (D2, G3)
Abstract
In this study, we empirically analyze the impact of government subsidies on the productivity of individual firms. Based on information on firms that received government subsidies from the Korean government between 2013 and 2022, we determine whether the productivity of each firm increased. We find an increase in the productivity of firms that received subsidies. The estimated effects decrease over time. When examining the persistent component of productivity, we find a small but continuous increase after one period of receiving subsidies. Additionally, we identify heterogeneous treatment effects using Generalized Random Forest.The Effect of Near-Cash Transfers on Infant Health: Evidence from Transportation Subsidies in Seoul, South Korea (I1, H7)
Abstract
This study analyzes the sudden policy introduction as a natural experiment to estimate the causal effects of near-cash transfers on infant health. Using population-wide and individual-level administrative data, this study reveals that the introduction of transportation subsidies in Seoul resulted in a 5 percent reduction in the incidence of low birth weight. A 12.5 percent reduction in low birth weight for first-born children was particularly noteworthy. These effects were observed in relatively low-income areas and among non-employed mothers. Furthermore, despite being a near-cash transfer aimed at subsidizing transportation costs, it exhibited similar results to cash transfers. These findings suggest that offering government support to pregnant women, particularly those with low incomes, before childbirth can not only significantly increase the likelihood of delivering healthy babies but also contribute to mitigating inequality at birth.The Effect of Nursing Home Closures: Staff Replacement, Resident Relocation, and Quality of Care (I1, J4)
Abstract
Our study examines the repercussions of nursing home closures on local labor markets, economies, personal income, and population mobility, focusing on the differential impacts between urban and rural areas. Utilizing a comprehensive dataset including Medicare Provider of Services (POS), Quarterly Census of Employment and Wages (QCEW), the Internal Revenue Service (IRS), and Area Health Resource Files (AHRF), we employ the Callaway and Sant'Anna approach to analyze county-level dynamics.Our findings indicate substantial and enduring declines in total and health sector employment post-closure, particularly affecting low-wage workers like nursing aides and housekeeping staff, exacerbating socioeconomic vulnerabilities, especially in rural areas. The closure-induced employment shifts were expected to favor health sectors, but instead, all sectors, including health, experienced declines, notably in rural regions.
Moreover, nursing home closures led to supplementary job losses, affecting the broader local economy. Contrary to expectations, closures didn't spur employment movement within health sectors, with hospitals and ambulatory care also experiencing declines. Although social assistance saw little increase, home health care remained insignificant.
We unveil nuanced impacts on personal income, local economy size, and population mobility. Following closures, local economies contracted, with reduced establishment counts and total wages, alongside an increase in the average weekly wage, highlighting the disproportionate impact on low-wage workers. Additionally, closures correlated with a decline in population influx into rural areas but no change in outflow, potentially deepening urban-rural divides.
In conclusion, our study underscores the multifaceted ramifications of nursing home closures on local economies, emphasizing the urgency of targeted policy interventions to mitigate socioeconomic disparities and bolster resilience in evolving healthcare landscapes.
The Effect of U.S. Monetary Policy on Foreign Firms: Does Debt Maturity Matter? (F3, G3)
Abstract
We provide novel evidence that corporate debt maturity constraints play an important role in the transmission of U.S. monetary policy to foreign firms. Using an identification strategy that explores the ex-ante maturity structure of long-term debt to predict firms’ financial position in a given year, we show that the effect of U.S. monetary policy shocks on foreign firms is amplified by financing constraints. After a contractionary shock, financial conditions in foreign countries become tighter, and firms with a high proportion of long-term debt maturing right after the shock significantly decrease investment and sales. We find that firms in emerging economies are more affected by these shocks compared to those in advanced economies, and the amplification effect of U.S. monetary policy shocks by financing constraints is present only in emerging economies.The Effects of Neighborhood Redevelopment on Housing Markets and Beyond: Evidence from HOPE VI Revitalization Programs (R3, H4)
Abstract
Many advocates considered place-based housing policy a remedy for urban decay (Katz & Nowak, 2017), while skeptics questioned the overall effectiveness of place-based interventions, pointing to significant heterogeneity in the long-term success across programs and locations (Neumark & Simpson, 2015). This paper presents the first national-level study investigating the housing market effect of Housing Opportunities for People Everywhere Programs (HOPE VI), the largest federal investment in public housing revitalization. I proposed a stratified version of the synthetic difference-in-difference method introduced by Arkhangelsky et al. (2021), which allows for a more relaxed assumption of parallel trends and accounts for unobservable region-specific characteristics. I found that the housing values and rents in the redeveloped neighborhoods increased by 9 and 12 percent, respectively. There were significant spillovers in nearby neighborhoods. These price effects varied by program scales and initial neighborhood characteristics, as poorer, blacker, and more centrally-located neighborhoods benefited more from the investments. Moreover, the price effect of HOPE VI was driven by a 6.5 percent increase in median household income and significantly higher shares of new and low-density units. A back-of-the-envelope analysis revealed that the mechanical effect of displacing public housing residents and replacing the old units with affordable and market-rate units explained 40 percent of the rent effects. The redeveloped neighborhoods also experienced lower poverty rates and higher racial diversity.The Evolution of Personal Debt Dynamics in Developed and Emerging Markets Amidst Globalisation: A Longitudinal Analysis from the Third Era of Globalisation(1989 Onwards) (M5, F6)
Abstract
The study investigates the nuanced relationship between globalization, trade openness and income inequality dynamics with a specific focus on their implications for personal debt levels in both developed and emerging markets. Leveraging the longitudinal data from the World Bank and OECD alongside trade data from sources such as UN Comtrade and National Statistics, the research aims to provide insights into the divergent trends observed across socio-economic strata in these two distinct market categories. The choice of these markets lies in the contrasting economic contexts of income inequality and respect for their responses to globalisation and trade openness.Drawing upon the theoretical framework rooted in theories of globalisation, income inequality and business economics, the analysis juxtaposes the experiences of developed economies with those of emerging markets to discern patterns and disparities in income distribution and personal debt accumulation. The chosen time for the study is from 1989, when the third era of globalisation started which aligns with the period when globalisation expanded beyond economies to impact personal finances, particularly in emerging markets, thus providing a comprehensive understanding of how global phenomena affect personal debt dynamics across different economic contexts. The objectives of the study encompass:
1. To examine historical data to uncover consistent patterns in personal debt accumulation across developed and emerging markets since 1989.
2. To investigate the specific factors within the globalized economic landscape that influence borrowing behaviours among individuals in diverse socio-economic contexts.
3. To compare and contrast personal debt patterns (similarities and dissimilarities) across market categories to understand unique challenges and opportunities in each category.
4. To synthesize findings to develop actionable recommendations for policymakers and stakeholders recommendations for policymakers and stakeholders aimed at fostering responsible borrowing practices and enhancing financial stability.
The Foreign Liability Channel of Bank Capital Requirements (F3, E5)
Abstract
This paper highlights a novel trade-off in bank capital regulation. Setting bank capital requirementsat appropriately high levels is essential to enhance the resilience of banks against shocks to
their profitability. However, a reduction in bank default risk is associated with a greater reliance
of banks on foreign liabilities, which increases banks’ exposures to foreign shocks. Our results
suggest that in the presence of bank default risk, foreign exchange rate interventions are complementary
to bank capital requirements in addressing financial vulnerabilities in emerging markets.
Estimates using bank-level data on Peru’s transition to higher capital requirements lend support
to the foreign liability channel of bank capital requirements.
The Gender Gap in Informal Loan Markets (J1, O1)
Abstract
This paper estimates the gender gap in accessing and using informal loans and the presence of illegal or unethical activities associated with these loans. Based on unique individual-level survey data from Thailand, the empirical analysis provides three main findings. First, it finds no evidence of gender gap in the decision to obtain informal loans and the interest rates charged on those loans. However, there is a gender gap in the loan amounts, with women borrowing approximately 22.3% less than men. Second, the multinomial Logit models find that, compared to men, women are 4.5% more likely to use informal loans to finance business investments and are more inclined to borrow from in-area private lenders and loan sharks. Third, the multinomial Logit models show that women are 3.0 percent more likely to experience physical threats while they are 1.9 percent less likely to encounter unfair loan contracts. The results highlight the importance of promoting financial inclusion within the formal financial markets and draw attention to the social challenges stemming from violence associated with the informal loan markets in Thailand.The Gendered Effect of Manufacturing Decline on Infant Health: Lessons from Import Competition from China (J0, I3)
Abstract
This study examines the effects of local economic disruptions due to rising import penetration from China to the United States between 1990 and 2007 on infant health. While many existing studies have documented the negative effects of China’s trade shock on local unemployment, wage, and health of workers and local economies, less is known about how it affects the next generations. Existing works on the effects of China shocks on infant health are limited by the analysis based on a small number of local economies due to data constraints. Using restricted natality datasets on all local economies in the U.S. and leveraging quasi-exogeneous changes in growth in China’s imports with shift-share instrument variables, I study how import penetrations affects three key measures of infant health, average birth weight, incidence of low birth weight and premature birth, which are shown to be meaningful predictors of later-life health, education, and labor market outcomes. While I find overall import penetration shocks have modest effects on infant health, gender-specific analysis reveals that shocks in male-dominated industries leads to worsening of infant health and female-dominated shocks improve them. There are some declines in fertility that are driven by low-educated mothers, which suggests that my estimates could be a lower bound. I also explore other potential mechanism channels that may explain differential effects based on genders.The Grandparent Health Dividend: Transitioning to Grandparenthood and Its Impact on Mental Health (I1, J1)
Abstract
We examine the impact of transitioning to grandparenthood on health and well-being using data from the Korean Longitudinal Study of Aging (KLoSA). Employing an event study framework, we designate the birth of the first-born grandchild as the event of interest and estimate the effects on mental health, physical health, and health behaviors. Our findings reveal that becoming a grandparent leads to significant improvements in mental health, reducing the probability of depression and increasing life satisfaction, with the effects primarily driven by grandfathers. However, we find little evidence of changes in physical health or health behaviors such as smoking and alcohol use.Interestingly, we uncover a strong gender preference in South Korea, particularly among grandmothers. While both paternal and maternal grandfathers experience improved mental health, only paternal grandmothers benefit, with no impact on maternal grandmothers. We explore potential heterogeneity in the impact of grandparenthood by considering factors such as living arrangements, labor force participation, and the availability of alternative childcare options for grandchildren under six years old.
To address potential bias in event study designs with staggered treatment adoption, we employ the method proposed by Sun and Abraham (2021) and our findings remain robust. This study contributes to a more comprehensive understanding of the implications of the transition to grandparenthood for older adults' well-being, highlighting the complex relationship between grandparenthood and health in the South Korean context and emphasizing the importance of gender roles and family dynamics in shaping the grandparenting experience.
We discuss the potential mechanisms underlying the observed effects, such as changes in family relationships, intergenerational support, and the societal expectations associated with grandparenting roles. Our results have important implications for policymakers and healthcare providers in designing interventions and support systems that cater to the unique needs of grandparents, considering the cultural and societal norms that influence their experiences.
The Health Effects of Electronic Monitoring on Offenders and their Families (K4, I1)
Abstract
Electronic monitoring (EM) has emerged as a popular tool for curbing the growth of large prison populations and is often motivated out of concern for the health among prisoners. Evidence on the causal effects of EM on the health is, however, limited. We estimate the causal effects of increased access to EM in the context of the Swedish justice system. Our work leverages three key advantages offered by the Swedish setting. First, rich administrative data allow us to measure the impacts of EM across a wide spectrum of health outcomes from inpatient and drug prescription data. Second, we are able to isolate exogenous variation in access to EM by examining a large expansion of EM in 1997, wherein EM transitioned from a small-scale local pilot program to a nationwide initiative. Third, the reform implied that individuals sentenced to prison for up to three months could opt to entirely circumvent incarceration, meaning that EM serves as a complete alternative to imprisonment in our context.To isolate the causal effects stemming from the expansion of EM in Sweden in 1997, we use a difference-in-differences strategy that compares, before and after the reform, the outcomes of offenders who received prison sentences of up to three months to the outcomes of offenders sentenced to slightly longer prison terms. We start by showing that the reform led to a significant 30 percentage-point reduction in the incarceration rate of offenders in the treatment group in comparison to the control group, with highly similar pre-trends for both groups. We also verify empirically that the length of sentences did not undergo significant changes around the time of the reform, suggesting that courts did not alter their sentencing practices in response. Our preliminary findings suggest that access to EM improves health outcomes offenders.
The Housing Supply and Price Effects of Reducing Parking Requirements in U.S. Cities (R1, R5)
Abstract
U.S. cities grapple with housing affordability issues, leading to the adoption of various policies to spur housing development. Over the past decade, parking reforms, specifically the relaxation or removal of Minimum Parking Requirements (MPRs), have gained traction. Despite increased attention from media outlets, causal evidence on their impact is lacking. Using national data on parking laws, building permits, and house prices, I show that reducing or eliminating MPRs have significant and substantial effects on residential construction and house prices. The implementation of such policies results in an immediate surge in the number of constructed buildings and new housing units and a decrease in house prices. I also find that eliminating MPRs lead to a decline in rent prices in a subset of cities. To underscore the robustness of these findings, I estimate an alternative specification, a falsification test, and conduct the analysis on a propensity score matched sample.The IMF Data Standards Initiatives and Measuring Global Data Transparency (P0, C1)
Abstract
We propose a new measure of global data transparency based on the countries’ performance under the IMF Data Standards Initiatives—a three-tier framework which sets global standards for data dissemination. Countries’ performance on timeliness in disseminating key macroeconomic and financial data relative to the standards is monitored by the IMF monthly and published in Annual Observance Reports (AORs) for the countries in the top two tiers, the Special Data Dissemination Standard (SDDS) and SDDS Plus. The new index uses information available in the AORs for 77 countries over the period of 2006–22. It shows that global data transparency weakens during global crises and major turmoil as countries tend to delay data releases compared to normal times likely reflecting capacity constraints, changes in policy priorities, or reluctance to publish data. The index is also available on a country basis and can be used in cross-country analyses of trends in transparency and potentially as a proxy for accountability and governance measures. Compared to existing measures such as the World Bank’s Statistical Performance or Worldwide Governance Indicators, which capture slower moving changes in countries’ statistical capacity, our monthly measure captures more timely developments in data transparency. Moreover, especially for countries with episodes of reluctant data publication and countries that experienced a major economic crisis while otherwise performing well, we observe weaker transparency to hamper IMF surveillance as it is associated with larger one-year-ahead WEO forecast errors for economic growth.The Impact of Natural Disasters on Light-based Geospatial Income Inequality (O5, Q5)
Abstract
How do natural disasters impact economic inequality? Because disaster preparedness can vary with household wealth and income, disasters are likely to affect the population unequally. Persistently high levels of inequality can also reinforce the unequal impacts of disasters, which would further aggravate the living conditions and economic prospects of households in disaster-prone regions. Yet, the literature provides mixed evidence of the impact of natural disasters on inequality. This paper attempts to answer that question using innovative inequality measures based on geospatial data.The paper extends previous work on the construction of Light-based Income Inequality (LGII) Gini-coefficients to cover an extended sample period from 1992 to 2019. The broader availability of geospatial data allows estimates of the impact of natural disasters on inequality for a sample of countries and territories that is less skewed towards developed economies.
First, panel regressions are used to investigate whether average effects tend to be transitory or permanent. Overall, there is little evidence of statistically significant transitory effects of natural disasters on inequality, while permanent effects depend on the type of disaster and severity. Climatological disasters, which include droughts and wildfires, tend to decrease inequality. Meteorological disasters, which include extreme temperatures and storms, tend to increase inequality. The impacts of hydrological and geophysical disasters are mostly insignificant.
Second, the synthetic control group method is used to estimate the causal effect of natural disasters on inequality for a sample of countries that experienced major disasters between 2000 and 2019. Overall, the estimates show that most of the selected disasters have statistically insignificant effects on inequality. In terms of magnitudes, the LGII Gini-coefficients tend to systematically decrease after a disaster, and the effects also tend to decrease when looking at countries with multiple disasters, which suggests some degree of preparedness may condition the impacts of disasters on inequality.
The Impact of the Net-Zero Transition on UK Productivity: A Conceptual Framework and New Evidence (O4, E2)
Abstract
The UK’s Climate Change Act mandates an 80% cut in CO2 emissions by 2050 relative to 1990. Although CO2 emissions have already fallen by about 45%, further structural changes are essential for decarbonising the UK economy. This study examines the impact of this transformation on labour productivity, firm demographics and energy consumption. We assess the implications of the transition so far, as well as of the transformation ahead of us. Our investigation employs both empirical and structural approaches. The empirical strategy involves analyzing aggregate data, progressing to the sectoral level, and concluding with an examination of individual firm behaviour. In the theoretical section, we leverage the empirical findings to inform a structural model, facilitating our forward-looking analysis.The Impact of Violence on Undocumented Migration Decisions: A Focus on US-Mexico Migration Dynamics (J6, I3)
Abstract
The intersection of violence and undocumented migration between Mexico and the United States has become a pressing issue, reflecting broader concerns about safety, security, and economic opportunity. This study aims to dissect the ways in which violence within Mexico propels individuals and families toward making the perilous journey northward, seeking undocumented entry into the United States. This research examines the role of violence—ranging from drug cartel activities to local gang conflicts—in influencing undocumented migration decisions from Mexico to the US. It further explores how socioeconomic variables modify this relationship. A mixed-methods approach integrates quantitative data from migration records and crime statistics with qualitative insights from interviews with migrants and asylum seekers. A logistic regression analysis assesses the likelihood of undertaking undocumented migration in response to varying levels of violence, taking into account factors such as income, education, and family ties. Findings reveal a strong correlation between exposure to violence and the decision to migrate undocumented to the US. Notably, regions with high violence levels see more significant outflows, with migrants primarily motivated by safety concerns. Socioeconomic status significantly influences these migration decisions, with economically disadvantaged individuals more likely to migrate in response to violence. The research identifies specific violence types and local economic conditions as critical determinants of the migration direction and choice between regular and irregular pathways. Random outpouring of violence does not generate statistically significant effects on migration decisions at the household levels, but continuous recurrence of violence impacts migration decisions of households. Households experiencing violence in locally are more likely to migrate with adolescent children and women.The Impacts of Renewable Energy on Electricity Markets: Emissions, Prices, Investment and Market Equilibrium (L1, Q4)
Abstract
The zero-emission renewable energy, such as solar and wind are intermittent sources, which means they cannot produce based on demand. As we are rushing to a cleaner and greener grid, fossil fuel generators are bearing a more frequent than ever startup and shutdown to maintain a reliable grid. In the meanwhile, they are paying the ramping costs every time they startup or shutdown. This missing-money problem is simply becoming too large to ignore.This paper contains two chapters, aiming to answer the following questions. How does the incorporation of renewable energy impact the wholesale electricity market prices, electricity generation costs, and profits for market participants? What are the entry/exit decisions of traditional fossil-fired generators, such as coal and natural gas, as we have more renewable energy online? And finally, this paper has important policy implications in terms of how to optimally regulate the market in order to balance the environmental and reliability costs of electricity generation.
In the first chapter of this paper, I build a dynamic equilibrium model to study the short-term impacts of renewable energy on wholesale electricity markets. I find out that electricity generation costs have been increased due to the increasing ramping costs of fossil fuel generators despite the low marginal cost for renewable energy. Moreover, I evaluate the extent to which carbon taxes can reduce emissions, as well as the cost implications of this policy.
In the second chapter, I incorporate firms' long-run investment decisions and studies the crowding out effect on traditional fossil fuel generators as governments provide subsidies towards renewable energy investment. On the demand side, electricity end-users, for example, households, make dynamic decisions to adopt rooftop solar panels. On the supply side, electricity producers make dynamic entry/exit decisions on whether to add a new generator/retire an existing one.
The JobKeeper Payment: How Good Are Wage Subsidies? (E6, E2)
Abstract
We estimate the effect of the Australian JobKeeper Payment COVID-19 wage subsidy on payroll jobs and wages at the employer-level using novel administrative datasets. We employ a generalized differences-in-differences (DiD) approach. We find that the JobKeeper Payment achieved a cost per job-year saved of $112,819 ($US80,959) during the 12 month program period, implying that around 812,000 jobs were saved during this time. Weekly payroll wages for employers were estimated to be almost $1.1 billion ($US761 million) higher throughout the program period as a result of the JobKeeperPayment. This implies wage effects equivalent to around 60 per cent of program spending during the program period. Program effects are persistent, suggesting cumulative benefits will be larger over time. Our results suggest that the JobKeeper Payment most likely had lower costs per job-year saved than the United States' Paycheck Protection Program (PPP), and workers were more likely to benefit in the form of higher wages. However, JobKeeper appears less cost effective than the SME Cash Flow Boost measure and New Zealand's 2020 COVID Wage Subsidy during the program period. A medium-scale business cycle model, which is a Bayesian DSGE model featuring heterogeneous households and learning-by-doing in the production technology, is estimated to map estimates of costs per job-year saved to approximate output multipliers. The model generates plausible output multipliers centred around 1.3, and identifies the extent to which wage subsidies support liquidity constrained workers as a key determinant of program effectiveness.The Madman Choice: Delegation in Reputational Bargaining (C7, D8)
Abstract
How does the choice of delegation affect the outcome of reputational bargaining? I develop a model of reputational bargaining with delegation that endogenizes the choice of strategic obstinacy of agents. Two principals bargain by choosing agents on behalf of themselves who may be rational or obstinate. Rational agents choose demands strategically while obstinate agents are committed to fixed demands and never accept less. Rational agents have an incentive to imitate obstinate behavioral types to benefit from a “tough” reputation against their rational opponents and convince them to concede. Delegation triggers a trade-off between the desire to force the opponent to concede and the danger of being locked in a stalemate. I characterize the equilibria of this reputational bargaining game featuring the strategic selection of delegation by leaders. Compared to the existing literature with exogenous agents with a fixed low prior probability of being obstinate, the effect of delegation becomes apparent in this scenario: the principal either delegates decision-making to the rational agent for immediate agreement or opts for a combination of rational and extremely obstinate agents to deter her opponent. In the latter case, there is a substantial probability of choosing extreme agents, which results in inefficiency. The equilibria in this model characterize the strategic decision-making process of delegation and provide an explanation for the frequently observed prolonged and inefficient nature of international negotiations. In an extension, I explore the possibility of reappointment, which has the potential to reduce inefficiency by increasing the opponent agent's willingness to concede.The Motherhood Penalty: Fertility Policy and Analysts Forecasts (J7, G4)
Abstract
We find that female analysts experience a 7.45% decrease in forecast accuracy compared to males following the fertility relaxation policy, potentially due to increased distractions related to family planning. To alleviate the effect of contemporaneous economic changes, we take advantage of the cross-sectional variations in the vulnerability to the fertility policy shock using the pre-shock local fertility culture. We find that the effect of the fertility policy is stronger among provinces with a multi-kid culture (i.e. citizens in these provinces are more willing to have kids but were restricted by a very stringent one-child policy before the fertility relaxation). Further, this accuracy reduction is stronger for analysts in regions with extended maternity leave and those covering complex firms. However, it weakens among analysts in supportive brokerage firms with higher salaries, better family support, and improved access to childcaring services. Following the policy reform, treated female analysts are less likely to become “Star Analysts” and more likely to leave as sell-side security analysts. Overall, our paper makes important implications for fertility policy makers and for working females. Our results suggest that child-care resources enhancing family-career compatibility can alleviate the motherhood penalty, while policies solely extending maternity leave may worsen it.The Optimism Effect on Country Productivity and Innovation Activities (O0, E0)
Abstract
This study focuses on how optimism translates into innovation outcomes. While the link has been established at a microeconomic level, its translation to an aggregate economic effect is still an open question. Empirical analysis draws from a yearly sample of 42 (mainly OECD) countries between 2000 and 2020 to test the effect of economic optimism on R&D measures from both the consumer’s and producer’s points of view at the aggregate level. Using modern econometric techniques that address potential endogeneity issues, the results suggest that economic optimism supports an increase in innovation activity and economic performance but not an increase in innovation outcomes, such as more patent production. The implication is that an economically optimistic environment is an important contribution to a nation’s entrepreneurial ecosystem. This novel insight shows that firms need not specifically recruit optimistic individuals to reap the benefits of the optimism effect. Policies that encourage economic optimism can orchestrate an environment in which the benefits of the optimism effect are realized, independent of the individual personality traits of its citizens.The Pass-through of Retail Crime (K4, L1)
Abstract
Retail crime has surged to the forefront of public discourse in the United States. Yet, little is known about the effect of retail crime on market outcomes and the resulting welfare implications. We leverage a novel administrative dataset that matches detailed information on store-level crimes to scanner data from the universe of transactions for cannabis retailers in Washington state. Exploiting quasi-experimental variation from the timing of store-level robberies and burglaries, we find that crimes cause a 1.8% increase in retail prices at victimized stores, indicating that retailers pass the costs of crime on to consumers. Nearby competitors of victimized stores increase prices by a similar amount with a two-month lag. We show that competitors’ price responses are not driven by demand effects, increased wholesale costs, or strategic complementarity of prices. Instead, price responses are consistent with delayed knowledge spillovers following crime incidents and own-security expenditures. We find the largest retail crime pass-through rates for independent stores and in markets with low concentration. The crime-related price increases imply an annual negative welfare effect of approximately $31 million, with consumers bearing two-thirds of this burden.The Power of Daughters: How Physicians' Family Influences Female Patients' Health (I1, J1)
Abstract
While physician behavior is important to patient outcomes, what determines physician behavior and decision making remains to be understood. In this paper, we study the influence of physicians’ families, and particularly their children, on physician behavior and patient health outcomes. Leveraging high-quality administrative register data for the entire Danish population, we provide evidence that the gender of primary care physicians' children influence their behavior and thereby female patient health. Conditional on physicians’ number of children, female patients under the care of male physicians with one additional daughter (versus one additional son) are 0.1 percentage point (or 5.1%) less likely to die from women-specific cancers, such as breast cancer. The effect of daughters is only present among male but not female physicians. Exploring potential channels, we find evidence that daughters influence their physician fathers' empathy and attitudes towards women. Specifically, male physicians with more daughters go the extra mile in caring for their female patients, including screening for cancers among women who have not reached the age for the national cancer screening programs. In addition, male physicians with more daughters exhibit greater attentiveness to female-specific health guidelines, are more inclined to work with women. Leveraging the administrative register data with unique survey data, we find that physicians with daughters are perceived as more empathetic by their female patients than male physicians with only sons.The Role of Extended Families in Household Fertility Decisions: Evidence From the Indonesian Family Life Survey (J1, O1)
Abstract
Galor and Weil (1996) point out in their gender gap model that capital accumulation positively affects women’s relative wages and incentivizes them to work more, thus reducing fertility. As depicted by the demographic transition in most of the Western world, these fertility reductions, in turn, increase the capital per worker in the economy, further increasing women’s relative wages and reducing the fertility rate even lower. However, there seems to be a tendency for a household to co-residence with their extended families in developing countries, such as Indonesia. Thus, having extended families in a household may influence how it allocates time for work, affecting its fertility decision. By incorporating extended families into Galor and Weil’s gender gap model, this paper seeks to investigate the effect of having extended families on household fertility decisions using the fifth wave of the Indonesian Family Life Survey (IFLS 5), a longitudinal survey conducted in 2014/2015. The modified model also controls for each household’s male-female wage ratio, level of technology, physical assets, and geographical dummies. Restricting the sample to the case of having one child in the household allows for the model to be treated as a classification problem (binary response), which can be estimated as a logistic regression. By setting aside part of the observation as a test set, the simplification also allows further estimation error rate improvements using different machine-learning methodologies, such as discriminant analysis (linear or quadratic discriminant analysis), regularization methods (ridge regression or LASSO), and tree-based methods (classification tree or random forest), to make the best possible inference.The Role of Intermediaries in Administering In-kind Transfers: Evidence from SNAP and Food Retailers (H5, H0)
Abstract
The Supplemental Nutrition Assistance Program (SNAP), the nation's largest nutritional assistance program, relies on authorized food retailers to distribute SNAP items. Since SNAP benefits are only redeemable at these retailers, the number and types of them can significantly impact SNAP accessibility, affecting beneficiaries’ welfare. However, research has primarily focused on SNAP's impact on recipients, with limited understanding of how retailers respond to program changes.This study addresses this gap by investigating a factor contributing to a notable decrease in SNAP-authorized retailers between the early 1990s and 2004: the adoption of Electronic Benefit Transfer (EBT) technology. I merge hand-collected data on EBT adoption timing across counties with administrative data on the universe of SNAP retailers to leverage quasi-random variation in EBT adoption timing. Employing the newly developed heterogeneity-robust estimation techniques (Callaway and Sant'Anna, 2021; Sun and Abraham, 2021), I find that EBT led to a 9.4% reduction in the total number of SNAP retailers, which was primarily driven by the decrease in the number of small SNAP stores, such as convenience stores. Little impact is found on large SNAP retailers, such as supermarkets. I estimate that EBT can explain around 30% of the reduction in the number of authorized SNAP stores during the study period.
Next, I investigate whether the reduction of small stores negatively impacts SNAP accessibility, and do not find such evidence. This is not surprising since the majority of SNAP redemptions occur in larger retailers. I show that EBT increased SNAP participation rates and total issuance by more than 10%, even in counties that were likely to have limited access to large SNAP stores. Moreover, following the implementation of EBT, per-store redemptions sharply decreased among convenience stores while significantly increasing among supermarkets, indicating that there was a shift in SNAP customers from small SNAP stores to large ones.
The Salience of Climate Change and Green Patents Review (Q5, O3)
Abstract
This paper investigates how climate change shapes patent examiners’ beliefs and patent review outcomes. Using a large sample of patent examiners in the U.S. from 2012 to 2020, we exploit geographical variations of examiner locations and rely on climatic natural disasters as shocks to beliefs about climate change. We find that examiners who experience climatic natural disasters grant more green patents in the future. Moreover, green patents granted by examiners with experience of climatic disasters are of higher quality. We show evidence that examiners exert more effort in reviewing green patent applications after experiencing climatic disasters. The effects of climatic disaster experience are muted on non-green patent reviews.The Scarring Effects of Firm Shutdowns on Workers’ Wages: A Distributional Perspective (J6, J3)
Abstract
To shed light on the differential impact of firm shutdowns across the distribution of workers, we adopt the wage determination framework of Bonhomme, Lamadon, and Manresa (2019) to uncover workers’ unobserved types. Worker types relate to workers’ position in the wage distribution: all else equal, a higher type implies higher wages. We use the universe of social security records of Italy’s Veneto region, one of the leading Italian regional economies, from 1975 to 2001. Based on this rich matched employer-employee data, we measure wage losses after firm shutdowns for different worker types using an event-study framework. Aggregate wage losses directly after a shutdown are 4.5% of the daily wage, which almost halves after six years. This aggregate trajectory masks stark heterogeneity: top-type workers face initial losses of 12.4%, which remain persistent even after six years. Conversely, initial losses for bottom-type workers are 2.6%, which become statistically insignificant after six years. We identify losses in firm tenure as the main source of wage reductions following the shutdown of a worker’s firm. Finally, we show that the AKM model (Abowd, Kramarz, and Margolis, 1999), the current workhorse model of wage determination, does not capture this heterogeneity and can lead to misleading conclusions regarding the sources of wage losses.The Term Structure of Inflation Forecasts Disagreement and Monetary Policy Transmission (E3, E5)
Abstract
The term structure of inflation forecasts disagreement in the US can be summarized by two components: disagreement about the trend inflation, and disagreement about the cyclical inflation. While the former has identical impacts on forecasts disagreement across forecasting horizons, the latter has more muted impacts on forecasts disagreement at longer forecasting horizons. Only the cyclical inflation disagreement has a significant impact on monetary policy efficacy. High disagreement about the cyclical inflation undermines the transmission of monetary policy to both real economy and financial markets. Active communication from the Federal Reserve with the general public is a useful tool to reduce inflation disagreement, especially disagreement about the cyclical inflation.The Trickle-Down Effect of Government Debt and Social Unrest (H7, P4)
Abstract
Using a dataset of all publicly-available local government procurement contracts in China, we study the social costs of local government debt. Highly indebted local governments delay procurement payments to their contractors, who in turn delay salary payment to their employees. This trickle-down effect causes a deterioration in firm fundamentals and sparks employee protests. Our findings are (1) are not driven by local economic conditions, endogenous government indebtedness, or self-selection into becoming government suppliers, (2) do not apply to government-linked firms, and (3) are larger for firms in areas with weaker labor and property rights.The Yield Curve Impact of Government Debt Issuance Surprises and the Implications for QT (E5, G1)
Abstract
We study the yield curve impact of the Bank of England’s Quantitative Tightening (QT) programme launched in 2022. Instead of inferring the effects of QT from previous QE episodes, we focus on what we can learn from the effects of previous debt issuance surprises in the UK.We make several contributions to the related literature. First, we identify surprises to the supply of individual gilts, utilising the high frequency reaction of yields around auction announcements as an instrument. Second, we use these shock estimates to construct measures of the shocks to local supply and duration risk from each debt issuance announcement. This allows us to quantify the role of local supply and duration risk channels in explaining yield reactions to changes in the bond supply over a much richer sample going back to 2005. We also examine the interaction of these surprises with market stress, and the importance of local supply channel across the curve.
Finally, we apply our estimates to the Band of England’s first annual QT programme, which uniquely involved selling part of its government bond portfolio to the secondary market, as well as passively running off maturing bonds. According to our estimates, the QT programme might have increased 10-year yields by around 20 basis points, assuming that market stress was expected to remain low and that maturing bonds were refinanced in line with the contemporaneous debt management remit. Under a market stress scenario, however, the reaction of yields could have been about five times larger. Focusing on the effects through local supply and duration risk, passive unwind may have had a slightly larger effect on yields than active sales, although this finding is sensitive to the assumption made about how bonds are refinanced.
Thinking With Their Hearts?! Motivated Belief Updating by Parents (D9, I2)
Abstract
Parental beliefs play a crucial role in shaping how parents invest in their children and impact their outcomes. However, these beliefs might be misspecified if parents have biases in their information processing. Based on a large-scale lab-in-the-field experiment involving seventh-grade students and their parents in Norway I conduct a study on whether parental beliefs about their children’s performance are subject to motivated reasoning when parents receive exogenously good or bad feedback about their child’s relative performance in two distinct domains: Mathematics and language. The study analyses the immediate and delayed parental belief adjustments and investigates the presence of selective recall. Besides that, I explore how belief dynamics over time vary with the task domain and its gender congruency, allowing to identify a novel mechanism through which stereotypes could manifest. Lastly, I analyse how belief dynamics map into parental information-seeking and parental investments in their child. The findings of this study are policy relevant through highlighting whether parents process ego-relevant information about their child in a motivated way, limiting the scope of information provision as a policy instrument and its effect on educational investment. Furthermore, a bias in processing could be an important channel for gender stereotypes to enter, with downstream consequences for children’s outcomes and choices. Biased processing could for example impact parental guidance and advice, affecting the direction in which parents steer their children regarding educational paths.Time-varying Factor-augmented Regression Model for High-dimensional Data (C2, C5)
Abstract
The diffusion index forecasting adding factors to the standard forecasting model has been originally proposed by Stock and Waston (2002) and theoretically completed by Bai and Ng (2006) with the justified distributional theory. Parameter instability is a crucial issue in macroeconomics (Stock and Watson, 2016) and financial forecasts (Kacperczyk et al., 2014; Catania et al., 2019), especially for long-time-span datasets. According to Clements and Hendry (1996), estimating the diffusion index forecasting model with time-invariant coefficients causes higher forecast error and model misspecification. Although some econometrists (e.g., Bai and Ng, 2002; Bai, 2003) claim that factor loading suffers small instability, ignoring potential structural changes in factor loading could make the estimated factors converge to the undesirable object.To address the parameter instability issue, this paper investigates advancements in the diffusion index forecasting model. It incorporates time-varying factor loadings and forecasting coefficients. Factors are extracted from a diverse array of predictors using the boundary-corrected kernel method. Subsequently, these estimated factors are integrated into the time-varying forecast using the locally constant nonparametric method. This paper also adopts a new reflection method, following the approach by Chen and Maung (2023), to address the boundary issue in nonparametric estimation by constructing pseudodata. An essential theoretical contribution of this study is the verification of the asymptotic consistency of the constructed forecasting target variable. Monte Carlo simulations support the enhanced forecasting performance. Furthermore, empirical applications are conducted to forecast Stock and Watson’s (2002) U.S. macroeconomic variables, specifically targeting [specify the variables or aspects]. The empirical findings underscore the reliability and precision of the proposed locally stationary diffusion index model.
Towards Anonymous Undercollateralized Loans (D4, O3)
Abstract
Undercollateralized or unsecured loans are often considered impossible in fully decentralized and permissionless settings due to the lack of recourse for lenders if borrowers default. In this paper, I consider the problem of pricing anonymous undercollateralized loans while allowing for the possibility of default. The only consequence to borrowers for defaulting is that subsequently, they only have access to overcollateralized loans for a given amount of time. I study all possible strategies borrowers may use and show the conditions for which always-honest strategy dominates all subgames, i.e., always-honest is a Subgame Perfect Nash Equilibrium. This result may pave the way for experimenting with undercollateralized loans in fully decentralized settings, such as DeFi lending platforms that use public blockchain. Benefits of such a system include increasing liquidity provision and eliminating any biases against borrowers.Trade Liberalization, Intermediate Inputs, and the Environment (Q5, F6)
Abstract
Despite the growing importance of agriculture in mitigating climate change, how the environmental efficiency of agricultural production has evolved has not been emphasized yet. This paper explores why the emissions intensity (kg of CO2 equivalent per kg of product) of crop production has been decreasing since the late 1990s. To this end, I examine the contribution of trade liberalization to the environment in crop production, focusing on the role of intermediate input trade (synthetic fertilizers and machinery), accelerated by the expansion of trade agreements since the 1990s, in productivity gains in agriculture. Using the Food and Agriculture Statistics (FAOSTAT) database with updated methodologies and supplements, I estimate the effects of fertilizer and machinery import on the emissions intensities of crops. I find that the import of synthetic fertilizers and machinery reduces the emissions intensity of crop production, especially those of maize and soybean production, and the magnitude is larger in developing countries including Latin American countries, which have emerged as major crop-producing countries. The transmission of advanced agricultural practices using capital-intensive methods has led to a leap in productivity, that is, a reduction in the emissions intensity, offsetting increased negative environmental impacts by trade. The role of trade should be carefully reviewed in international collective action built upon nationally determined contributions (NDCs), especially for developing countries having more hindrances in establishing agendas to achieve the goal of sustainable agriculture for food security and climate change.Traditional Gender Roles Persist: The Impact of Remote Work on Household Dynamics Amidst the COVID-19 Pandemic in Japan (D1, J2)
Abstract
Despite the increased labor participation of housewives following "Abenomics," Japanese households persist in maintaining traditional gender roles, resulting in a greater disparity in household production compared to the workplace. This disparity remains largely unchanged due to consistent work hours among men. Amidst the COVID-19 pandemic, the enforcement of social distancing measures prompted numerous companies in Japan to speedily implement a "work-from-home" policy. Since some workers start to spend more time at home and save time spent on commuting, they may spend more time on housework. Hence, the study aims to investigate whether the remote work have influenced household time allocation. Employing the Difference in Differences (DiD) method and analyzing panel data from Osaka University’s Preference Parameter Study, we found the interaction between remote work and the pandemic cause a notable decrease in work hours in dual-income households. Regardless, our study concludes that remote work does not significantly alter household allocation dynamics during the pandemic. Women are almost four times likelier to continue to undertake housework than men, underscoring slow change in gender role in the Japanese household.Transparency vs Privacy in Credit Markets (E0, G0)
Abstract
In this paper, we compare the performance of two alternative credit intruments. One is unsecured credit backed by credit history and the other is secured credit backed by collateral. We show that while credit history provides borrowers with stronger incentives to repay debt, collateral may serve as a more efficient credit instrument.Our reasoning is that collateral provides coarser information than credit history does. We identify an economic environment where with coarser information, lenders become more optimistic about the prospect of investment opportunities, being not mired in the past. This optimism leads to higher efficiency.
For this purpose, we propose a model in which a long-lived borrower, who has a risky investment opportunity every period, seeks for loans from a sequence of short-lived lenders. The borrower is either of a good type, who has a chance to succeed, or of a bad type, who has no chance to succeed. The lenders must make an investment decision based on their beliefs about whether or not the borrower is of a good type.
In this setup, credit history leads to under-investment, because short-lived lenders do not internalize a positive externality effect that information about past outcomes is beneficial to future lenders. On the other hand, collateral leads to over-investment, because lenders cannot update their beliefs about the borrower’s type and so they continue to invest for longer periods.
Trust and Growth: The Global Evidence over 40 Years (O4, Z1)
Abstract
This paper analyzes the intertemporal variation of trust on economic growth. Constructing a unique global country panel dataset and applying a system-generalized method of moments (SYSGMM) estimation approach to a sample of 75 market economies over a 40-year time span (1980-2019), this paper finds evidence of a curvilinear (inverted U-shape) relationship between trust and growth. This relationship corroborates earlier panel data results but challenges findings that posit a general positive relationship between trust and growth. Only a minority of global economies can attain a position close to or above the optimum threshold for trust and growth. Most economies, in fact, fall well below that threshold, and for them, it is incumbent upon their policymakers to consider trust-building measures in order to achieve higher growth. In countries that are close to the optimum threshold, however, such policies can likely be neglected. In fact, in countries where trust levels exceed the optimum, an increase in trust might even hamper growth.Trust Returns Trust: Gender Inclusiveness and Human Capital Investment in Trusting Government’s Handling of COVID-19 Pandemic (H8, I1)
Abstract
This paper aims to examine impact of human capital investment and gender inclusiveness on trust in government’s handling the Coronavirus disease 2019 (COVID-19 hereafter) using data from the European Social Survey (2020—2022). It also deals with potential endogeneity between education and trust in government effectiveness by the Two-Stage Residual Inclusion approach. The findings from the logit model indicate that men with complete years of education have a higher probability of trust in government than women. But highly educated women trust more in the government’s handling of COVID-19 than men. Whereas men and women with the accessibility of the internet and education show equivalent levels of trust in government. Results remain robust with alternative models for vaccinated people, citizenship, birthplace, and employment status. This study proposes human capital investment in education, particularly among women, in achieving efficient implications of government policies in a state of emergency and global crisis.U.S. Bank Credit Supply and the Unemployment Rate (E5, E3)
Abstract
There is a strong negative relationship between US bank credit and the unemployment ratesince the mid 1980s. In this paper I ask: Is there a causal connection between changes in the
supply of bank credit and the observed fluctuations of the unemployment rate? If so, what are the
transmission mechanisms governing such a relationship? To answer these questions, I proceed
down two paths. First, I use a bank credit supply measure estimated by Bassett et al. (2014) to
document the effect that bank credit supply shocks have on the unemployment rate in a VAR
model. The results suggest that a one percent contraction in the supply of bank credit leads to a
0.3 percentage point increase in the unemployment rate. Moreover, bank credit supply shocks
account for about 30% of the volatility in the unemployment rate. Second, I rationalize these
results by incorporating a banking sector into an otherwise standard DSGE model with labour
search frictions and nominal rigidities. Unlike standard banking models—which restrict banks
to intermediaries of preaccumulated loanable funds—this paper allows banks to finance loans
through deposit (i.e., money) creation as described in McLeay et al. (2014) and Bundesbank
(2017). Matched firms must obtain a bank loan to purchase their inputs before production.
When banks contract credit, there is less funds for firms to purchase their capital and labour
inputs and the cost of borrowing rises. This lowers the firms’ benefit of matching thereby
lowering the benefits of posting a vacancy. As a result, less vacancies are posted and labour
market tightness falls. In both empirical and model settings, a contraction in bank credit supply
leads to a typical recession: GDP, investment and labour market tightness fall while the cost of
external finance and the unemployment rate rise.
Unemployment Insurance Monthly Benefits, Pay Frequency, and Claimants' Job Search Behavior (H5, J6)
Abstract
This paper studies how the unemployment insurance (UI) benefit profile and payment schedule impact claimants' behaviors. The study reveals that liquidity-unconstrained claimants are less likely to exit UI in months following a high likelihood of an extra benefit check. Additionally, there is suggestive evidence that these claimants are less likely to exit UI when their benefit profiles begin with a high probability of extra benefits. Moreover, leveraging state-level policy variation in the benefit pay schedule, the paper documents that switching from a biweekly to a (smoother) weekly pay schedule induces claimants to have higher reservation wages and lower exiting hazard. This paper provides novel evidence that the timing and the monthly profiles of benefit payments are important to consider when designing social insurance policies.Unintended Consequences of Goodwill: Examining Spillover Effects in Targeted Supplementary Education Interventions (I2, I0)
Abstract
Targeted supplementary education interventions are typically provided to students in low-resourced areas with the intention to narrow educational inequality. However, when such programs are implemented within classrooms, student social interactions may cause spillover effects. This paper presents a novel multi-treatment field experiment that investigates the spillover effects of targeted supplementary computer-assisted learning (CAL) and traditional paper-pencil workbook education interventions among 130 boarding schools in rural China. We also discuss the possible channels by which programs may have spillover effects on non-targeted peers' academic outcomes. We find that the paper-pencil workbook program has a negative spillover effect on untargeted non-boarding students’ school performance, but no spillover effect is detected in the CAL group. Our network interference results suggest that the negative spillover effects of the workbook program most strongly affect non-boarding students who have close-boarding peers in the same classroom. This phenomenon can be attributed to a perceived unfair treatment between boarding and non-boarding students, resulting in a lack of motivation for academic engagement among untargeted non-boarding students.Unveiling the Informal Economy: An Augmented Factor Model Approach (E2, C3)
Abstract
This paper develops a new approach to estimating the degree of informality in an economy. It combines direct yet infrequent measures of the informal economy in micro data with an augmented factor model that links macro indicators of the informal economy to its causes. We show that the prevailing model used in the literature, the multiple indicators multiple causes model, is a special case of the augmented factor model and depicts an incomplete picture of the informal economy. Using the augmented factor model approach, we show that the dynamics of the informal economy is shaped by the strength of overall economic activity as well as the interplay between the formal and informal economies. Contrary to previous work that typically finds declining informality for most countries, we find that the degree of informality has increased for low-income countries for the past two decades.Vertical integration, foreclosure and learning-by-doing: evidence from the Chinese electric vehicle and power battery industries (L1, L4)
Abstract
This paper studies the competitive and welfare effects of vertical integration and foreclosure strategy employed by BYD, the leading Chinese manufacturer in successive oligopolistic markets of power batteries and electric vehicles (EV). Our findings reveal that integration generates procompetitive effects by eliminating double marginalization, while foreclosure generates both anticompetitive effects by raising BYD rivals' input prices and efficiency effects by switching battery outputs to firms with less experience while diminishing returns exist in the learning-by-doing process. The counterfactual analysis suggests that BYD would have gained even higher profits if it had not applied the foreclosure strategy, and consumer welfare would have been higher as well. The study highlights the importance of considering learning-by-doing in assessing the efficiency of vertical integration and foreclosure.Volume-Based Surprises (E4, E5)
Abstract
This paper proposes to identify surprises around Federal Open Market Com- mittee (FOMC) announcements based on the abnormal trading trading volume in Eurodollar Futures. The approach identifies announcement-specific window lengths designed to capture convergence trading among market participants. The resulting volume-based window lengths frequently exceed commonly used 30- minute windows.Volume-based monetary policy surprises suggest that monetary policy has a more pronounced impact on stock prices, term premia, and the economy than previously believed. Notably, volume-based Path surprises elicit responses akin to conventional surprises. These findings underscore the importance of incorpo- rating trading volume dynamics in understanding the effects of monetary policy announcements.
Water Contamination and Real Estate Prices: Evidence from Hawaii's Red Hill Fuel Leak (Q5, R2)
Abstract
I leverage the fuel leaks from the Red Hill Storage Facility in Oahu, Hawaii as a natural experiment to investigate the impact of water contamination on real estate prices. I utilize a unique real-estate transaction data that provides the tax map key (TMK) of each property. This data is then merged with a polygon of water contaminated areas constructed using geographical coordinates from the Joint Base Pearl Harbor-Hickam Drinking Water Long Term Monitoring Dashboard. This allows me to identify all TMKs lying inside the contaminated zone, which serve as the treated TMKs for the analysis.Employing a difference-in-differences research design, I compare real estate prices in contaminated areas relative to uncontaminated areas and before and after 2021. This date marks the fuel leakage that disrupted the drainpipe, releasing contamination into the freshwater aquifer supplying water to approximately 93,000 residents in Oahu. The results suggest a negative effect of water contamination on real estate prices.
This paper makes two key contributions to the literature. First, this is the pioneering study to exploit the fuel leaks from the Red Hill Storage Facility to examine the impact on economic outcomes, specifically real estate prices. Given that the real estate and leasing and rental industry accounts for a significant share of Hawaii's GDP, this focus is particularly important. Second, existing studies on water crises and real estate prices have primarily investigated those caused by changes in water source or lack of anti-corrosion agents. To the best of my knowledge, no prior research has analyzed the impact on real estate prices of fuel leaks contaminating a public water system operated by the Navy. This unique scenario offers valuable insights into how such a specific type of water contamination event affects property values.
Weather the Storm: Sectoral Economic and Inflationary Effects of Floods and the Role of Adaptation (Q5, R1)
Abstract
This paper investigates the impact of floods on economic output and prices at the industry level for local authoritiesin England using highly granular climate and weather data. Areas more prone to floods could receive relief and
reconstruction assistance from the government, and agents are likely to build up adaptation capital. These
reactions pose an endogeneity concern. We use precipitation z -scores as an instrument for floods to obtain
dynamic impulse responses to the shock on GDP and inflation with a local projection approach (LP-IV). At the
aggregate level, we find that flooding is associated with a negative lagged and permanent impact on GDP and
a positive impact on inflation, akin to a supply-side shock. We do not find a similar pattern in investments,
suggesting that other channels, such as consumption, are driving the decrease in economic activity. We find
significant asymmetries at the industry-level, where the impact of the shock is consistently larger. GDP in
manufacturing temporary declines in the short-run, accompanied by an ambiguous response of prices depending
on the sector. Flooding permanently dampens economic activity in the construction sector but has no impact
on inflation, while it induces a demand shock in wholesale and retail trade and in the accommodation and food
services sectors. Departing from previous analyses, we introduce measures of flooding that allow us to study the
effect of its acceleration in frequency and severity, two important features of climate change. Our results suggest
that frequency of flood events and its acceleration have the hardest impact on economic activity.
What Does It Take to Start a Business? Evidence from Transitions from Job Loss (J6, J2)
Abstract
It is well established that job loss has a negative impact on workers’ career trajectories,but little is known about the mediating effect of transitions into self-employment.
Using a rich data set of the universe of formal employment records in Brazil matched
with detailed data on business ownership, I leverage mass displacement events to
investigate the link between job loss, self-employment, and reemployment. I focus
my analysis around a policy change in 2009 that significantly reduced barriers to
microenterprise formation (i.e. formal self-employment). Prior to the policy change,
the self-employment path after a job dismissal was primarily followed by high-income
workers. After the reform, low-income workers closed one-third of this gap. While
both high- and low-income workers who take the self-employment path are 63-65p.p.
less likely to return to wage employment, there are significant distributional effects
for those who eventually do return. High-income workers face a wage penalty of 12
log points, while the estimates are non-significant for low-income workers, who are
partially shielded from large losses due to minimum wage regulations. The 2009 policy
change, while making formal self-employment more attractive, does not appear to alter
these reemployment patterns. My results are consistent with self-employment being an
important option for distressed workers facing job loss, especially those at the bottom
of the income distribution.
Where the Rubber Meets the Road: Examining Inequities in Summer Youth Employment Programs (J6, I3)
Abstract
Summer Youth Employment Programs have been shown to have significant impacts on youth outcomes such as reducing violent crime, increasing high school graduation, and boosting employment and wages. Much of this research is based on lotteries from oversubscribed programs. But what happens when jobs cannot be allocated using simple random assignment due to heterogeneous preferences of employers and youth participants? During the summer 2022, we obtained daily data snapshots from the hiring platform used by the City of Boston to match youth to summer jobs. Using this novel data set, we explore both youth application and employer selection behavior to better understand youth labor market dynamics and document how the job matching process unfolds within a workforce development program. We find that one-third of youth fail to complete the application process and that Hispanics are under-represented among the applicant pool. For youth completing at least one valid job application, employers were nearly twice as likely to select white youth relative to the percentage of whites in the overall pool of applicants. This disparity persisted even when controlling for other demographics, number and timing of applications submitted, and previous participation in the program. Implementing a job matching algorithm helped to eliminate these disparities between youth who were selected compared to the applicant population. Our results indicate that despite having honorable goals of reducing inequality, workforce development programs that face heterogeneity on both sides of the job matching process can result in job placements that perpetuate the inequities found in the labor market. In the absence of a simple random selection mechanism, instituting some kind of 50-50 rule with half of the program slots filled by employer selection and the remaining half filled by a lottery run by the City could be a feasible solution to improve both equity and efficiency.Wildfire Insurance, Adverse Selection and Market Equilibrium (Q5, L1)
Abstract
To facilitate communities’ preparedness against wildfire, the California Department of Insurance recently released a regulation requiring insurers to consider specific wildfire mitigation factors in their rating plans. Indeed, a plausible reason why homeowners would currently under-invest in mitigation is that rating plans do not reward them for such investments through lower premia, resulting in a form of endogenous adverse selection (Mérel et al., 2021). This study is an applied theory contribution that extends Rothschild and Stiglitz (1976)’s analysis of market equilibrium under imperfect information. We develop a framework that describes the endogenous mitigation and insurance choices of individuals in the context of a competitive insurance market under asymmetric information about mitigation choices.As in Rothschild and Stiglitz (1976), demand for insurance depends on individuals' objective fire risk, but here also on individuals' risk preferences. Even so, our results show that substitution between mitigation and fire insurance leads to a situation whereby individuals who choose the deductible-free contract turn out to have high costs since they do not mitigate, a sign of adverse selection. This model predicts that even in the presence of asymmetric information about endogenous mitigation actions, insurance contracts may be designed to incentivize a share of individuals to engage in mitigation.
Finally, we explore the potential of the policy to improve upon the competitive equilibrium. The regulation can eliminate adverse selection by discriminating among agents. However, its impact on insurance quantity and social welfare depends on the additional costs associated with verifying mitigation practices. These costs must be nonzero; otherwise, mitigation-contingent contracts would already be offered by competitive insurers who have an interest in identifying and attracting low-risk customers. If the monitoring cost is high and imposed on insurers, the regulation may have unintended consequences, ranging from substantial increases in insurance premia to firms exiting the market.