Volume 13, Issue 3 - "Forensic Economics" edited by Eric Zitzewitz

Environmental regulation seeks to limit pollution through strict emissions thresholds for existing cars, yet it remains unclear how frequently inspectors enforce these regulations and what impact test manipulation has on policy efficacy. We demonstrate (1) that there is a distinct discontinuous drop in the distribution of emissions results at the regulatory threshold (2) that when the state tightens emissions standards, over 50% of the vehicles newly at risk for failure now pass instantaneously after the regulation changes. These improvements cannot be explained by legitimate repairs but are consistent with facilities exploiting procedural discretion in order to help consumers evade the strengthened regulations.

Protecting the environment during economic growth is a challenge facing every country. This paper focuses on two regulatory measures that China has adopted to incentivize air quality improvement: publishing a daily air pollution index (API) for major cities since 2000 and linking the API to performance evaluations of local governments. In particular, China defines a day with an API at or below 100 as a blue sky day. Starting in 2003, a city with at least 80% blue sky days in a calendar year (among other criteria) qualified for the “national environmental protection model city” award. This cutoff was increased to 85% in 2007.Using officially reported API data from 37 large cities during 2000-2009, we find a significant discontinuity at the threshold of 100 and this discontinuity is of a greater magnitude after 2003. Moreover, we find that the model cities were less likely to report API right above 100 when they were close to the targeted blue sky days in the fourth quarter of the year when or before they won the model city award. That being said, we also find significant correlation of API with two alternative measures of air pollution – namely visibility as reported by the China Meteorological Administration (CMA) and Aerosol Optical Depth (AOD), corrected for meteorological conditions, from NASA satellites. The discontinuity around 100 suggests that count of blue sky days could have been subject to data manipulation; nevertheless, API does contain useful information about air pollution.

The fight against terrorism requires identifying potential terrorists before they have the opportunity to act. In this paper, we investigate the extent to which retail banking data – which as far as we know are not currently used by anti-terror intelligence agencies in any systematic manner – are a useful tool in identifying terrorists. Using detailed administrative records of a large British bank, we demonstrate that a number of variables in the data are strongly correlated with terrorism-related activities. Having both an Islamic given name and surname, not surprisingly, are among the strongest of these predictors, but a wide range of other demographic characteristics and behaviors observed in the data are also correlated strongly with terrorist involvement. The real key to our method, however, rests on the identification of one particular pattern of banking behavior (what we call “Variable Z”) which dramatically improves our ability to identify terrorists. Our model is demonstrated to have substantial power to identify terrorists both within sample and out of sample.

We propose and empirically implement a test for the presence of racial prejudice among emergency department (ED) physicians based on the bounceback rates of patients discharged after receiving diagnostic tests during their initial ED visit. A bounceback is defined as a return to the ED within 72 hours of being initially discharged. Applying the test to administrative data of ED visits from California and New Jersey, we do not find evidence of prejudice against black and Hispanic patients, but we find evidence of prejudice against Asians in California. We also find evidence of prejudice against male patients.

We estimate the market valuation of personal ties to Richard Cheney. Our proxies for personal ties are based on corporate board linkages that are prevalent in the network sociology literature. We consider a number of distinct political and personal events that either affected Cheney’s political fortunes or his ability to hand out political favors. Specifically, we consider: (a) market reaction of connected companies to news of Cheney’s heart attacks; (b) market reaction of connected companies to Cheney’s being placed in charge of the vice-presidential search process and his surprise self-appointment; (c) correlation of the value of connected companies with the probability of a Bush victory in 2000; and (d) correlation of the value of connected companies with the probability of war in Iraq. Contrary to conventional wisdom, we find that in all cases, the value of ties to Cheney is precisely estimated as zero. We interpret this as evidence that U.S. institutions are effective in controlling rent-seeking through personal ties with high-level government officials.

When do politicians lie? A politician who admits to wrongdoing will likely suffer some loss of popularity, but probably not as great as if he denied wrong doing and was subsequently discovered to have lied. This simple observation has a number of implications. For example, a politician in a marginal seat may have little choice but to risk lying as admitting will lose him too much popularity to survive. On the other hand, a politician in a relatively safe seat might survive the loss from admitting, but not from lying and being caught. Therefore we might predict the likelihood that a politician admits to a scandal to be positively related (over some range at least) to the security of his seat. This paper tests this prediction, and some others, with data from House bank scandal of 1991-92.