Volume 16, Issue 4 -

The paper examines the ability of several alternative group decision-making models to generate proposing, voting and decision patterns matching those observed in the Bank of England’s Monetary Policy Committee and the US Federal Reserve’s Federal Open Market Committee. A decision-making procedure, common to all the models, is to vote between adoption of the chairman’s proposal and retention of the status-quo policy, with heterogeneous votes generated by private information of the models’ monetary policy committee members. The members can additionally express reservations regarding the final committee decision. The three alternative models differ in the degree of informational influence between the chairman and the remaining members. We find that a “supermajoritarian” model, in which the chairman proposes a policy she knows would be accepted by a supermajority of the committee members, combined with allowance for reservations, closely replicates real-world decision-making patterns. The model predicts no rejections of chairman’s proposals, low but non-trivial dissent, even during meetings where the chairman proposes no change in policy, and predictive power of the voting record of the whole committee regarding future monetary policy changes.

This study investigates whether exposure to delinquent peers increases the risk of committing delinquent acts. To incorporate a balance argument in a conventional setting, we develop an adjusted exposure level to study an individual’s delinquency choice. We show this choice is affected by not only how many delinquent peers an individual directly and indirectly connects with, but also who those peers are. Specifically, exposure to delinquent peers is not universally risky, and could even be protective if the average exposure level of the individual’s delinquent peers is significantly less than her own exposure level. In addition, we show that individuals with high exposure levels are more sensitive to structural changes in the delinquent network. Therefore, a policy aiming to isolate key players in the network could be more cost-effective than strengthening the law-enforcement system.

This paper investigates the production decisions of firms with asymmetric environmental damages, 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 support can originate from polluting companies.

To date, 27 states and the District of Columbia have passed laws easing marijuana control. This paper examines the relationship between the legalization of medical marijuana, depenalization of possession, and the incidence of non-drug crime. Using state panel data from 1970 to 2012, results show evidence of 4–12 % reductions in robberies, larcenies, and burglaries due to the legalization of medical marijuana, but that depenalization has little effect and may instead increase crime rates. These effects are supported by null results for crimes unrelated to the cannabis market and are consistent with the supply-side effects of medicinal use that are absent from depenalization laws as well as existing evidence on the substitution between marijuana and alcohol. The findings contribute new evidence to the complex debate surrounding marijuana policy and the war on drugs.

The quality of goods provided by public utilities depends on infrastructure features and operational inputs. I compare the economic efficiency that results from price ceilings and minimum quality standards (i. e., compliance with environmental, chemical, and performance standards and norms) imposed by a benevolent regulator to a Coasean bargaining solution between a median consumer and a monopolist. When quality is non-excludable and non-rival, rate-of-return regulation yields higher economic efficiency than price cap regulation.

The experience of unemployment itself increases the risk of staying unemployed, and the unemployed face a high poverty risk. Moreover, experiencing poverty reduces the chances of reemployment. As wage inequality has expanded in recent decades, low-paid employment and in-work poverty have both risen. This study analyzes whether low-pay employment helps people escape the no-pay – low-income trap. Survey data from the German Socio-Economic Panel for the period 1995–2012 are used to estimate correlated random-effects probit models on the labor-market and income dynamics. The findings suggest that low-paid employment is especially helpful to exit the no-pay – low-income trap for persons who are long-term unemployed, as well as for those over 40 who have been unemployed for a short period of time. No indications of a low-pay – low-income trap are found.

We analyze emission permit auctions in a framework in which a dominant firm enjoys market power both in the auction and in the secondary market while its competitor behaves in a competitive way. We obtain linear equilibrium bidding strategies for both firms and a unique equilibrium of the auction, which is optimal ex-post for the dominant firm. Under specific distributional assumptions we conclude that the auction always awards less permits to the dominant firm than the cost-effective amount. Our results serve as a warning about the properties of auctioning under market power. Under interior solution the auction allocation is dominated by grandfathering in terms of aggregated cost with probability one. As a policy implication, the specific design of the auction turns out to be crucial for cost-effectiveness. The chances of the auction to outperform grandfathering require that the former is capable of diluting the market power that is present in the secondary market.

This paper explores the unemployment and welfare effects of privatization through the Harris-Todaro model with a mixed duopoly. Our approach is more generalized than the existing literature. When capital is sector-specific (i. e., it is in the short run), an increase in the degree of partial privatization will raise the unemployment rate, but the change of social welfare is conditional on the market share of the public firm and the relative degree of partial privatization. When capital is sector-mobile (i. e., it is in the long run), an increase in the degree of partial privatization will reduce the unemployment rate, but the change of social welfare is also dependent on the market share of the public firm and the relative degree of partial privatization. Our results capture the fact that the public firm and the private firm usually coexist in a competitive environment in the real world.

Abstract: Eco-labeling of services has become increasingly common, yet little empirical evidence exists concerning its effectiveness. We address this gap in the literature by analyzing a highly visible eco-label, the American College and University Presidents’ Climate Commitment (ACUPCC), in the sector of higher education. We match information about the ACUPCC to the US Department of Education IPEDS database to examine the impact of signing on student applications, admissions, and enrollment. We mainly utilize a difference-in-difference approach to identify the effects of interest but confirm results with an interrupted time series model. We find that signing the ACUPCC increases applications and admitted students by 2.5–3.5 %. However, the evidence regarding enrollment is weaker with only some specifications finding increases of around 1–2 %. Overall, there is considerable heterogeneity across sectors and selectivity of the institutions. These results show that, at the minimum, voluntary and information-based approaches (VIBAs) for services can be effective in generating visibility and influencing less-costly consumer behavior.

Abstract: In a pioneering article entitled “Taxation by Regulation,” Judge Richard Posner challenged the prevailing orthodoxy that regulation emulates competition along the lines of the Public Interest Theory of regulation. He argued that regulation is best viewed as a branch of public finance in which the power of the state is leveraged to achieve non-competitive outcomes. We develop an indirect test of Posner’s theory by specifying the regulator’s welfare function as a convex combination of consumer surplus, profits shared with the regulator and profits retained by the regulated firm. The welfare weights cannot be observed directly, but can be inferred from the regulator’s behavior in equilibrium. To wit, when the regulator permits the regulated firm to earn positive profits and authorizes higher prices in response to a greater degree of profit sharing this establishes both an upper bound on the consumer surplus weight and a higher weight on shared profits than on profits retained by the regulated firm. Applying this test to the implementation of the 1996 Telecommunications Act lends support to Posner’s theory.

Abstract: We set out a model of strategic CSR with consumers’ demand for CSR products, where ethical features improve the “quality” of goods through a complementarity between production and CSR provision. Our model builds on the literature based on heterogeneous firms in monopolistic competition with quality product differentiation. By letting the optimal level of ethical standards to be endogenously determined by each profit-maximizing firm, we analyse the link between heterogeneity in productivity and CSR intensity. The analytical results are confirmed by a numerical analysis. We then consider the need for external financing, finding that credit constraints may lead active firms to reduce the optimal CSR level whereas the reputational effect of CSR firms may help in dampening the reduction in firms’ optimal CSR level. Finally, we find that policy interventions may lead to a higher level of the optimal CSR, when addressed to change firms’ incentives and consumers’ ethical awareness.

Abstract: Liability for environmental harm is often capped when precaution meets a minimum requirement and is often applied in conjunction with regulations. The correct setting for such regulations depends on the approach that courts take to evaluating the minimum requirement. It may also depend on which of the minimum requirement and capped liability is the more pressing consideration for the firm. Regulatory design is more straightforward when it is capped liability that is more pressing.

Abstract: We examine educational transmission between fathers (mothers) and daughters in India for daughters born during 1962–1991. We find that educational persistence, as measured by the regression coefficient of father’s (mother’s) education as a predictor of daughter’s education, has declined. However, the correlation between educational attainment of daughters and fathers (mothers), another commonly used measure of persistence, suggests only a marginal decline. Further we decompose the intergenerational correlation. We also find that the probability of a daughter attaining senior secondary or above education (top end of educational distribution) is not only positively associated with father’s (mother’s) education levels but the gaps in those probabilities have not declined over time. Similarly, there is no convergence over time in the probability of a daughter attaining senior secondary or above education with the same level of father’s (mother’s) education for daughters belonging to Higher Hindu Castes and disadvantaged groups such as Other Backward Castes or Scheduled Castes/Tribes. Although conditional on having same educated fathers, sons are more likely to achieve senior secondary or above education in each cohort compared to daughters, the gap in those probabilities has declined over time.

Abstract: We develop a stylized theoretical model showing that countercyclical transfers from a wealthy donor to a poorer recipient generate a signal of altruistic donor motivation. Applying the model to OECD foreign aid (ODA) data we find the signal present in approximately one-sixth of a large set of donor–recipient pairs. We then undertake two out-of-model exercises to validate the signal: a logit regression of signal determinants and the growth effects of ODA from signal-positive pairs are compared to non-signal bearers. The logit indicates our signal meaningfully distinguishes donor–recipient pairs by characteristics typically associated with altruism. The growth exercise shows ODA from signal bearers displays stronger reverse causation and more positive long-run effects. Beyond foreign aid, our signal of altruistic motivation may be applicable to a wide range of voluntary transfers.

Abstract: Schumpeter’s concept of creative destruction as the engine of capitalist development is well-known. However, that the destructive part of creative destruction is a social and economic cost and therefore biases our estimate of the impact of the innovation on GDP is hardly acknowledged, with the notable exception of Witt (1996. “Innovations, Externalities and the Problem of Economic Progress.” Public Choice 89:113–30). Admittedly, during the First and Second Industrial Revolutions the magnitude of the destructive component of innovation was no doubt small compared to the net value added to GDP. However, we conjecture that recently the destructive component of innovations has increased relative to the size of the creative component as the new technologies are often creating products which are close substitutes for the ones they replace whose value depreciates substantially in the process of destruction. Consequently, the contribution of recent innovations to GDP is likely upwardly biased. This note calls for further research in innovation economics in order to measure and decompose the effects of innovations into their creative and destructive components in order to provide improved estimates of their contribution to GDP and to employment.

Abstract: This paper examines the potential role of higher education institutions in reducing labour market mismatch amongst new graduates. The research suggests that increasing the practical aspects of degree programmes, irrespective of the field of study, will reduce the incidence of initial mismatch. In terms of routes into the labour market, higher education work placements with the potential to develop into permanent posts and the provision of higher education job placement assistance were found to have substantial impacts in reducing the incidence of graduate mismatch. The use of private employment agencies was found to significantly heighten the risk of subsequent mismatch.

We exploit a natural experiment to test whether school closure threats can increase staff effort and improve performance. The Hong Kong government overestimated post-1997-Handover mainland Chinese immigration and local births, creating excess capacity in many school districts. In 2003, with student enrollment falling to new lows (increasing cost per student), the government announced that it would close schools that were unable to recruit enough students. Since schools compete for students within their own district, the accidental excess capacity created closure threats that varied by district. Difference-in-differences analyses show that after initiation of this policy, student scores in heavily overbuilt districts were lower than scores in other districts and lowest in districts with the fewest students per class. Although closure threats were counterproductive for improving performance, the school closures eventually improved overall school quality, as typically, the lowest performing schools in each district closed.

Extant research on school entry and compulsory schooling laws finds that these policies increase the high school graduation rate of relatively younger students, but weaken their academic performance in early grades. In this paper, we explore the evolution of postsecondary impacts of the interaction of school entry and compulsory schooling laws in Michigan. We employ a regression-discontinuity (RD) design using longitudinal administrative data to examine effects on high school performance, college enrollment, choice, and persistence. On average, we find that children eligible to start school at a relatively younger age are more likely to complete high school, but underperform while enrolled, compared to their counterparts eligible to start school at a relatively older age. In turn, these students are 2 percentage points more likely to first attend a two-year college and enroll in fewer total postsecondary semesters, relative to their older counterparts. We explore heterogeneity in these effects across subgroups of students defined by gender and poverty status. For example, we illustrate that the increase in the high school graduation rate of relatively younger students attributable to the combination of school entry and compulsory schooling laws is driven entirely by impacts on economically disadvantaged students.

This paper estimates the effects of overeducation and overskilling on mental well-being in Australia. Using fixed-effects (FE) panel estimations, our analysis shows that overeducation does not significantly affect people’s mental well-being. However, overskilling has strong detrimental consequences for mental well-being. Using a panel data quantile regression model with FE, we show that the negative effects of overskilling are highly heterogeneous, with larger impact at the lower end of the distribution of mental well-being. Furthermore, our dynamic analysis shows that the damaging effects of overskilling are transitory, and we find evidence of complete mental well-being adaptation one year after becoming overskilled.

Abstract: In this paper I investigate the relationship between firms’ investment in product and process innovation, in particular how this relationship is affected by the consumer’s valuation for variety. Depending on the strength of the consumer’s value of variety, the aggregate demand increases with a higher degree of product innovation, which I call the market-expansion effect. I show that the two types of investment are positively related if the market expansion effect is strong.

In an influential article, Raj Chetty (2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance.” American Economic Journal: Economic Policy 1 (2):31–52) argues that in the presence of tax evasion the elasticity of taxable income (ETI) is no longer a sufficient statistic for the marginal efficiency cost of funds (MECF). We show that, under Chetty’s (2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance.” American Economic Journal: Economic Policy 1 (2):31–52) risk-neutrality assumption, correctly measuring the standard MECF only requires adding detected evasion inclusive of penalties. In the more general case of risk aversion, it further requires amending the formula to address the private risk-bearing cost of tax evasion.

Abstract: While most observers feel that interest groups influence parliamentary decisions, direct evidence on this topic is scarce. Matching parliamentary votes with referendum results helps to bridge this gap. Existing research for politicians of the Swiss Lower House of Parliament suggests that the number of sectional and cause interest groups affect the quality of political representation. We extend this analysis to majority-elected politicians of the Upper House and by more than 50 referendum decisions for the Lower House. Our results show that the pure number of sectional or cause groups does not affect defection of politicians from their constituents which suggests that the generalizability of the results may be limited.

Abstract: I analyze markets in which consumers may misestimate the true value of goods and the government can affect the valuation through public promotion. When entry of firms is not allowed, the government makes consumers overvalue the goods to mitigate welfare loss from underproduction in an oligopolistic market, provided that the promotion cost is sufficiently low. On the contrary, in a free-entry market, no matter how low the promotion cost is, the government may make consumers undervalue them in order not to induce wasteful entries despite the remaining underproduction problem. In addition, my result in a free-entry market suggests that the main finding of Glaeser and Ujhelyi (J Public Econ 94: 247-257, 2010)crucially depends on the barriers to entry and the opposite result may be obtained under free entry.

I examine the implications of meet-the-competition clauses (MCCs) for the strategic disclosure of product quality in a duopoly in which sellers can adopt these clauses before setting their prices. I show that MCCs generate incentives for the disclosure of product quality because these clauses facilitate monopoly pricing in states of nature in which the quality of products is the same. This suggests that MCCs may encourage the disclosure of information because sellers can use them to coordinate their pricing decisions based on the information revealed through disclosure.

Abstract: Using longitudinal survey data from Korean workers, we examine whether the effects of import competition on post-displacement wages are heterogeneous between skilled and unskilled workers for trading partners with different endowments of (un)skilled labor. Reemployment wages of displaced workers show a decrease for skilled workers but an increase for unskilled ones when imports from an advanced country rise, whereas they decrease for unskilled workers but increase for skilled ones when imports from a developing country rise. The results provide support for the Stolper–Samuelson theorem.