Volume 17, Issue 4 -

The effects of public subsidies in supporting innovative activity are subject to long-standing debates. Since empirical findings remain largely inconclusive, this study adds to this debate with counterfactual evidence from a laboratory experiment. In a creative real effort task simulating the innovation process, two distinct means of allocating subsidies are compared to a benchmark treatment without subsidies to identify their effects in fostering innovativeness. Furthermore, subjects’ cooperative behavior in relation to subsidies is investigated. Overall, subsidies lead to a substantial crowding-out of private investment. While the individual revenues increase due to the subsidy, the innovative activity fails to increase and less sophisticated innovations are realized. Consequently, subsidies have no or negative effects on overall welfare, depending on the subsidy specifics. However, subsidies do not influence cooperative behavior. These findings imply that the additional costs of subsidies for innovations might not be warranted by gains from additional innovations and increased welfare.

The popular approach to estimating the elasticity of marginal utility of consumption (EMUC) (Chetty 2006, “A New Method of Estimating Risk Aversion.” American Economic Review 96 (5):1821–1834. doi:10.1257/aer.96.5.1821. http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.5.1821) is here extended by including household production. It is shown that this generalization of the model is important as omission of household production may lead to bias, as demonstrated in a numerical sensitivity analysis. An extended model with household production is used to derive new EMUC formulas. Empirical estimates based on current evidence of the included parameters suggest a lower bound for EMUC of about 0.9.

We use a statewide panel dataset and an instrumental variable strategy to identify the effect of neighborhood fast food on the BMI z -scores of Arkansas public schoolchildren. As in earlier studies, we use distance from the child’s residence to the nearest major highway as an instrument for the density of fast-food restaurants. The sample is limited to children who moved at least once during the study period to ensure temporal variation in our instrument. Neighborhood fast food does have significant and positive effects on their BMI z -scores. The effect is disproportionately large for children who are rural, non-minority and female.

We examine whether subsidies are allocated to financially constrained firms and if they effectively alleviate these constraints. We claim that in addition to the usual “public good” arguments behind the allocation of subsidies, the extent to which firms are able to obtain external funding should not be overlooked. Overall, our results question both the allocation and the effectiveness of subsidies in alleviating financial constraints of firms willing to innovate. Additionally, the decision criteria for allocating public funds seem to be similar from those used by the private investors. These results have important implications on the design of future innovation policy.

We study a credit market using an infinite horizon model where an altruistic lender offers loans to agents for production projects that may grow over time. The lender funds the loans using a combination of external debt and subsidies. The optimal way for the lender to subsidize the credit relationships depends on the probability of project growth. When growth is less likely, it is best to commit to ongoing subsidies. However, for a range of growth probabilities, ongoing subsidization may not be credible and this can have negative efficiency implications.

Establishment exposure to crime is a frequent occurrence and a severe impediment to business operation in developing economies. We present a simple theory for the frequency and severity of crime across establishment size and evaluate its central predictions using micro-data. We find that high expectation of crime at the establishment level is strongly associated with lower sales, labor and capital. Consistent with our theory, crime has a differential role across size and is less prevalent among the smallest and largest establishments. When evaluated relative to major distortions to production highlighted in developing economies, crime remains important for explaining establishment size.

This study examines possible redistributional effects of the National Flood Insurance Program (NFIP), using a nationwide database of flood insurance policies and claims between 2001 and 2013 from the Federal Emergency Management Agency. Applying methods from the tax and transfer progressivity literature, we use the departure from per capita income proportionality at the zip code level as our measure of progressivity. Our findings indicate that premiums as a percentage of coverage purchased are regressive: premium shares are larger than income shares for lower-income zip codes. Payouts, however, also as a percentage of coverage purchased, are progressive, meaning lower-income zip codes receive a larger portion of claims paid. Overall net premiums (premiums – payouts) divided by coverage are also regressive. Our findings are driven by certain aspects of the current rate structure of the NFIP, as well as how income is related to risk. We discuss potential policies to provide assistance to lower-income households in purchasing flood insurance.

We examine policies of transportation, vehicle technology, environment and trade by impact on air quality along North America’s international borders where trade moves in trucks. Panel data analysis helps account for temporal variation in the implementation of different policies by start date and also enables comparisons between ports on the same border as well as between borders. Data on commercial trucks, private vehicles, border wait times and air pollution are utilized to compare pollution across time and space. We estimate Zellner’s SUR model and Swamy’s random coefficients model to capture heterogeneity in the impact of policies across ports. We find the impact of vehicle technology; trade, security and environmental policies vary across pollutants and ports. Econometric results show trade and security policy are statistically significant in reducing ozone and particulate pollution. Vehicle technology and fuel policy are statistically significant for reducing ozone pollution.

In the United States, the reform of the financial system of capital expenditure is under consideration, as people believe the current system through local referenda contributes to inequality in student achievement across school districts. Several studies using a regression discontinuity design (RDD) find zero to modest positive effects of capital expenditure on student achievement; however, these studies identify only the effect of capital expenditure financed by a marginally passed bond with a vote share at the cutoff. In this paper I estimate the average effect of capital expenditure on student achievement by incorporating a latent factor model into the existing RDD framework, and comparing school districts that are similar in their underlying confounding variables, namely preferences for educational investment. The results show that, on average, capital expenditure financed by a passed bond does not have significant effect on student achievement.

The wealth of US families had not returned to its prerecession level by 2013, six years after the onset of the Great Recession. This article provides a comprehensive analysis of this slow and uneven episode of wealth recovery, using family-level data from the Survey of Consumer Finances 1989–2013. Both descriptive results and regressions controlling for life cycle wealth accumulation show that families of color and less-educated families are falling behind in wealth recovery because their wealth portfolios are concentrated in housing, which has recovered very slowly. The decomposition results suggest that homeownership plays a significant role in explaining wealth disparity by race, ethnicity, and education at the mean and bottom of the wealth distribution. Understanding the uneven wealth recovery has important implications for redesigning asset-related policies and narrowing wealth gaps.

Striving for growth in service exports is an important way many service-oriented countries offset trade deficits commonly generated by a disproportional dependence on manufactured imports. Exports of business services are a significant subset of overall services trade. This paper examines whether innovation enhances exports of financial and insurance services by firms operating in these service industries. Results indicate that innovation has a sizable, positive impact on financial and insurance services exports. This holds true when examining a country’s aggregate level of insurance and financial services exports, as well as bilateral exports to a specific trade partner. However, robustness tests suggest that the positive effect of innovation on bilateral financial and insurance services exports holds true only at the extensive margin of trade (i. e. the decision to export), but not at the intensive margin (i. e. how much to export).

Fiscal transparency is considered an essential feature of public financial management and is supposed to provide beneficial governance effects such as reducing corruption. This paper adds to recent empirical literature that specifically investigates the impact of fiscal information disclosure on corruption. Country-level evidence provided by previous studies is exclusively based on cross-sectional econometric analyses, while the present contribution relies on a wide-ranging, country-level dataset of 116 countries that cover a ten-year time span (2003–2012), and on dynamic panel data estimates. These innovations in terms of data and methods provide new, robust empirical support to the claim that fiscal transparency is negatively correlated with corruption.

In this paper, I estimate the longer-run impact of variation in labor market entry conditions, driven by the Great Depression, on income and other labor outcomes in the 1940 Census. I use a regression discontinuity research design and find that 10 years after entry, less educated men entering the labor market at the beginning of the Great Depression earned 8.6 % less than those entering just one year prior. I find that the effect is larger (14.7 %) for those born in states more negatively affected by the Great Depression and close to zero for those born in states relatively less affected. The results indicate that the Great Depression had a persistent, negative impact on less-educated entrants that is not significantly different from that experienced by unlucky entrants of modern recessions.

This paper explains why some firms share their technology with competitors. We consider a Hotelling market where duopolists sell products with different qualities. This market consists of heterogeneous consumers, comprising three groups in terms of their valuations of product quality. We show that when consumers’ preferences for product quality are sufficiently heterogeneous, a high-quality firm benefits from sharing quality-enhancing technology.

This paper estimates the impact of public smoking bans on smoking behaviour, exploiting the progressive implementation of total smoking bans in enclosed public areas across Australian states/territories. We find that this smoke-free legislation has changed neither the incidence nor the intensity of smoking within the Australian population.