Volume 5, Issue 1

Using data from American magazines, we explore the relationship between newsstand and subscription prices and magazine characteristics. In particular, we distinguish between magazines that provide benefits in the future (investment magazines) versus those that are simply fun to read now (leisure magazines). A consumer with a present bias at the newsstand discounts the future payoff of the investment good but fully values the leisure good. This difference does not exist for subscriptions. Thus, the ratio of the subscription to newsstand willingness to pay for a magazine should differ between investment and leisure goods. We find that for magazines whose payoff is in the future, subscriptions are relatively more costly, ceteris paribus. This finding suggests that publishers reflect the present bias preferences of consumers in their price setting behavior.

Bank regulators are required to consider a bank’s record of providing credit to low- and moderate-income neighborhoods and individuals in approving bank applications for mergers and acquisitions. We provide evidence that banks self-regulate by strategically increasing their lending to these populations prior to acquiring another institution in anticipation of the regulatory and public scrutiny associated with a merger or acquisition. In particular, we show that the higher the percentage of the institution’s mortgage originations in a given year that are directed to low- and moderate-income individuals or neighborhoods, the greater the probability that the institution will acquire another bank in the following year. Further investigation bolsters the view that this correlation is due to banks’ anticipation of the public and regulatory scrutiny during the merger review process: (1) the effect cannot be explained by regulator behavior or by unobserved bank characteristics; (2) the relationship is observed for acquiring banks, which are the primary focus of scrutiny, but not for the banks that are being acquired; (3) the positive effect increases over the 1991 to 1995 time frame, a period when scrutiny of an institution’s community lending record increased; and (4) the effect is largest for big banks, who face particularly intense scrutiny.

Some commentators believe that slotting allowances enhance social welfare by providing retailers with an efficient way to allocate scarce retail shelf space. The claim is that, by offering their shelf space to the highest bidders, retailers act as agents for consumers and ensure that only the most socially desirable products obtain distribution. I show that this claim does not hold in a model in which a dominant firm and competitive fringe compete for retailer patronage. By using slotting allowances to bid up the price of shelf space, the dominant firm can sometimes exclude the competitive fringe even when welfare would be higher if the fringe obtained distribution.

Some policy makers justify cigarette taxes by arguing that they actually make smokers better off. This argument has been hard to evaluate because behavioral data, such as that showing reduced cigarette consumption following a tax hike, cannot resolve the issue of whether smokers are made better off by the reduction or not. In this paper, we directly assess the effect of cigarette taxes on well-being, using subjective well-being data. We model the differential impact of excise taxes on those with a propensity to smoke, relative to others, in order to control for omitted correlations between happiness and excise taxation. Using US data on happiness and state-level changes in excise taxes, we find consistent evidence that excise taxes make those who have a propensity to smoke happier. To assess robustness, we repeat the exercise using Canadian data, which has independent information on well-being and also much larger tax changes, and find the exact same pattern. Moreover, these impacts are present for cigarette excise taxes, but not for other excise taxes. These results suggest that the welfare effects of cigarette taxation are far more complex than simple rational economic models might predict.

Religion plays an important role in the lives of many Americans, but there is relatively little study by economists of the implications of religiosity for economic outcomes. This likely reflects the enormous difficulty inherent in separating the causal effects of religiosity from other factors that are correlated with outcomes. In this paper, I propose a potential solution to this long standing problem, by noting that a major determinant of religious participation is religious market density, or the share of the population in an area which is of an individual’s religion. I make use of the fact that exogenous predictions of market density can be formed based on area ancestral mix. That is, I relate religious participation and economic outcomes to the correlation of the religious preference of one’s own heritage with the religious preference of other heritages that share one’s area. I use the General Social Survey (GSS) to model the impact of market density on church attendance, and micro-data from the 1990 Census to model the impact on economic outcomes. I find that a higher market density leads to a significantly increased level of religious participation, and as well to better outcomes according to several key economic indicators: higher levels of education and income, lower levels of welfare receipt and disability, higher levels of marriage, and lower levels of divorce.

This paper studies optimal linear taxation in a general equilibrium model with Cournot oligopoly. The main result is the following. With imperfect competition the tendency toward "inverse elasticities" tax rules will be weakened and may even be reversed. That is, an upward sloping relationship may exist between an industry's optimal tax rate and its own-price elasticity of demand, unlike the perfectly competitive case.

Choosing a type of education is one of the largest financial decisions we make. Educational investment differs from other types of investment in that it is indivisible and non-tradable. These differences lead agents to demand a premium to enter careers with more idiosyncratic risk. Since the required premium will be smaller for wealthier agents, they will tend to enter careers with more idiosyncratic risk. After developing a model of career choice, we use data from the Panel Study of Income Dynamics (PSID) to estimate the risk associated with different careers. We find education, health care, and engineering careers to have relatively safe streams of labor income; business, sales, and entertainment careers are more risky. By choosing a college major, many students make a costly human capital investment that allows them to enter a specific career. To examine the link between wealth and college major choice implied by the model, we use data on choice of college major from the National Postsecondary Student Aid Survey (NPSAS). Controlling for observable measures of ability and background, we find evidence that wealthier students tend to choose riskier careers, particularly business.

Empirical researchers commonly invoke instrumental variable (IV) assumptions to identify treatment effects. This paper considers what can be learned under two specific violations of those assumptions: contaminated and corrupted data. Either of these violations prevents point identification, but sharp bounds of the treatment effect remain feasible. In an applied example, random miscarriages are an IV for women’s age at first birth. However, the inability to separate random miscarriages from behaviorally induced miscarriages (those caused by smoking and drinking) results in a contaminated sample. Furthermore, censored child outcomes produce a corrupted sample. Despite these limitations, the bounds demonstrate that delaying the age at first birth for the current population of non-black teenage mothers reduces their first-born child’s well-being.

Two important unresolved issues in the evaluation of health care programs are the treatment of indirect costs and the selection of the appropriate discount rate. This paper emphasizes the role of distortionary taxation in addressing these issues. It establishes that: (i) indirect government-paid costs should be treated differently from indirect privately-paid costs; (ii) direct and indirect government costs of a health program should be discounted by the gross rate of return, while consumers' monetary valuations of the program's effects, less direct private costs, should be discounted at the net rate of return; and (iii) the present value of total government costs should be multiplied by a marginal cost of funds before it is comparable to the present value of net private benefits.

This paper analyses the personnel records of a Taiwanese auto dealer employing three distinct internal labor markets (ILMs), adding new evidence that builds upon recent empirical and theoretical works on ILMs. We show that the public learning model proposed by Farber and Gibbons (1996) is not supported in general by our data because the behaviors of empirical wage residuals covariance matrix contradict the martingale predictions derived from the their model. However, “public learning” may not be unrealistic once individual specific learning speed is introduced. Furthermore, we find that the positive effects of levels, on both salary and bonus equations, are smaller under a fixed effects model than under an OLS (combined) model. However, part of the wage variations is contributed by individual heterogeneity rather than the hierarchy itself. Evidence also shows that education plays an important role in the determination of levels.

The standard model of markets for illicit drugs predicts that tougher enforcement against sellers will raise prices; yet cocaine and heroin prices have fallen substantially during a period of massive increases in enforcement. We present a model in which the basic mechanisms at work in the textbook model may be substantially altered by an important feature of illegal markets—violence that creates inheritable heterogeneity along a dimension that both determines relevant production cost and imposes externalities on other suppliers. Dealers frequently make use of violence and threat of violence in the normal course of trade. A seller who is particularly effective in the use of violence may face lower enforcement costs than other dealers and generate an external cost borne by those sellers. Together these features generate a number of counter-intuitive policy implications. For example the arrest of a particularly violent dealer reduces external costs borne by other dealers. The net effect is a possible reduction in costs for the marginal dealer and hence a reduction in price.

Our research presents new evidence on the age pattern of the implicit value of life revealed from workers' differential wages and job safety pairings. Although aging reduces the number of years of life expectancy, aging can affect the value of life through an effect on planned life-cycle consumption. The elderly could, a priori, have the highest implicit value of life if there is a life-cycle plan to defer consumption until old age. We find that largely due to the age pattern of consumption, which is non-constant, the implicit value of life rises and falls over the lifetime in a way that the value for the elderly is higher than the average over all ages or for the young. There are important health policy implications of our empirical results. Because there may be age-specific benefits of programs to save statistical lives, instead of valuing the lives of the elderly at less than the young, health policymakers should more correctly value the lives of the elderly at as much as twice the young because of relatively greater consumption lost when accidental death occurs.

We compare several income distributions in urban China in the late 1980s and mid-1990s using tests for stochastic dominance in order to decompose gender differentials. Examination of the entire distribution gives insight into the uniformity of such differentials across the distribution. Moreover, tests based on stochastic dominance allow for robust welfare comparisons. Our analysis reveals: (i) large and increasing differentials in predicted earnings across gender in the lower tail of the distribution, but few differences in the upper tail, (ii) discrimination explains one-third to one-half of the total predicted earnings differential in the lower tail of the distribution, and little of the disparity in the upper tail, (iii) gender equity has eroded during China's economic transition, particularly for the youngest cohort, and (iv) significant nonuniformities in earnings differentials suggest the need to broaden analyses of gender differentials to incorporate earnings dispersion.

We present a model in which agents value food, leisure and health, and take into account how their food consumption and leisure affect their health. Drawing insights from behavioral psychology and medical practice, agents face adjustment costs in choosing consumption and leisure. We find that recent increases in obesity rates are not cause for concern from either the standpoint of individually assessed well-being, nor necessarily of the medical practitioner. However, the fact that agents who hope to adjust their lifestyles face adjustment costs indicates that there is potential for policy in increasing individual welfare: first, by taking measures that may decrease the incidence of supra-optimal consumption and leisure and, second, by taking measures that may facilitate behavioral change. However, it must be recognized, especially in the latter case, public policy may be limited by diverse circumstances faced by individuals that will not be amenable to general "one-size-fits-all" types of policies.

The dominant model of addictive consumption in economics is the theory of rational addiction. The addict in this model chooses how much they are going to consume based upon their level of addiction (past consumption), the current benefits and all future costs. Several empirical studies of cigarette sales and price data have found a correlation between future prices and consumption and current consumption. These studies have argued that the correlation validates the rational addiction model and invalidates any model in which future consumption is not considered. An alternative to the rational addiction model is one in which addiction spreads through a population as if it were an infectious disease, as supported by the large body of empirical research of addictive behaviors. In this model an individual's probability of becoming addicted to a substance is linked to the behavior of their parents, friends and society. In the infectious disease model current consumption is based only on the level of addiction and current costs. Price and consumption data from a simulation of the infectious disease model showed a qualitative match to the results of the rational addiction model. The infectious disease model can explain all of the theoretical results of the rational addiction model with the addition of explaining initial consumption of the addictive good.

With fixed costs of developing technology, taxes can generate large efficiency costs by slowing the rate of diffusion and these costs are not accounted for in conventional analyses. This paper illustrates the potential importance of this idea in the context of taxes on broadband Internet access at an early stage of its existence by combining data on individual demand by area with data on supplier entry into those markets. Applying a tax to broadband in 1998 would have reduced the quantity and generated a large deadweight loss in the conventional model but when the analysis accounts for the fixed costs of entering new markets, taxes lead to delayed entry in several markets. In these places, the lost consumer surplus is additional deadweight loss and it more than doubles the true efficiency costs from taxation. The conventional model also dramatically understates the share of the tax burden borne by consumers.

Using a broad multi-country sample, we find that individuals who contribute to the public good of environmental protection report higher levels of life satisfaction and happiness. We show that this result is robust to the use of an instrumental variables technique and provide several pieces of evidence that this positive relationship between contributions and well-being is due to a warm-glow motive. First, well-being does not increase proportionally with contributions, consistent with the warm-glow model that it is the act of giving that generates utility. Second, individuals who think of themselves as socially responsible derive greater satisfaction from their contribution to environmental protection as would be the case if the contribution reinforces a favorable self image. Interestingly, conforming to a social norm may be a motivation for some individuals, but the presence of this motive depends on individual attitudes towards social responsibility. Among those who express the highest level of social responsibility, conforming to the norm makes them less satisfied with life. However, individuals with a moderate level of social responsibility do report higher levels of happiness when their public goods contributions conform to societal norms.

This paper presents new evidence on the role of gender segregation and pay structure in explaining gender wage differentials of full-time salaried workers in Spain. Data from the 1995 and 2002 Wage Structure Surveys reveal that raw gender wage gaps decreased from 0.24 to 0.14 over the seven-year period. Average differences in the base wage and wage complements decreased from 0.09 to 0.05 and from 0.59 to 0.40, respectively. However, the gender wage gap is still large after accounting for workers’ human capital, job and pay structure characteristics, and female segregation into low-paying industries, occupations, establishments, and occupations within establishments.

The American School Counselor Association (ASCA) recommends that there be no more than 250 students to each school counselor. Although numerous studies in the education literature show that school counselors play a positive role in educating children, to our knowledge, this is the first study answering the question of whether lower student to counselor ratios, all else equal, improve student outcomes. Using data provided to us by Florida's Alachua County School District and the University of Florida Counselor Education Department, we show that lower student to counselor ratios decrease both the recurrence of student disciplinary problems and the share of students involved in a disciplinary incident. These effects are greater for minority and low-income students. The fixed-effect models used, control for all unobserved heterogeneity across schools, isolating the effects on discipline from the within-school changes in the student-to-counselor ratio. The empirical methodologies employed produce unbiased estimates as long as the variation in the student to counselor ratio is not driven by unobserved factors that affect disciplinary outcomes.

The elasticity of risky sexual behavior to changes in local HIV infection prevalence is estimated using a longitudinal survey of the sexual behavior and health of gay men in San Francisco during the 1980s. An average respondent decreases risky behavior by about 5% in response to a 10% increase in disease prevalence. The average response obscures substantial variation across respondents: High-risk people reduce risky behavior less than low-risk people as prevalence increases. This result is consistent with the predictions of theoretical economic epidemiology and has implications for epidemic dynamics.

Although there is a sizeable literature on the effect of private school attendance on academic student outcomes, the number of studies that investigate the impact of school sector on non-academic outcomes is limited. Using a rich data set, we analyze the impact of Catholic school attendance on the likelihood that teenagers use or sell drugs, commit property crime, have sex, join gangs, attempt suicide, or run away from home. We employ propensity score matching methods to control for the endogeneity of school choice. Catholic school attendance reduces the propensity to use cocaine and to have sex for female students. However, it increases the propensity to use and sell drugs for male students.

The value of sibling data for identifying the causal effect of schooling on wages hinges on our ability to eliminate biases due to the mismeasurement of schooling. Analysts typically assume errors in schooling reports are "classical." In this study, we use generalized method of moments to estimate the parameters of a range of measurement error models, including forms of both classical and mean-reverting error models; we estimate the models using a sample of identical twins and a sample of non-twin siblings. The results of likelihood ratio-type tests reveal that variants of classical measurement error models fit both datasets about as well as more flexible models.

I examine the effects of a change in Canada Pension Plan disability program adjudication criteria on individual reports of medical problems. The estimates from this paper suggest that more stringent screening requirements are associated with a statistically significant decline in the reports of hard-to-diagnose conditions, such as low back pain. On the other hand, my estimates also indicate that changes in adjudication requirements do not have a statistically significant effect on the reports of easier to diagnose conditions.

We analyze the effect that competition between HMOs has on the cost and quality of medical services. Our key result is that increasing competition enhances consumer utility while also moderating the impact of managed care on quality and costs. Indeed, we find that heightened competition between HMOs can cause an overall increase in care quality and costs. This result derives from an important, but overlooked, feature of the managed care market place. Plans differentiate themselves by the size and depth of their provider network. The resulting competition to attract physicians exerts a moderating effect on the incentive contracts HMOs write with providers.

This paper examines the effects of multimarket contact on advertising prices in the U.S. radio broadcasting industry. While it is in general difficult to measure the effect of multimarket contact on competition, the 1996 Telecommunications Act substantially relaxed local radio ownership restrictions, giving rise to a major and exogenous consolidation wave. Between the years of 1995 to 1998, the average extent of multimarket contact in major U.S. media markets increased by 2.5 times. Importantly, the extent of change in multimarket contact varies across markets, and the change in multimarket contact varies separately from the change in concentration. Using a panel data set on 248 geographic U.S. radio broadcast markets, 1995-1998, we find that multimarket contact has little effect on advertising prices. This paper contributes to the empirical literature on multimarket contact by analyzing a different industrial context and using longitudinal data surrounding an ownership deregulation.

This paper presents a two-country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties increases for small tariffs. Firm profits are falling in both tariff and fixed export cost barriers. Tariff revenue falls when fixed export costs increase whereas we have a Laffer curve effect for the tariff. Welfare falls when fixed export costs increase and increases for small tariffs and falls for large tariffs, i.e. there exists a welfare maximizing tariff.

This paper analyzes how university patents encourage university-firm collaboration for technology transfer. Focusing on factors other than competition, I find that the two may not collaborate either because the firm finds in-house development cheaper, or because of a disagreement about the potential product's profitability. In both cases, university patents can encourage collaboration by increasing the invention's diffusion time, and therefore play a role even in the absence of any competition. The model also suggests instances in which we can expect to see a greater impact of university patents on collaboration. Even when patents increase collaboration, they do not necessarily increase welfare. The findings are relevant for the debates on the Bayh-Dole Act, which gave universities a blanket right to patent and license inventions resulting from federally funded research.

Researchers may want to estimate the percentage change of a variable, such as household wealth or corporate profits, that takes on economically significant nonpositive values. Using the logarithmic transformation, however, requires discarding observations with nonpositive values. This paper describes a possible solution to this problem-the inverse hyperbolic sine transformation-and shows how to implement this transformation optimally in the case of median regression. As an illustration of the usefulness of this transformation, I revisit a specification sometimes used to estimate the effect of tax incentives on household saving.

Although most models of environmental compliance are based on a variation of the rational polluter model, regulated entities may not always intentionally decide to violate based on the relative costs and benefits of doing so. According to the complexity critique, a significant amount of noncompliance may be the result of ignorance about the requirements of the law. Using hazardous waste regulations as a case study, this paper examines the role that rationality and complexity play in environmental compliance. The results suggest that both are necessary to explain hazardous waste compliance behavior. In support of the rational polluter model, the results show that factors which increase the cost of compliance also increase the likelihood of a violation while factors that increase the likelihood of inspections and detection decrease the probability of a violation. In support of the complexity critique, the results show that larger facilities and facilities of multi-plant companies are less likely to violate, while facilities that are subject to more complex regulations are more likely to violate. Also in support of the complexity critique, facilities learn from past inspections and facilities in states with programs directed toward reducing complexity are less likely to violate. This mixed support holds across various subgroup of facilities, although there does appear to be some difference in the factors that contribute to different types of violations. In particular, non-management violations appear to be driven less by a rational comparison of the costs and benefits of violations than by the complexity of regulations.

The switching of health insurance plans and health care utilization are potentially correlated with both observable and unobservable information. This paper presents a two-period model of health care utilization, and attempts to account for unobserved heterogeneity that simultaneously affects utilization and the decision to switch plans. Data used in this paper are drawn from the Medical Expenditure Panel Survey. Results indicate that non-HMO enrollees increase their utilization of non-emergency related care prior to switching to HMOs, and they decrease utilization after switching. Conversely, individuals enrolled in HMOs report lower levels of utilization before and higher utilization after they switch to non-HMOs.

Child labor-free product labels are efficiency-enhancing when child welfare is a public good only if resources are generated to enhance the well-being of children. However, for a small price-taking economy with at least as many goods as factors and competitively supplied labels, the premium paid by consumers is dissipated by a production inefficiency associated with the adult-only technology. Child labor will decline if labeling firms bid the adult wage above the threshold at which families begin to withdraw their children from the workforce. Alternatively, monitoring agencies may offer consumers a donation label, which claims that some fraction of the purchase price will be donated to a child-welfare fund. A donation label is more efficient than the child labor-free label as it eliminates the production inefficiency and the inefficient competition among certification agencies. The standard contract offered in the child labor free labeling sector has elements of a donation label.

We develop a flexible, citations- and reference-intensity-adjusted ranking technique that allows a specified set of journals to be evaluated using a range of alternative criteria. We also distinguish between the influence of a journal and that of a journal article, with the latter concept arguably being more relevant for measuring research productivity. The list of top economics journals can (but does not necessarily) change noticeably when one examines citations in the social science and policy literatures, and when one measures citations on a per-article basis. The changes in rankings are due to the broad interest in applied microeconomics and economic development, to differences in citation norms and in the relative importance assigned to theoretical and empirical contributions, and to the lack of a systematic effect of journal size on influence per article. We also find that economics is comparatively self-contained but nevertheless draws knowledge from a range of other disciplines.

This paper analyzes the problem of child labor in an infinite-horizon dynamic model with a variable rate of time preference and credit constraints. The variability in the rate of time preference leads to the possibility of multiple steady states and a poverty trap. The paper considers the long-run and short-run effects of an array of policies like enrollment subsidy, improvement in primary education infrastructure, lump-sum subsidy, and variations in loan market parameters. We distinguish between policies that reduce child labor in the long run only in the presence of a variable discount rate and other policies which work whether or not the discount rate is variable. Credit-related policies belong to the former group. Policies that reduce child labor and increase family consumption in the long run may have an adverse effect of lowering consumption in the short run.

Emissions trading with output-based allocation (OBA) of emissions allowances is gaining popularity as a mean to address sectoral distribution issues related to the use of market-based instruments in pollution control. Using a dynamic general equilibrium framework, this paper assesses the potential trade-off between efficiency and uneven sectoral distributional effects. It compares OBA and other alternative emissions trading systems, with special attention to the heterogeneity among energy-intensive industries. Because abatement is achieved at a higher marginal cost with OBA, it is less efficient than emissions trading systems in which permit revenues are used to reduce payroll taxes. Nonetheless, the implicit output subsidy in OBA improves the sectoral distributional outcome of the abatement policy to the benefit of energy-intensive industries as a whole. The simulation results also suggest that energy-intensive industries that do not produce energy are the main beneficiaries of OBA. In the new carbon-constrained environment, energy intensive industries that produce energy could not benefit from OBA.

We study a two-country model where two firms, one domestic and the other foreign, must decide when to introduce their new product into a market. The home government may apply an import tariff, an administrative delay, or both to the product of the foreign firm. An administrative delay imposes a waiting period between the time when the quality of the foreign product is determined and the time when the product can actually be sold. Our main interest is the differential effect of the tariff and the administrative delay on the timing of new product introductions and the resulting change in home, foreign and world welfare. We show that administrative delays are less efficient instruments for maximizing home welfare than tariffs. With a tariff, the home government can affect the timing of entry to ensure that the domestic firm moves first at the socially optimal date. Although an optimally chosen delay can achieve the same pattern of introduction, it does not yield any tariff revenues. As a result, if the tariff may be set optimally, administrative delays are not used in a discriminatory manner. If trade liberalization constrains the import tariff to be below its domestically optimal level, discriminatory administrative delays may become part of the optimal policy of the home country. As the optimal delay policy leads to lower levels of world welfare than the optimal tariff, trade liberalization can be welfare decreasing.

Our maintained hypothesis is that drug development responds to the intensity of consumer demand. We look at the distribution of drug development by disease and link this to the economic harm caused by disease as measured by mortality. Mortality data represent the net effect of human frailty and the efficacy of the existing drugs on the market. If people continue to die from a given condition then existing drugs are not perfect and there are potential profits from developing a more effective compound. We aggregate economic harm worldwide and into three broad regions: the United States, other developed countries, and underdeveloped countries. We find that economic harm motivates the distribution of drug development across diseases, but it is economic harm in the United States alone that matters.

In the light of recent policies aiming at raising the computer literacy of young generations and at reducing the digital divide, this paper analyzes to what extent the probability of an individual having computer abilities is affected by the computer skills of her household's other members, i.e. if there are significant within household peer effects. We show how peer effects can be identified when skills are measured with a continuous variable and the learning costs are increasing and convex. Our application on a sample of Italian households indicates that peer abilities within a family significantly increase the individual probability of being skilled.

We model imperfect contract enforcement when the victims of default resort to spot trading because the act of repudiation reveals a favorable outside option. We show that enforcement imperfection is essentially distinct from the contract incompleteness analyzed in the previous literature. Improved contract execution benefits traders on the excess side of the spot market by attracting potential counter-parties, but harms them by impeding their exit from unfavorable contracts. Multiple optima are possible, with anarchy a local optimum, perfect enforcement a local minimum and imperfect enforcement a global optimum. LDCs exhibit parameter combinations such that imperfect enforcement may often be optimal.

Barriers to trade are commonly viewed as a result of political systems in which politically influential groups benefit from and successfully lobby for protection. However, trade policy is a highly inefficient tool for redistributing income. Although recent theoretical research has focused on explanations of why (inefficient) trade barriers might be preferred to more direct means of redistribution, this research has been carried out with little empirical support. We address this gap in the literature with an exploratory cross-country empirical investigation of the economic factors correlated with a reliance on tariffs over subsidies. We find that the existing theoretical literature is consistent with the cross-country evidence.

Many political issues like abortion, gay marriage or assisted suicide are strongly contested because individuals have preferences not only over their own choice but also about other individuals' actions. The paper models and compares the equilibria of three institutional regimes (ranging from centralized to decentralized decision making) in an economy where individuals choose their residence and vote over a single-dimensional regulatory policy at the regional and national level. Moral federalism describes a phenomenon where the majority of people who favor a restrictive policy try to impose their preferences through the federal government on jurisdictions where permissive policies are favored. The majority group's gain is larger, the smaller it is in size relative to the entire population. At the normative level, the outcome under centralized and decentralized decision making is the worst when societies are polarized. Allowing the federal government to restrict regional choices is never optimal.

This paper provides a new approach to the evaluation of pre-shipment inspection (PSI) programs as ways of improving tariff-revenue collection and reducing fraud when customs administrations are corrupt. We build a model highlighting the contribution of private surveillance firms to the generation of information and describing how incentives for underinvoicing and collusive behaviour between importers and customs are affected by the introduction of PSI. It is shown theoretically that the introduction of PSI has an ambiguous effect on the level of fraud. Empirically, our econometric results suggest that the introduction of PSI services increased underinvoicing in Argentina and Indonesia, and reduced it in the Philippines.

Eight states established deposit insurance systems between 1908 and 1917. All abandoned the systems between 1921 and 1930. Scholars debate the costs and benefits of these policy experiments. New data drawn from the archives of the Federal Reserve Board of Governors demonstrate that deposit insurance influenced the composition of bank suspensions in these states. In typical years, suspensions due to runs fell. Suspensions due to mismanagement rose. During the penultimate year of each system, the bank failure rate rose to an unsustainable height and the system ceased operations.

This paper examines why local governments rely heavily on the property tax, even when they have access to another revenue source, using data from Ohio’s recent experience of permitting local school districts to use both property taxes and residence-based income taxes. Nechyba’s (1997) theory that local governments’ reliance on the property tax instead of the income tax is due to fiscal competition for relatively high-income residents is tested using data from 610 Ohio school districts. The Ohio residence-based school district income tax is used by only 119 school districts, at low tax rates, to supplement the traditional property tax. The use of a local income tax declines sharply as fiscal competition increases, as measured by the number of nearby school districts. School districts with greater opportunities to export the burden of the property tax to non-residential property owners are less likely to adopt a local income tax.

A growing body of literature has succeeded in explaining the economics of existing open source communities. However, the question why such communities come into existence has so far not been answered satisfactorily. This paper addresses this question with an evolutionary model: software developers repeatedly decide whether to use an open source or a proprietary license using boundedly rational decision rules. We analyze the resulting stochastic process and provide conditions under which open source licensing is the only long-run outcome that is stable to perturbations. It turns out that these conditions coincide with important stylized facts about thriving open source communities.

This paper shows that vertical foreign direct investment will reduce prices but the aggregate welfare effect is unambiguously positive only under free market entry. Using a standard model of imperfect competition, we develop this result by considering two different cases. In the first case, the total number of firms is fixed, and we show that national and multinational firms may coexist. In the second case, we allow for market entry, and we focus on situations in which either only national or only multinational firms are active. Furthermore, we discuss impact effects on labor demand. We show that a decline in foreign wages increases domestic employment.

Nielsen ratings for ABC's Monday Night Football are significantly higher when the game involves a black quarterback. In this paper, we consider competing explanations for this effect. First, quarterback race might proxy for other player or team attributes. Second, black viewership patterns might be sensitive to quarterback race. Third, viewers of all races might be exhibiting a taste for diversity. We use both ratings data and evidence on racial attitudes from the General Social Survey to test these hypotheses empirically. The evidence strongly supports the taste-for-diversity hypothesis, while suggesting some role for black own-race preferences as well.

The disposal of municipal solid waste is believed to emit foul odor, threaten groundwater, and increase road congestion. As remote regional landfills have replaced local town dumps, these costs are no longer internalized by garbage-producing households or their municipalities. Instead, rural property owners located adjacent to large regional landfills and along the roadways accessing those landfills bear the external costs of garbage disposal. This paper uses a comprehensive nine-year panel data set of aggregated state data to empirically examine why 8,937 municipalities continue to operate costly recycling programs designed to reduce the external costs of garbage disposal. Results suggest that local tastes for recycling drive municipal decisions. If household preferences for recycling are short lived, then we can expect a future decrease in the number of municipal recycling programs. Recent data indicate the number of recycling programs in operation in the U.S. has indeed fallen.

Over the past two decades, states have toughened their adult drunk driving laws by setting the legal blood alcohol content (BAC) threshold at .08, down from .10. Although several studies have shown that these laws have been effective at reducing alcohol-related traffic fatalities, there is very little evidence on the underlying behavioral mechanisms through which .08 BAC laws achieve the fatality reductions. We estimate reduced form models of the effects of .08 BAC laws on a wide range of self-reported alcohol-related risk behaviors using large samples from the Behavioral Risk Factor Surveillance System (BRFSS) and the National Surveys on Drug Use and Health (NSDUH) from 1999-2003 – a period when 32 states’ .08 BAC laws went into effect. Models with state and year fixed effects provide no evidence that .08 BAC laws reduced alcohol-involved driving, and we similarly find no effects on drinking participation or the likelihood of binge drinking. We do find robust evidence, however, that .08 BAC laws reduced past month alcohol consumption among moderate drinking males by about five percent. These reductions are larger for older, college educated, and married men. Taken together with results from previous research on other drunk driving interventions, our findings confirm a general deterrence effect and suggest that tougher drunk driving laws work primarily by reducing alcohol consumption.

During the 1990s economic expansion, the United States enjoyed both low inflation and low unemployment. Juhn, Murphy, and Topel (2002) point out that low unemployment for men in the 1990s was accompanied by historically high non-employment suggesting that the 1990s economy was not as strong as unemployment might indicate. We include women in the analysis and examine whether Phillips curve relationships between real compensation growth, changes in inflation, and labor market slackness are the same for men and women and whether measures of “non-employment” better capture underlying labor resource utilization. From 1965 to 2002 the increase in women’s labor force participation more than offsets the decline for men, and low unemployment rates in the 1990s were accompanied by historically low overall non-employment rates. We find that women’s measures of labor market slackness do as well as men’s in explaining real compensation growth and changes in inflation after 1983.

In July 2003 a new Road Code was approved by the Italian parliament. Among other changes, the law states that on three-lane motorways the right lane should not be reserved anymore to slow vehicles. The model developed in this paper casts doubts on the wisdom of such a change, suggesting that reserving a separate lane for slow vehicles is generally better, in terms of number of accidents and slow-downs, than treating all vehicles the same way. In addition, a value for the speed threshold below which vehicles are considered slow can be found, for which the old rule also performs better in terms of average speed. This conclusion has applications beyond the Italian case. Moreover, it is shown to be extremely robust to refinements of the main assumptions concerning driving attitudes and the stochastic arrival of accidents.

This paper attempts to shed light on the mechanism behind the lower rate of self-employment (SE) among African Americans compared with whites. Both consumer discrimination and discrimination in the credit market, combined with anti-discrimination law enforcement in the salary/wage (SW) sector, explain why African Americans, those with high earning capacity in particular, are less likely to be SE because the cost of being discriminated against is high. Borjas and Bronars (1989) tested negative self-selection into SE among African Americans using Heckman's sample-selection correction under certain excluded variable assumptions. Using matched CPS panel data, this paper tests the same prediction without relying on any excluded variable assumptions. More specifically, current SW workers are divided into future SW and SE workers, and the distributions of the current earnings of these two groups are compared. The analysis reveals both positive and negative self-selection into SE among whites, but almost only negative self-selection among African Americans. This finding is consistent with the theoretical predictions of consumer and credit market discrimination against African-American self-employed workers and confirms Borjas and Bronars (1989)'s empirical results.

A new theory of altruistic corporate social responsibility is developed. Firms that advertise their social and environmental good works in effect solicit charitable contributions from customers, employees, investors and other stakeholders. They compete with not-for-profits in the market to supply public and altruistic goods. To analyze how corporate altruism affects firm valuations, a model is developed in which investors gain utility both from personal consumption and from making donations to worthy causes. A share in a “responsible" firm is a charity-investment bundle. When individuals view corporations and not-for-profits as equally competent suppliers of charity-related “warm glow," small changes in firms' social policies induce exactly offsetting changes in individuals' portfolio choices. There is no effect on firm valuations, and no change in the aggregate supply of good works. When a sizable fraction of investors prefer corporate philanthropy over direct charitable giving (e.g., to avoid taxation of corporate profits), firm valuations will be maximized by following social policies that involve strictly positive levels of corporate altruism.

The Kansas Bureau of Labor and Industry surveyed attitudes towards immigration during the 1890s. The surveys reveal that individuals opposed immigration for cultural and economic reasons. Key correlates were the position in the labor market, the business cycle, and immigrant status. The magnitudes of the effects indicate that economic factors explain twice the variation in opinions across individuals than cultural factors explain. In addition, changes in economic conditions from 1880 to 1920 explain a substantial share of the rise in anti-immigrant sentiments at the end of the nineteenth and during the early twentieth centuries, but other factors, such as the rise of the eugenics movement, must have had at least as large a role.

In a model of nonpoint source pollution, we extend the theory of ambient taxes to the case when polluters might cooperate. We show that regulation through ambient taxes is severely constrained when the degree of cooperation among polluters is unknown to the regulator. On the other hand, if the regulator can invest in costly monitoring of emissions, then the optimal regulation offers a low ambient tax to cooperative groups and an optimal but costly individual emission tax to non-cooperative groups. This mechanism also has attractive properties when risk-aversion is introduced.

Religious giving has been argued to be different compared to non-religious giving, because it influences after-life consumption while contributions to non-religious organizations are irrelevant to after-life consumption. The study herein examines this theoretical argument by investigating the relationships between age and religious and non-religious giving using the data of the Survey of Social Development Trends from Taiwan. From categorized contributions, this study estimates the effects of age, income, and price of giving on religious, charitable, academic, medical, and political contributions, as well as on the probability of providing volunteer work and the frequency of religious participation. The findings suggest that the positive relationships between age and the level of giving are stronger for religious and charitable giving while the positive effects of age on academic and medical giving are much weaker, and there is no significant relationship between age and political giving. That is, religious giving and charitable giving are closely related to after-life consumption, but the effects of age on academic giving and medical giving are considerably different. Moreover, older people are more likely to provide volunteer work and attend more religious activities than younger individuals. Contributions to religious and charitable groups are positively related to contributions to academic, medical, and political organizations.

This paper examines the role played by the low-skilled immigrant labor force in countries aiming to reform their public pensions systems by postponing the pensionable age. With an overlapping-generations model in continuous time and a fully redistributive pension scheme, the arrival of immigrants affects the retirement benefits of the host population in a different manner according to whether they share or not pension benefits. Our results suggest that governments attempting to delay the legal retirement age should take into account the effect of immigration on the optimal retirement age of native individuals.

This article offers a simple, easy-to-use tool, CECANT, that allows policy analysts to calculate the economy-wide or sectoral energy use effects of new or prospective energy efficiency technologies. Such effects are in general intricate and subtle. Unlike more complex general equilibrium models, the tool requires only that the researcher has access to econometric estimates of the economy’s (or sector’s) cost function. CECANT enables analysts to rapidly address key policy questions related to reducing carbon emissions, such as setting R&D priorities, managing the deployment of different technologies in different sectors, and comparing technology effectiveness across countries. A user-friendly software implementation accompanies this article, and examples are given showing its use.

Patent-holding pharmaceutical companies are shown to be imperfectly able to charge differential prices for AIDS drugs due to the potential for black market exchange. Thus, greater segmentation in the international market through additional barriers to smuggling would induce firms to charge lower prices for AIDS drugs in poorer countries. Without these additional barriers, widespread drug distribution through mandated lower prices or weakened patent protection in the developing world would result in smuggling, undercutting demand in developed markets and reducing firms’ research incentives. By contrast, further market segmentation would allow policy makers to go beyond the induced price cuts and remove patent protection in many markets where the benefits to increased distribution would likely outweigh the losses to research incentives.

California’s changes in R&D tax credit rates on biopharmaceutical and software firms’ research investment during 1994-1996 and 1997-1999 is compared using two approaches. Consistent with the federal research tax credit literature, the difference-in-differences analysis provides some evidence of increased R&D expenditure in response to research tax credit rate increases. In contrast, the estimated tax price elasticities obtained by computing and testing the tax prices for in-house research are dramatically higher than the existing literature’s estimates near unity. Possible explanations include firms’ greater sensitivity to state-level policy, industry factors, sample characteristics and measurement error. For contract research with universities and other not-for-profit research organizations, the findings suggest a tax credit may not be the optimal policy tool. Finally, state-level R&D incentives do not appear to have equal incentive effects across industries.

This paper analyses the incentive properties of prospective payment systems for hospital contracts, a key feature in many health systems’ reforms. Building on current literature, the model explicitly allows for the existence of waiting time, modelled as adversely affecting patients’ utility and therefore reducing social welfare. The model shows that rewarding hospitals for their demand leads to the first best solution, identified with respect to the relevant quality and quantity variables. The additional separate payment of a price per case is instead required when the social cost of waiting is introduced alongside the private costs.

This paper examines whether local relative factor supplies affect local relative factor prices across US states. Using data on relative wages and relative labor supplies across the US, I find that state specific relative labor supplies significantly impact state specific relative wages across the US. Moreover, in an effort to reconcile my finding with that of Hanson and Slaughter (2000), I rerun their model and I prove that their interpretation is incorrect, and that in fact, differences in relative labor supplies across states determine relative wages and industry production techniques. These findings suggest that relative FPE does not hold across US states. In addition, the findings imply that immigration shocks to US states have a significant effect on relative wages, holding all else equal, as long as the immigrant inflows significantly impact states’ relative labor supplies.

The paper shows how - using as an example the trade flows between eleven European countries and 31 OECD `reporting' countries - the result of a gravity model, in terms of potential trade, changes substantially when country heterogeneity and dynamics are taken into account. Comparing the in-sample trade potential index derived from various estimators yields three different results: (a) the average trade potential index poorly represents the distribution of yearly trade potentials; (b) the index converges towards the demarcation value corresponding to the equality between observed and predicted trade flows when country heterogeneity and dynamics are taken into account; (c) the sign of its yearly average is not the right statistic with which to determine the (in)existence of unrealized trade potentials. Finally, the index derived from a dynamic specification with multilateral fixed-effects is better able to reflect the role played by the time-variant country-specific unobservable element associated with the possible presence of positive or negative trade potentials.

Global music sales have substantially fallen in the last four years. This paper uses a panel of country-level data to investigate the extent to which this is a consequence of file sharing. I find that countries with higher internet and broadband penetration have suffered higher drops in music sales, suggesting that music downloads may explain at least part of the recent reduction in sales. I also find some evidence that file sharing may explain a change in the composition of sales by types of repertoires, with a higher reduction of sales of types of music that are being shared more heavily.

This paper uses the concept of gains from trade in government revenue to clarify and extend the analysis of Keen and Wildasin (2004). It shows that their results derive from the use of trade taxes to achieve gains from trade in revenue in circumstances when direct international transfers cannot be used for this purpose. The paper shows that, in such circumstances, Pareto-efficient international equilibria are globally production-inefficient only in special cases, but origin-based commodity taxes, source-based capital taxes, and taxes on trade are nevertheless typically part of a Pareto-efficient international tax system. However, this conclusion depends on ruling out the use of international transfers to trade revenue, the case for which is not compelling.

In this paper, we analyze the trade war between two large countries when the trade policy is decided through majority voting. We show how the distributive aspect of trade policy interacts with the strategic aspect. It is shown that the voting equilibrium depends on the distribution of the factor endowment. If median voters in each country own relatively more (less) than the aggregate economy of the factor used intensively in the production of the imported good, the tariffs outcome of the trade war at home (abroad) is larger (lower) than the Johnson-Mayer one. This is to say that the strategic effects from trade policy can be isolated from the distributive aspect. Moreover, an increase of the median of the scarce/abundant factor distribution in one country leads to a larger tariff in this country and a lower tariff in the other. This implies that the political situation in one country affects the outcome of the trade war for both.

Most studies of competition in health care focus on prices and costs, but concerns about quality play a central role in policy debates. If demand is inelastic to quality, then competition may reduce patient welfare. This study uses a dataset of patient registrations for kidney transplantation in conjunction with a mixed logit model to gauge consumers’ responsiveness to quality when choosing hospitals. Results indicate that at the hospital level, a one-standard deviation increase in the graft-failure rate is associated with a 6% decline in patient registrations. Privately-insured patients are more responsive to quality than Medicare patients, suggesting that insurers consider quality when contracting with providers.