Band 9, Heft 1

This paper extends standard consumer theory to account for endogenous moral motivation. Building on cognitive dissonance theory, I show how moral values are affected by changes in prices and income. The key insight is that changes in prices and income that lead to higher consumption of an immoral good also affect the moral values held by the consumer so that the good is considered less immoral. A preliminary empirical analysis based on the World Values Survey is consistent with the model's predictions with respect to income.

Teacher licensure is a regime where schools are forbidden from hiring teachers who have not completed a program of study in a teacher education program and/or other preparation requirements. This paper specifies a theoretical model of a school hiring teachers who are either traditional—completed a program of study in a teacher education program or alternative—entered teaching through an alternative path. We combine the implications of the theoretical model with the empirical literature on teacher labor markets to reach conclusions about how labor market policies would impact teacher quality. Perhaps the most important conclusion is that it is very likely that a regime of teacher licensure would lower teacher quality and student achievement. The key reason why licensure would lower teacher quality is that licensure fails to make the important distinction between marginal and average quality in hiring decisions.

Many environmental justice studies argue that firms choose to locate waste sites or polluting plants disproportionately in minority or poor communities. However, it is not uncommon for these studies to match site or plant location to contemporaneous socioeconomic characteristics instead of to characteristics at the time of siting. While this may provide important information on disproportionate impacts currently faced by these communities, it does not describe the relationship at the time of siting. Also, variables that are important to a plant's location decision – i.e., production and transportation costs – are often not included. Without controlling for such variables, it is difficult to evaluate the relative importance of socioeconomic characteristics in a firm's initial location decision. This paper examines the role of community socioeconomic characteristics at the time of siting in the location decisions of manufacturing plants while controlling for other location-relevant factors such as input costs.When plant location is matched to current socioeconomic characteristics, results are consistent with what the environmental justice literature predicts: race is significant and positively related to plant location, while income is significant and negatively related to plant location. When plant location is matched to socioeconomic characteristics at the time of siting, empirical results suggest that race is no longer significant, though income is still significant and negatively related to plant location. Poverty rates are sometimes significant but act as a deterrent to plant location. Variables traditionally considered in the firm location literature – such as land and labor costs, the quality of labor, and distance to rail – are significant. The presence of pre-existing TRI plants in a neighborhood and average plant size are also significant.

An important aspect of the study of technological innovations is the explanation of the extent and pace of diffusion. We show that pooling data across vintages of a technology may result in misleading conclusions about the impact of key factors on the duration of time to adoption of the innovation. This is especially important for a technology that affects both product/service quality and a firm's costs of operation to different degrees as the technology evolves over time. Using data on the diffusion of point-of-sale optical scanners between 1974 and 1985, we find that factors such as the stock of prior adopters, household income, family size, the four-firm concentration ratio and item-pricing laws had predictably different effects on the diffusion rate depending on the vintage of the technology. These results are robust to controlling for unobserved heterogeneity among firms, inclusion of additional regressors and a change in functional form.

In this paper, we analyze the problem faced by impatient researchers attempting to balance the considerations of journal quality, submission lags, and acceptance probabilities in choosing appropriate outlets for their work. We first study the case in which probabilities of submission outcomes are exogenous parameters and show that authors can find the optimal submission path through the use of journal 'scores' based only on the journals' characteristics and the author's degree of impatience. Then, we analyze a more realistic framework in which acceptance probability is determined by the quality of the manuscript, in which the reviewing process may be imperfect, and in which authors may not be certain of the manuscript's quality. Throughout, we illustrate our analysis with data on actual economics journals. We also consider the problem of journals facing a large number of submissions, limited space, and limited resources to review papers and, in particular, we examine the relative effectiveness of using submission fees and reviewing lags to ration article submissions.

A number of economic theories suggest that barriers to competition lead to higher levels of inefficiency among incumbents. In this paper, we use a detailed plant-level dataset to study the impact on productivity of two reforms (initiated in 1991) aimed at increasing product market competition in India -- liberalization of foreign direct investment (FDI) and reduction in tariff rates. First, we examine the effect of the liberalization policies on mean plant-level productivity in the targeted industries. We find significant increases in productivity in the FDI and tariff-liberalized industries, particularly in the longer term (1993-94). We check and find our results robust to a range of robustness tests. Next, we examine the role of intensive (within-plant productivity growth) and extensive (reallocation from less to more productive plants) margins in the post-reform productivity improvement, and find a predominant role for the former. Finally, we assess potential channels for within-firm productivity improvement. Consistent with a role for price competition, we find evidence of greater declines in output prices as well as concentration measures in the liberalized sectors.

It is well documented that mental health outcomes are correlated between spouses. There are several alternative hypotheses for this correlation, including both causal and non-causal pathways. In this paper, I use an instrumental variables/fixed effects approach to examine whether there is evidence that an individual's mental health status spills over on his or her spouse's mental health status. Results from the IV-FE specifications that use spousal job problems as an instrument are large in magnitude. In particular, spousal mental health status is estimated to have a greater influence on an individual's mental health status than his or her own mental health endowment and is similar in magnitude with his or her own physical health status. Although not conclusive, these findings suggest that within-family spillovers of mental illness could be economically important and that policies that reduce mental health problems for individuals likely have unmeasured benefits for their family members.

This paper introduces a model of third-degree price discrimination where a seller's pricing power is constrained by buyers' outside options. Price uniformity performs more efficiently than discriminatory pricing, as uniform pricing allows weaker buyers to exploit the more attractive outside option of stronger buyers. This mechanism is markedly different from the mechanisms that are at work in case uniform pricing is imposed on an unconstrained monopolist.

Polls are used by politicians, voters, and businesspeople alike to form expectations over political outcomes. In an electoral system with ‘pork' at the national level, local economic prospects will be a direct function of political support. Because every poll comes with its margin of error, we can exploit the error in sub-national polls to test for whether forward-looking investment in the economy adjusts to shocks in local political behavior. The covariance between the strength of this adjustment and local-level characteristics allows us to identify the locations in which strong ‘pork' contracts exist. To illustrate the technique, we provide a theoretical foundation and an empirical exercise using data on Ugandan micro-entrepreneurs during the 2001 presidential election. We find evidence that investor behavior responds in a small but significant way to surprises in electoral support, and this responsiveness is strongest in ‘core' electoral districts.

Although rates of interracial marriage are on the rise, we still know relatively little about the experiences of mixed-race adolescents. In this paper, we examine the identity and behavior of mixed-race (black and white) youth. We find that mixed-race youth adopt both types of behaviors, those that can be empirically characterized as ‘black’ and those that can be characterized as ‘white.’ When we combine both types of behavior, average mixed-race behavior is a combination that is neither white nor black, and the variance in mixed-race behavior is generally greater than the variance in behavior of monoracial adolescents, especially as compared to the black racial group. Adolescence is the time during which there is most pressure to establish an identity, and our results indicate that mixed-race youth are finding their own distinct identities, not necessarily ‘joining’ either monoracial group, but in another sense joining both of them.

Using state-level panel data on mobile phone ownership, hands-free laws, and traffic fatalities, this paper finds that mobile phone ownership is associated with higher traffic fatalities, but only in bad weather or wet road conditions. The limited experience of a few states suggests that hands-free laws reduce traffic fatalities, but again only in bad weather or wet road conditions, and possibly also in rush-hour traffic. The findings suggest that the benefits of hands-free laws depend on driving conditions, and an important policy implication is hands-free laws should be more strongly enforced when driving conditions are more difficult. These findings on hands-free laws differ from other research, which consistently finds that hands-free and handheld phone usage have similar effects on driver distraction and accident risk, calling into question the usefulness of hands-free laws.

As multilateral negotiations focus more on reductions and removal of non-tariff barriers (NTBs), the importance of quantifying the impact of these barriers has increased. Recent studies have derived ad valorem equivalents for NTBs for a large number of countries and/or products, but the derivation has been indirect, due to either lack of price data or NTB incidence measures. This paper uses city level retail price data to directly estimate the average impact of core NTBs on prices of 47 consumer products, grouped into four separate sectors, for more than 60 countries in 2001. The analysis uses both government self-reported data and a new database of private sector complaint data to assess NTB incidence. A differentiated products model is used to capture imperfect substitutability between products. With city level price data—including both inter- and intra-country price differences—a more precise distinction can be made between the impact of NTBs and the impact of local distribution costs in raising price. The model is estimated using an instrumental variables approach to incorporate the endogeneity of NTBs. Results suggest that core NTBs are still highly restrictive in many countries and for many traded goods. While NTBs appear to be complements to tariffs, in some sectors the presence of a tariff reduces the price impact of the NTB. Results also suggest that in some sectors, the restrictiveness of NTBs is highly correlated with country income.

The majority of over 150 studies conclude that smoking bans do not have adverse effects on the revenues, profits, or employment of hospitality industry firms. However, several important criticisms have recently been raised which call into question many of the prior results. I examine the market value impact of a proposed smoking ban using a sample and methodology not subject to the perceived shortcomings in prior studies – an event study on the Indian hospitality industry. Contrary to the results in most prior studies, I find negative abnormal stock returns to portfolios of the hospitality industry firms examined upon the announcement of a proposed smoking ban. These results support the conclusion that a smoking ban lowered the aggregate market value of these firms.

This work extends prior research that finds drug development is driven by demand factors such as mortality rates of the diseases new drugs are aimed at. Here we find that the number of drugs in the development pipeline is strongly positively related to the price of existing drugs treating those diseases. This gives us a direct price elasticity measure from which we can draw some inference about the effect on new drug development that might occur if the pricing regime in the United States were to change.

We test whether there has been a "Great Moderation" of output volatility at the firm level. The multifactor residual model proposed by Pesaran (2006) is used to isolate the idiosyncratic component of firms' sales growth from macroeconomic developments. This methodology is applied to a balanced panel of about 1,200 German firms covering a 35-year period (1971-2005). Our research has three main findings. First, unconditional firm-level volatility and aggregate output volatility have seen similar downward trends. Second, conditional, idiosyncratic firm-level volatility does not exhibit a downward trend. Third, there is a positive link between growth and volatility at the firm level.

Applying auction theory to the toxic-asset rescue plan currently released by the United States Treasury Department, this paper demonstrates an equilibrium where moderately poor bidders outbid rich bidders in such auctions. After defeating their rich rivals and acquiring the toxic assets, such bidders will default on government-provided loans whenever the toxic assets turn out to be unsalvageable. An alternative mechanism is discussed.

This paper examines the negotiated settlements of 20 market timing and late trading cases, comparing the restitution obtained for shareholders with an estimate of shareholder dilution. This restitution ratio varies from 0.04 to 5, or from 0.1 to 10 if penalties are included. While some of this variation is explained by differences in the defendants' conduct, controlling for this, settlement negotiations that involved New York as well as the Security and Exchange Commission (SEC) resulted in restitution ratios that were higher by a factor of 5-10. An analysis that uses the firms' headquarters location and customers' state of residence as instruments for New York's involvement suggests that this difference is causal, and not the result of New York involving itself in cases likely to lead to large settlements. Given the much larger staff and institutional expertise of the SEC, it is likely that these differences in outcomes are due to differences in effective aggressiveness, not prosecutorial resources. Differences in aggressiveness are consistent with popular conceptions of the regulators' career concerns, as well as with theories of industry focus and regulatory capture.

This study examines how exercise responds to plausibly exogenous "price shocks," in the form of weather conditions. Most notably, we find that within cold temperature ranges, a decrease in past-month temperature causes a significant decrease in past-month exercise, and this effect is generally larger for lower education and income groups. In large part this differential by socioeconomic group appears to be due to smaller increases in indoor activity during cold weather. These results suggest that interventions and policies aiming to increase exercise participation, particularly among lower socioeconomic populations, could do so in part by increasing the availability and attractiveness of indoor facilities and activities. Furthermore, to the extent that the higher elasticity of behavior for lower socioeconomic groups reflects a more general sensitivity to external factors, these results highlight the promise of interventions that address such factors more broadly.

We consider successive generations of non-altruistic individuals carrying either a good or bad gene. Daughters are more likely to inherit their mother's gene. Competitive insurers can perform a genetic test revealing an agent's gene. They can condition their quotes on the agent's or on her ancestors' genetic status. In equilibrium, generation one is bribed to take the test with an unconditional premium. The insurer uses this information to profitably screen a finite number of generations of their offspring. The offspring of good-gene carriers subsidize the tested generation.

This paper examines whether viewers of the popular television show, American Idol, exhibit racial preferences. We find evidence on same-race preferences among black viewers only: when there are more black contestants in the show, more black viewers are tuned in to watch it. The result is robust after we account for the endogeneity problem regarding the contestants' racial composition, which arises due to the voting mechanism. Our point estimates tell that a 10 percentage point increase in the proportion of black contestants increases viewership ratings for black households by about 1.3 percentage points.

Alcohol taxes are typically justified as a means to address externalities from alcohol abuse and to raise government revenue. Prior literature has focused on measuring the Pigouvian tax but has paid little attention to the fiscal rationale. This paper presents an analytical and simulation framework for assessing the optimal levels, and welfare effects, of alcohol taxes and drunk driver penalties, accounting for both externalities and how policies interact with the broader fiscal system.Under plausible parameter values and recycling possibilities, the fiscal component of the optimal alcohol tax may be as large, or larger, than the externality-correcting component. Therefore, fiscal considerations can significantly strengthen the case for higher alcohol taxes. They also raise the welfare gains from alcohol taxes relative to those from drunk driver penalties, and they warrant differential taxation of individual beverages on an alcohol equivalent basis.

Research empirically estimating the effects of regulation on economic activity is largely focused on manufacturing, while generally overlooking one of the major polluters in the U.S. – commercial agriculture. Further, the prior literature generally does not estimate the pollution effects associated with regulation, making it difficult to assess the relative social costs and benefits of government action. This article considers a specific set of state policies to examine the results of environmental regulations in the agricultural sector, providing estimates of the magnitude of effects on production as well as pollution. During the 1990's, North Carolina's hog production more than tripled after passage of welcoming state legislation. I find that North Carolina's laws led to an additional 11% increase per year in pork industry presence in North Carolina relative to the rest of the U.S., as well as a 10% increase per county per year in ambient air pollution. Through a series of falsification tests and examinations of alternative hypotheses, I conclude that the air pollution is attributable to the industry; a doubling of production yields a 92% increase in ambient air pollution. The magnitude of the changes in air pollution is large enough to result in significant public health effects, totaling in cost to at least 12% of North Carolina's hog production revenue.

We study the determinants of agricultural market reforms in developing countries. What prompted the governments in these countries to abruptly begin deregulating their agricultural markets in the late 1980's? We answer this question by constructing a completely new dataset based on agricultural market regulations in 88 developing countries from 1960 to 2003. Our results suggest that the sudden and strong decline in the international price of agricultural commodities played a crucial role in destabilizing the financial equilibrium of marketing boards. In addition, changes in the rural representation in the political arena and government ideology also played significant roles in breaking up the status quo.

Mental health problems represent a potentially important but relatively unexplored factor in explaining human capital accumulation during college. We conduct the first study, to our knowledge, of how mental health predicts academic success during college in a random longitudinal sample of students. We find that depression is a significant predictor of lower GPA and higher probability of dropping out, particularly among students who also have a positive screen for an anxiety disorder. In within-person estimates using our longitudinal sample, we find again that co-occurring depression and anxiety are associated with lower GPA, and we find that symptoms of eating disorders are also associated with lower GPA. This descriptive study suggests potentially large economic returns from programs to prevent and treat mental health problems among college students, and highlights the policy relevance of evaluating the impact of such programs on academic outcomes using randomized trials.

A rational, efficiency-based view of acquisitions implies that larger transactions generate greater gains for the acquirer and the seller. We test this prediction and find a positive relationship between acquirer abnormal returns and transaction size scaled by the acquirer size. This relationship holds for many classes of acquisitions, including asset purchases and mergers that target private firms. We find a similar relationship between total abnormal returns and relative transaction size. The results suggest that, in general, acquisitions help shift capital to more productive owners. Furthermore, we present evidence demonstrating that the average acquirer captures a significant portion of the total gains generated from an acquisition.

This paper documents how the structure of extended family networks in rural Mexico relates to the poverty and inequality of the village of residence. Using the Hispanic naming convention, we construct within-village extended family networks in 504 poor rural villages. Family networks are larger (both in the number of members and as a share of the village population) and out-migration is lower the poorer and the less unequal the village of residence. Our results are consistent with the extended family being a source of informal insurance to its members.

Emerging evidence from neuroscience and clinical research suggests a novel hypothesis about tobacco use: consumers may choose to smoke, in part, as a "self-medicating" response to the presence of economic insecurity. To test this hypothesis, we examine the effect of economic insecurity (roughly, the risk of catastrophic income loss) on the smoking behavior of a sample of male working-age smokers from the 1979 National Longitudinal Survey of Youth (NLSY79). Using instrumental variables to control for unobserved heterogeneity, we find that economic insecurity has a large and statistically significant positive effect on the decision to continue or resume smoking. Our results indicate, for example, that a 1 percent increase in the probability of becoming unemployed causes an individual to be 2.4 percent more likely to continue smoking. We find that the explanatory power of economic insecurity in predicting tobacco use is comparable to (but distinct from) household income, a more commonly used metric.

This paper develops a novel model of optimal education, migration and return by heterogeneous, forward-looking agents. The model is parameterized and simulated to analyze the effects of immigration policies, identifying the brain-drain, brain-gain and brain-return effects when barriers to migration are reduced. We use parameters from the literature to inform our model and simulate migration and return from middle-income to industrialized countries. In particular, we apply the model to study migration and return between Eastern and Western Europe. We find that, for plausible degrees of openness, the possibility of return migration combined with the education incentive channel turns the brain drain into a brain gain for Eastern Europe.

This paper evaluates the consequences of minimum wage (MW) and earned income tax credit (EITC) in a model with heterogeneous costs of investment in human capital. Our model studies the effects of a MW and an EITC on employment, productivity, and total output for two types of groups: those with a low cost of acquiring human capital and a long horizon of earnings (Type Ys); and those with a high cost of acquiring human capital and a short horizon of earnings (Type Os). We assume that Type Ys consider investing in human capital while Type Os have a certain predetermined level of human capital and do not consider changing it. Our model suggests that a government might consider imposing a MW exclusively for Type Y individuals and an EITC exclusively for Type O individuals. Some of the best effects of each policy would therefore be obtained and some of the worst consequences would be avoided.

In many industries, different technologies are used simultaneously for the production of a homogeneous good. Such diversification is socially beneficial, because it reduces the transmission of factor price volatility, like oil-price shocks, to consumer prices. Therefore, many countries have implemented policies aimed at increasing technological diversification. The question is whether such policies are necessary. We use a two-stage investment model to address this question in the setting of perfect competition and of a monopoly. We show that factor price uncertainty leads to diversification, if capital is not too expensive, and that this diversification is due to each firm investing in a diversified technology portfolio. An important implication of this form of diversification is that technological diversity is socially optimal, even in the case of a monopoly. Thus policy intervention is unnecessary and might even be detrimental.

This paper presents estimates on the intergenerational mobility of economic status in Japan. We estimate the intergenerational elasticity of the earnings and income of offspring with respect to parental income using microdata from the 1993–2004 rounds of the Japanese Panel Survey of Consumers. The estimated intergenerational elasticity using predicted parental income is 0.41–0.46 for married sons, 0.30–0.38 for married daughters, and marginally less than 0.30 for single daughters. A downward trend in elasticity is also observed. Quantile regression does not suggest any particular relation between elasticity and quantiles. A nonlinear analysis of the relation between parental log income and log earnings of offspring illustrates an S-shaped relation for married sons and single daughters, and a linear relation for married daughters.

There is evidence that competing firms outsource R&D to the same independent for-profit laboratory. We draw on this stylized fact to construct a model where two firms in the same industry offer transfer payments in exchange for user-specific R&D services from a common laboratory. Inter-firm and within-laboratory externalities affect the intensity of competition among delegating firms on the intermediate market for technology. Whether competition is relatively soft or tight is reflected by each firm's monetary offers to the laboratory. These offers determine the R&D outcomes, the laboratory's capacity to earn benefits, the profits for the delegating firms, as well as social welfare. We identify the situations in which the laboratory finds it profitable to deliver services to only one firm, or to both of them. In the latter case we compare the delegated R&D game to two other ones where firms conduct in-house R&D, either cooperatively or non-cooperatively. The delegated R&D game Pareto dominates the other two games, and the laboratory earns positive benefits, if and only if R&D services are complementary inside the laboratory, but only limitedly so, and inter-firm spillovers are sufficiently low. The firms' privately-profitable decision to delegate R&D, when the laboratory participates, always benefits consumers.

Empirical evidence indicates that environmental fluctuations have important effects on fisheries production. However, existing analytical solutions of stochastic fisheries models have been produced only under highly simplified economic and biological conditions. The main contribution of this paper is to derive under general conditions a policy function for the management of a stochastic fishery. Our model includes general specifications of demand and cost relationships and a stochastic biological growth function with serially-correlated shocks. Applying methods from the theory of dynamic stochastic general equilibrium modeling and multivariate linear expectational difference equations, we derive a linear approximation of the solution to the model. Our main result is a reduced-form expression for an approximation to optimal escapement, which is shown to be a function of the current stock, past environmental shocks, and model parameters. This theoretically-grounded policy function has intuitive appeal, yields insights into comparative statics, and provides a theoretically-grounded, practical starting point for fisheries management.

In a simple model of social interaction I analyze the welfare effects of positive (prescriptive) and negative (proscriptive) social norms, together with the private incentives for their enactment. I find that imposing no law is socially optimal when individual actions have no significant externalities, while bans become socially optimal as the externalities increase. Prescriptions are generally the worst choice, except when the externalities involved are very high. However, in the political arena support is rarely won for non intervention or for a ban, since an alternative majority will generally be found in favor of some prescription. This remains true even when strategic voting is considered, and provides an argument for the idea that a liberal state cannot be liberally enforced by rational voters.

For at least fifty years economists have argued that vertically-aggregated marginal willingness to pay, when set equal to marginal provision cost, will result in optimal public good provision levels. This methodological approach would be expected to yield an exact analog, in terms of optimal levels of public good provision, to efficient provision of private goods in a perfect market setting. There is, however, a potentially serious flaw in the approach as actually practiced, since initial incomes are implicitly–and wrongly–taken to be optimal. From a given income, the output demand revelation problem has long been recognized–that there will be difficulty inferring true demands for public goods at that income (the traditional `free rider' problem). But what has failed to receive widespread recognition among theoreticians, and especially among practitioners, is that there will also be a concomitant `input demand revelation' problem. In any situation where workers cannot individually increment a class of goods by increasing their income (e.g. public goods), they will have no incentive to generate the income that would have been devoted to that class of goods. They will only generate income that is optimal to pay the higher taxes or prices associated with whatever initial public goods levels are provided. As a consequence, the benefit-cost practitioner will, even if somehow able to accurately guess marginal willingness-to-pay out of current income, observe only one apparent optima. There are an infinite number of such optima, one for each level of free riding in input markets, where aggregated marginal willingness-to-pay will appear to equal marginal provision cost. The one true Samuelson `optimum optimorum' occurs when there is free riding in neither output nor input markets (that is, when the `full' demand revelation problem is solved). As a consequence, pure public goods, as well as other `non-incrementable' goods and goods for which non-use values are of importance will be undervalued, hence under-provided. Evidence is presented that the problem raised here might be of importance, undermining the practical significance of the Coase theorem vis-à-vis Pigouvian taxation.

The ‘green industry’ is often noted in discussions of the costs and benefits of environmental policy, and it has been characterized as a unique industry with substantial potential for employment growth, well-paying ‘green jobs,’ and export opportunities. In this paper, we examine the characteristics and recent economic performance of the green industry, using establishment-level data on environmental products manufacturers (EPMs) from the 1995 Survey of Environmental Products and Services, together with data from the Annual Survey of Manufactures and the Census of Manufactures. Results suggest that there are some differences between EPMs and their non-EPM counterparts in the same industry, in terms of employment, employee compensation, exports, and productivity. However, we do not find any evidence that EPMs performed any better than otherwise similar plants, in terms of survival, employment growth, wage growth, and export growth. We suggest that the green industry (as defined here) may not be as exceptional as is sometimes maintained.

This paper explores the relationship between environmental subsidies, the diffusion of a clean technology, and the degree of product differentiation in an imperfectly competitive market. Like others, we show that the subsidy succeeds in reducing environmental damage only when the substitution effect (the reduction in pollution associated with the clean technology) exceeds the output effect (the extent that the subsidy increases output). Here, we add product differentiation and diffusion dynamics. When the substitution effect dominates, environmental damage decreases monotonically during the diffusion process. The extent of technology diffusion (the degree to which clean technology replaces dirty) is decreasing in the degree of product differentiation. Further, as products become closer substitutes, it is more likely that the subsidy will reduce environmental damage. Finally, the subsidy for clean technology will spill over to the remaining dirty producers, increasing their profit as well. In a free-entry equilibrium, the subsidy decreases pollution when product differentiation is low compared to the relative pollution intensity of the clean technology.

This paper reports some facts about grading standards across a varied sample of 16 countries participating in the 2003 OCSE-PISA Survey. Our main finding is that in all countries except Ireland and the USA there is conspicuous heterogeneity in standards across schools (Table 3, Figures 1 & 2). In most of the countries where heterogeneity is present a grading-on-a-curve practice emerges, with grading standards increasing with average competence of the school's students (Table 4, Figures 3 & 4). Where this phenomenon is more pronounced, it may be related to existence of a tracking (as opposed to comprehensive) school system (Table 5, Figure 5).

This paper provides a theoretical model of a team sports league and studies the welfare effect of salary caps. It shows that salary caps will increase competitive balance and decrease overall salary payments within the league. The resulting effect on social welfare is counter-intuitive and depends on the preference of fans for aggregate talent and for competitive balance. A salary cap that binds only for large-market clubs will increase social welfare if fans prefer aggregate talent despite the fact that the salary cap will result in lower aggregate talent. If fans prefer competitive balance, on the other hand, any binding salary cap will reduce social welfare.

The paper investigates the relationship between pro-social norms and its implications for improved environmental outcomes. This is an area, which has been neglected in the environmental economics literature. We provide empirical evidence to demonstrate a small but significant positive impact between perceived environmental cooperation (reduced public littering) and increased voluntary environmental morale. For this purpose we use European Values Survey (EVS) data for 30 European countries. We also demonstrate that Western European countries are more sensitive to perceived environmental cooperation than the public in Eastern Europe. Interestingly, the results also demonstrate that environmental morale is strongly correlated with several socio-economic and environmental variables. Several robustness tests are conducted to check the validity of the results.

In many countries, including the U.S. and the U.K., there is ongoing concern about the extent to which young people from lower-income backgrounds can acquire a university degree. Recent evidence from the U.K. suggests that for a given level of prior achievement in secondary school a disadvantaged student has as much chance of enrolling in a university as a more advantaged student. However, simply participating in higher education is not sufficient—graduation is important. Therefore, this paper investigates whether students from lower socioeconomic backgrounds have a higher rate of university dropout when compared to their wealthier counterparts, allowing for their differential prior achievement. Using a combination of school and university administrative data sets, we show that there is indeed a sizeable and statistically significant gap in the rate of withdrawal after the first year of university between advantaged and disadvantaged English students. This socioeconomic gap in university dropouts remains even after allowing for their personal characteristics, prior achievement in secondary school and university characteristics. In the English context, at least, this implies that retention in university of disadvantaged students is arguably a more important policy issue than barriers to entry for these students.

This paper uses a multinomial probit model to analyze individuals' choice of banks based on the types of banking services they use, their own characteristics, and their own perceptions about important factors in banking. Previous studies on this topic, which are limited in number, concentrate on the U.S. where financial markets are well-developed. This analysis uses a unique individual level data set from a nation-wide survey implemented after the 2001 crisis in Turkey, of which one major component was bank failures. Hence, it provides the first set of econometric evidence on the topic in an emerging market context. The study groups banks into three categories: public, large private and small private banks, among which the latter is perceived to be the potentially risky group. Investigating individuals' choice among these three types, the paper uncovers that while individuals tend to prefer small private banks on the basis of high interest rates, they tend to avoid them on the basis of trust. Additionally, the paper finds that the choice between public and large private banks mainly depends on structural factors. These results could be of potential use to policymakers in regulating the banking sector and to bank management in channeling marketing effort.

In a general equilibrium framework, it is known that imitation may actually promote innovation (Aghion et al., 1997). The same effect is demonstrated with a standard oligopoly model in which one firm has the ability to develop technologies while all other firms imitate and obtain a fraction of it for free. Competition is shown to dampen innovation, while imitation may stimulate it if imitation is strong and competition moderate. The findings have implications for policy toward intellectual property rights protection, as weak protection may promote rather than impede technology innovation.

Using British data from the 2004 Workplace Employment Relations Survey, the author examines whether and how the relationship between schedule flexibility and wages differs by gender. Using a basic measure of whether the worker has discretion over the start and end times of work, men have more than twice the wage return to flexibility than do women, even within the same firm and detailed occupation. This difference cannot be explained by differences in household responsibilities or by differences in part time work by gender, but gender differences in job authority and autonomy do matter. Differences in the wage returns to this type of flexibility account for 10% of the gender wage gap, which suggests that understanding the underlying cause for the disparity in the returns to flexibility is important for understanding the policy implications of promoting flexible work arrangements.

Because of linkages between markets for new and used durable goods, economic policies that target new durable good markets, such as tax incentives or antitrust legislation, are likely to affect used goods markets as well. I use a simple theoretical model to illustrate how an exogenous shock to prices of new durable goods affects prices and trade frequencies of corresponding used goods. The model predicts that if prices of new durable goods increase, then prices of used goods will also increase. In addition, if the distribution of consumer preferences for quality are relatively concentrated among those with a high preference for quality, then trade in used good markets will slow. The predictions of the model are supported by an empirical analysis of the market for new and used wide-body commercial aircraft following a major change in effective aircraft prices caused by the Tax Reform Act of 1986. The Act effectively increased prices of new aircraft by an average of $6.5 million. At the same time, used aircraft prices increased by an average of $2.9 million to $7.7 million and used aircraft sales fell between 23 to 36 percent. These results suggest that policies that affect new durable good markets can have significant effects on used markets as well.

Nearly all journal rankings in economics use some weighted average of citations to calculate a journal's impact. These rankings are often used, formally or informally, to help assess the publication success of individual economists or institutions. Although ranking methods and opinions are legion, scant attention has been paid to the usefulness of any ranking as representative of the many articles published in a journal. First, because the distributions of citations across articles within a journal are seriously skewed, and the skewness differs across journals, the appropriate measure of central tendency is the median rather than the mean. Second, large shares of articles in the highest-ranked journals are cited less frequently than typical articles in much-lower-ranked journals.

We study the vertical integration and sabotage decisions of a regulated bottleneck monopoly that sells "access" to independent firms and may own a subsidiary downstream. We extend the literature in four directions by: (i) endogenizing vertical integration and linking it with the intensity of vertical economies or diseconomies à la Kaserman and Mayo (1991); (ii) systematically studying how vertical economies and diseconomies affect the intensity of sabotage; (iii) showing that the intensity of sabotage is determined by either a standard Lerner condition augmented by the direct cost of sabotage or a relation between the market share of the subsidiary and the elasticity of the derived demand for access; and (iv) systematically examining the welfare effect of vertical integration.

Voluntary measures have traditionally been evaluated using a similar framework regardless of their structure. The framework assumes that the measure provides partners with a treatment (information, research support, etc.) that will not be transferred to non-partners. In this framework, a voluntary measure is said to be worthwhile if differences are significant between the behavior of partners and non-partners, correcting for the potential endogeneity of becoming a partner. However, voluntary measures take many different forms, some which are expected to have transfers to non-partners (spillovers). The Coal Combustion Products Partnership (C2P2) is a U.S. voluntary program with a structure that is likely to provide treatment spillovers to non-partners. This paper evaluates C2P2 and tests whether treatment spillovers are affecting non-partners' behavior. Results are consistent with a program that would traditionally be considered unsuccessful, but the consideration of treatment spillovers makes it consistent with a successful program.

We consider two private-value auctions where the prize in one is higher than the prize in the other. We show that a separating equilibrium exists in which bidders with a high valuation attend the auction with the higher prize while bidders with a low valuation attend the auction with the lower prize. In addition, we prove that a weak separating equilibrium exists where the strong bidders attend the high prize auction while the weak bidders randomize and may attend either auction, although with a higher probability of attending the low prize auction. In the set of auctions with separating equilibrium, we find the optimal minimum bids that maximize a seller's expected revenue.

The impact of retail return policy on consumer behavior has not drawn enough attention from researchers. Lenient return policies insure consumers against having regret after purchasing, so they may increase consumers' likelihood of purchasing. The behavioral theory of endowment effect suggests that consumers may then have a harder time returning purchased goods because people value objects more highly once they own them. We conducted a test of our hypotheses on how return policy and endowment effect influence purchasing tendency and return rate. This experiment proved that endowment effect did affect the returning behavior of consumers. It showed that lenient return policies significantly increased initial purchasing tendency but did not increase return rate. This suggests a potential to increase consumption by adopting lenient return policies.

This paper presents simple measures of individual and family mental health indices based on axiomatic foundations and integrates mental health into a neoclassical model that allows for proper substitution possibilities in the family preferences and quantifies its significance in family utility. We find that mental health effects are far more important than the effect of consumption or children's schooling in determining family utility. We illustrate the usefulness of our approach by considering the case of HIV/AIDS experience in India. Using our approach, we find that while there are no significant differences in per capita consumption and schooling between HIV and NON HIV families, the welfare loss from HIV/AIDS are still considerably large due to the inclusion of mental health. Integrating mental health in a utility maximization framework helps us quantify this welfare loss.

Consider a bottleneck monopoly whose access charge is regulated above marginal cost and produces an essential input used by an oligopoly of downstream firms. Should the monopolist be allowed to vertically integrate into the downstream market? Policy makers often argue that the vertically integrated subsidiary enjoys an undue advantage, because it receives access at marginal cost. We show that there is no undue advantage.With perfect competition downstream vertical integration is irrelevant because the subsidiary substitutes downstream output one-to-one and faces a per-unit opportunity cost equal to the access charge.With an oligopoly consumers and the bottleneck monopoly gain with vertical integration. By contrast, competitors lose oligopolistic rents. Social welfare increases, unless output is redistributed towards a very inefficient vertically integrated firm.

Olympic athlete selection procedures are different among countries and events, and famous athletes are often reported to have lost their selection races. This paper analyzes what kind of procedure is more likely to select high-ability athletes while preventing low-ability athletes from being selected by chance. Our game-theoretic model shows that the answer depends on how sharply high-ability athletes' race results fluctuate relative to those of low-ability athletes. Athletes' strategic choice of participation in races turns out to be crucial in addressing this question, and there are cases in which having only one race is desirable, even if the selection can involve multiple races.

Single-date school entry systems create large age differences between children in the same grade. Older students have been shown in the literature to outperform younger students along many elementary school outcomes, and some post-schooling outcomes. Little evidence exists about the size of these advantages in high school. Data from British Columbia, Canada are used to estimate the effect of age on test scores in grades 4, 7, and 10. I estimate that older students still have a sizable skill advantage in grade 10 across numeracy, reading, and writing tests. The advantage is strongest for girls and low-income students. The results suggest a certain degree of permanence to age related skill differences, which may spill over and affect adult outcomes.

Using a unique sample of Russian immigrants and native Israelis, we examine the return to English knowledge. Panel and cross-section estimates of the return to English are substantial for highly educated immigrants and natives. Hebrew and English language acquisition contribute to immigrant/native earnings convergence, but most convergence is explained by other factors. While immigrants with low levels of education do not benefit from knowing English, native Israelis may. Conditional on occupation, English and Hebrew acquisition are largely orthogonal. Therefore earlier work on the importance of knowledge of the host-country language (Hebrew) is not significantly biased by unmeasured English knowledge.

This paper sets up a model of endogenous product differentiation to analyze the variety effects of international trade. In our model multi-product firms decide not only about the number of varieties they will supply but also about the degree of horizontal differentiation between these varieties. Firms can raise the degree of differentiation by investing variety-specific fixed costs. In this setting, we analyze how trade integration, i.e. an increase in market size, influences the number of firms in the market, the number of product varieties supplied by each firm, and the degree of differentiation between these varieties.