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    1119 - Commercialization and the Decline of Joint Liability Microcredit

    Jonathan de Quidty, Thiemo Fetzer and Maitreesh Ghatak

    Numerous authors point to a decline in joint liability microcredit, and rise in individual liability lending. But empirical evidence is lacking, and there have been no rigorous analyses of possible causes. We first show using the well-known MIX Market dataset that there is evidence for a decline. Second, we show theoretically that commercialization–an increase in competition and a shift from non-profit to for-profit lending (both of which are present in the data)–drives lenders to reduce their use of joint liability loan contracts. Third, we test the model’s key predictions, and find support for them in the data.

    Date
    Friday, 26 February 2016
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    1118 - Effects of EU Regional Policy: 1989-2013

    Sascha O. Becker, Peter H. Egger and Maximilian von Ehrlich

    We analyze EU Regional Policy during four programming periods: 1989-1993, 1994-1999, 2000-2006, 2007-2013. When looking at all periods, we focus on the growth, employment and investment effects of Objective 1 treatment status. For the two later periods, we additionally look at the effects of the volume of EU transfers, overall and in sub-categories, on various outcomes. We also analyze whether the concentration of payments across spending categories affects the effectiveness if EU transfers. Finally, we pay attention to the role of EU funding for UK regions given the current debate in the UK.

    Date
    Thursday, 25 February 2016
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    1117 - Does greater autonomy among women provide the key to better child nutrition?

    Wiji Arulampalam, Anjor Bhaskar and Nisha Srivastava

    We examine the link between a mother’s autonomy - the freedom and ability to think, express, act and make decisions independently - and the nutritional status of her children. We design a novel statistical framework that accounts for cultural and traditional environment, to create a measure of maternal autonomy, a concept that has rarely been examined previously as a factor in children’s nutritional outcomes. Using data from the Third Round of the National Family Health Survey for India, supplemented with our qualitative survey, and accounting for “son preference” by limiting analysis to first-born children under 18 months of age, we document that maternal autonomy has a positive impact on the long-term nutritional status of rural children.

    Date
    Wednesday, 24 February 2016
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    1116 - Short-term Migration Rural Workfare Programs and Urban Labor Markets - Evidence from India

    Clément Imbert and John Papp

    This paper provides some of the first evidence that rural development policies can have fundamental effects on the reallocation of labor between rural and urban areas. It studies the spillover effects of the world's largest rural workfare program, India's rural employment guarantee. We find that the workfare program has substantial con¬sequences: it reduces short-term (or seasonal) migration to urban areas by 9% and increases wages for manual, short-term work in urban areas by 6%. The implied elas¬ticity of unskilled wages with respect to short-term migration is high (-0.7).

    Date
    Tuesday, 23 February 2016
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    1115 - Rational dialogs

    Herakles Polemarchakis

    Eventual consensus is the only property of a rational dialog.

    Date
    Monday, 22 February 2016
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    1114 - Religion and the Family: The Case of the Amish

    James P. Choy

    I construct a model of religion as an institution that provides community enforcement of contracts within families. Family altruism implies that family members cannot commit to reporting broken contracts to the community, so the community must monitor contract performance as well as inflicting punishment. The community has less information than family members, and so community monitoring is inefficient. I provide evidence from a study of Amish institutions, including qualitative evidence from sociological accounts and quantitative evidence from a novel dataset covering nearly the entire Amish population of Holmes county, Ohio. I find that 1) Amish households are not unitary, 2) the Amish community helps to support families by inflicting punishments on wayward family members, 3) without the community Amish people have difficulty committing to punishing family members, and 4) Amish community membership strengthens family ties, while otherwise similar religious communities in which there is less need for exchange between family members have rules that weaken family ties. My model has implications for understanding selection into religious practice and the persistence of culture.

    Date
    Sunday, 21 February 2016
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    1113 - Constructing Social Division to Support Cooperation

    James P. Choy

    Many societies are divided into multiple smaller groups. Certain kinds of interaction are more likely to take place within a group than across groups. I model a reputation effect that enforces these divisions. Agents who interact with members of different groups can support lower levels of cooperation with members of their own groups. A hierarchical relationship between groups appears endogenously in equilibrium. Group divisions appear without any external cause, and improvements in formal contracting institutions may cause group divisions to disappear. Qualitative evidence from the anthropological literature is consistent with several predictions of the model.

    Date
    Saturday, 20 February 2016
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    1112 - Business Practices in Small Firms in Developing Countries

    David McKenzie and Christopher Woodruff

    Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, recordkeeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices.

    Date
    Friday, 19 February 2016
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    1111 - Optimal Leverage and Strategic Disclosure

    Giulio Trigilia

    Firms seeking external financing jointly choose what securities to issue, and the extent of their disclosure commitments. The literature shows that enhanced disclosure reduces the cost of financing. This paper analyses how disclosure affects the optimal composition of financing means. It considers a market where firms compete for external financing under costly-state-verification, but, in contrast to the standard model: (i) the degree of asymmetric information between firms and outside investors is variable, and (ii) firms can affect it through a disclosure policy, modeled as a verifiable signal with a cost decreasing in its noise component. Two central predictions emerge

    Date
    Thursday, 18 February 2016
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    1110 - Fact and Fantasy in Soviet Records: The Documentation of Soviet Party and Secret Police Investigations as Historical Evidence

    Mark Harrison

    When we use Soviet documentation of political and secret police investigations to write history, to what extent are we vulnerable to the biases and inventions of the investigators? The problem is framed as one of principal and agent. It is argued that Soviet principals allowed their agents scope to manipulate facts and bias interpretations, not freely, but within strict limits that were laid down from above and varied from time to time. These limits were set by the leader’s “revolutionary insight,” the communist equivalent of what passes in more open societies today as “truthiness.” An understanding of the Soviet truthiness of the particular time is the best guide we have to interpreting the documentary records of that time. Evaluating them in this light, we see that Soviet historical documents are little different from the records of any other time and place.

    Date
    Wednesday, 17 February 2016
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    1109 - Herding and Contrarian Behavior in Financial Markets: An Experimental Analysis

    Andreas Park and Daniel Sgroi

    We analyze and confirm the existence and extent of rational informational herding and rational informational contrarianism in a financial market experiment, and compare and contrast these with equivalent irrational phenomena.In our study, subjects generally behave according to benchmark rationality. Traders who should herd or be contrarian in theory are the significant sources of both within the data. Correcting for subjects who can be identified as less rational increases our ability to predict herding or contrarian behavior considerably.

    Date
    Tuesday, 16 February 2016
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    1108 - Designing a Strategy-Proof Spot Market Mechanism with Many Traders: Twenty-Two Steps to Walrasian Equilibrium

    Peter Hammond

    To prove their Walrasian equilibrium existence theorem, Arrow and Debreu (1954) devised an abstract economy that Shapley and Shubik (1977) cricitized as a market game because, especially with untrustworthy traders, it fails to determine a credible outcome away from equilibrium. All this earlier work also postulated a Walrasian auctioneer with complete information about traders' preferences and endowments. To ensure credible outcomes, even in disequilibrium, warehousing is introduced into a multi-stage market game. To achieve Walrasian outcomes in a large economy with incomplete information, even about traders' endowments, a strategy-proof demand revelation mechanism is considered, and then extended to include warehousing.

    Date
    Monday, 15 February 2016
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    1107 - Sovereign Debt and Incentives to Default with Uninsurable Risks

    Gaetano Bloise, Herakles Polemarchakis and Yiannis Vailakis

    Sovereign debt is not sustainable even in the presence of uninsurable risks; which extends the result of Bulow and Rogoff (1989). But the argument is not as general. Indeed, examples show that positive borrowing may be enforced even though the sovereign’s natural debt limits, corresponding to the most pessimistic evaluation of future endowment, are finite. Unsustainable sovereign debt in incomplete asset markets requires a strong version of high implied interest rates: the value of the most optimistic evaluation of future endowment is finite.

    Date
    Thursday, 14 January 2016
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    1106 - On the Comparative Advantage of U.S. Manufacturing: Evidence from the Shale Gas Revolution

    Rabah Arezki and Thiemo Fetzer

    This paper provides the first empirical evidence of the newly found comparative advantage of the United States manufacturing sector following the so-called shale gas revolution. The revolution has led to (very) large and persistent differences in the price of natural gas between the United States and the rest of the world owing to the physics of natural gas. Results show that U.S. manufacturing exports have grown by about 6 percent on account of their energy intensity since the onset of the shale revolution. We also document that the U.S. shale revolution is operating both at the intensive and extensive margins.

    Date
    Wednesday, 13 January 2016
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    1105 - Causes and Consequences of the Protestant Reformation

    Sascha O. Becker, Steven Pfaff and Jared Rubin

    The Protestant Reformation is one of the defining events of the last millennium. Nearly 500 years after the Reformation, its causes and consequences have seen a renewed interest in the social sciences. Research in economics, sociology, and political science increasingly uses detailed individual-level, city-level, and regional-level data to identify drivers of the adoption of the Reformation, its diffusion pattern, and its socioeconomic consequences. This survey takes stock of the research so far, tries to point out what we know and what we do not know, and which are the most promising areas for future research.

    Date
    Tuesday, 12 January 2016
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    1104 - An argument for positive nominal interest

    Gaetano Bloise and Herakles Polemarchakis

    In a dynamic economy, money provides liquidity as a medium of exchange. A central bank that sets the nominal rate of interest and distributes its profit to shareholders as dividends is traded in the asset market. A nominal rates of interest that tend to zero, but do not vanish, eliminate equilibrium allocations that do not converge to a Pareto optimal allocation.

    Date
    Thursday, 31 December 2015
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    1103 - Suboptimality with land

    Nikos Kokonas and Herakles Polemarchakis

    In a stochastic economy of overlapping generations subject to uninsurable risks, competitive allocations need not be constrained optimal. This is the case even in the presence of long-lived assets and no short sales.

    Date
    Wednesday, 30 December 2015
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    1102 - Short sales, destruction of resources, welfare

    Nikos Kokonas and Herakles Polemarchakis

    A reduction in the output of productive assets (trees) in some states of the world can expand the span of payo s of assets; and, improved risk sharing may compensate for the loss of output and support a Pareto superior allocation. Surprisingly, if short sales of assets are not allowed, improved risk sharing that results from the destruction of output does not su ce to induce a Pareto superior allocation.

    Date
    Tuesday, 29 December 2015
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    1101 - Higher Intelligence Groups Have Higher Cooperation Rates in the Repeated Prisoner's Dilemma

    Eugenio Proto, Aldo Rustichini and Andis Sofianos

    Intelligence affects the social outcomes of groups. A systematic study of the link is provided in an experiment where two groups of subjects with different levels of intelligence, but otherwise similar, play a repeated prisoner's dilemma. Initial cooperation rates are similar, but increase in the groups with higher intelligence to reach almost full cooperation, while they decline in the groups with lower intelligence. Cooperation of higher intelligence subjects is payo sensitive and not automatic: in a treatment with lower continuation probability there is no difference between different intelligence groups.

    Date
    Monday, 28 December 2015
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    1100 - Challenges of Change: An Experiment Training Women to Manage in the Bangladeshi Garment Sector

    Rocco Macchiavello, Andreas Menzel, Atonu Rabbani and Christopher Woodruff

    Large private firms are still relatively rare in low-income countries, and we know little about how entry-level managers in these firms are selected. We examine a context in which nearly 80 percent of production line workers are female, but 95 percent of supervisors are male. We evaluate the effectiveness of female supervisors by implementing a training program for selected production line workers. Prior to the training, we find that workers at all level of the factory believe males are more effective supervisors than females. Careful skills diagnostics indicate that those perceptions do not always match reality. When the trainees are deployed in supervisory roles, production line workers initially judge females to be significantly less effective, and there is some evidence that the lines on which they work underperform. But after around four months of exposure, both perceptions and performance of female supervisors catch up to those of males. We document evidence that the exposure to female supervisors changes the expectations of male production workers with regard to promotion and expected tenure in the factory.

    Date
    Sunday, 27 December 2015
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    1099 - A Vision of the Growth Process in a Technologically Progressive Economy: the United States, 1899-1941.

    Gerben Bakker, Nicholas Crafts and Pieter Woltjer

    We develop new aggregate and sectoral Total Factor Productivity (TFP) estimates for the United States between 1899 and 1941 through better coverage of sectors and better measured labor quality, and show TFP-growth was lower than previously thought, broadly based across sectors, strongly variant intertemporally, and consistent with many diverse sources of innovation. We then test and reject three prominent claims. First, the 1930s did not have the highest TFP-growth of the twentieth century. Second, TFP-growth was not predominantly caused by four leading sectors. Third, TFP-growth was not caused by a ‘yeast process’ originating in a dominant technology such as electricity.

    Date
    Saturday, 26 December 2015
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    1098 - Shocking language: Understanding the macroeconomic effects of central bank communication

    Stephen Hansen and Michael McMahon

    We explore how the multi-dimensional aspects of information released by the FOMC has effects on both market and real economic variables. Using tools from computational linguistics, we measure the information released by the FOMC on the state of economic conditions, as well as the guidance the FOMC provides about future monetary policy decisions. Employing these measures within a FAVAR framework, we find that shocks to forward guidance are more important than the FOMC communication of current economic conditions in terms of their effects on market and real variables. Nonetheless, neither communication has particularly strong effects on real economic variables.

    Date
    Friday, 25 December 2015
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    1097 - Voting in Legislative Elections Under Plurality Rule

    Niall Hughes

    Models of single district plurality elections show that with three parties anything can happen - extreme policies can win regardless of voter preferences. I show that when single district elections are used to fill a legislature we get back to a world where the median voter matters. An extreme policy will generally only come about if it is preferred to a more moderate policy by the median voter in a majority of districts. The mere existence of a centrist party can lead to moderate outcomes even if the party itself wins few seats. Furthermore, I show that while standard single district elections always have misaligned voting i.e. some voters do not vote for their preferred choice, equilibria of the legislative election exist with no misaligned voting in any district. Finally, I show that when parties are impatient, a fixed rule on how legislative bargaining occurs will lead to more coalition governments, while uncertainty will favour single party governments.

    Date
    Thursday, 24 December 2015
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    1096 - Short-Term Momentum and Long-Term Reversal of Returns under Limited

    Pablo F. Beker & Emilio Espino

    We evaluate the ability of the Lucas tree and the Alvarez-Jermann models, both with homogeneous as well as heterogeneous beliefs, to generate a time series of excess returns that displays both short-term momentum and long-term reversal, i.e., positive autocorrelation in the short-run and negative autocorrelation in the long-run. Our analysis is based on a methodological contribution that consists in (i) a recursive characterisation of the set of constrained Pareto optimal allocations in economies with limited enforceability and belief heterogeneity and (ii) an alternative decentralisation of these allocations as competitive equilibria with endogenous borrowing constraints. We calibrate the model to U.S. data as in Alvarez and Jermann. We find that only the Alvarez-Jermann model with heterogeneous beliefs delivers autocorrelations that not only have the correct sign but are also of magnitude similar to the US data

    Date
    Wednesday, 23 December 2015
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    1095 - Crowd Learning without Herding: A Mechanism Design Approach

    Jacob Glazer, Ilan Kremer & Motty Perry

    Crowdfunding, Internet websites, and health care are only a few examples of markets in which agents make decisions not only on the basis of their own investigations and knowledge, but also on the basis of information from a "central planner" about other agents’ actions. While such reciprocal learning can be welfare-improving, it may reduce agents’incentives to conduct their own investigations, and may lead to harmful cascades. We study the planner’s optimal policy regarding when to provide information and how much information to provide. We show that the optimum policy involves a delicate balance of hiding and revealing information.

    Date
    Tuesday, 22 December 2015
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    1094 - Quantitative Easing in an Open Economy: Prices, Exchange Rates and Risk Premia

    M.Udara Peiris & Herakles Polemarchakis

    Explicit targets for the composition of assets traded by governments are necessary for fiscal-monetary policy to determine the stochastic paths of inflation or exchange rates; this is the case even if fiscal policy is non-Ricardian. Targets obtain with the traditional conduct of monetary policy and Credit Easing, but not with unconventional policy and Quantitative Easing. The composition of the portfolios traded by monetary-fiscal authorities determines premia in asset and currency markets

    Date
    Monday, 21 December 2015
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    1093 - How To Count Citations If You Must

    Motty Perry & Philip J. Reny

    Citation indices are regularly used to inform critical decisions about promotion, tenure, and the allocation of billions of research dollars. Nevertheless, most indices (e.g., the h-index) are motivated by intuition and rules of thumb, resulting in undesirable conclusions. In contrast, five natural properties lead us to a unique new index, the Euclidean index, that avoids several shortcomings of the h-index and its successors. The Euclidean index is simply the Euclidean length of an individual’s citation list. Two empirical tests suggest that the Euclidean index outperforms the h-index in practice.

    Date
    Sunday, 20 December 2015
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    1092 - Why Sex? and Why Only in Pairs?

    Motty Perry, Philip J. Reny & Arthur J. Robson

    Understanding the purpose of sex remains one of the most important unresolved problems in evolutionary biology. The difficulty is not that there are too few theories of sex, the difficulty is that there are too many and none stand out. To distinguish between theories we suggest the following question: Why are there no triparental species in which an offspring is composed of the genetic material of three individuals? A successful theory should confer an advantage to biparental sex over asexual reproduction without conferring an even greater advantage to triparental sex. We pose our question in the context of two leading theories of sex, the (deterministic) mutational hypothesis that sex reduces the rate at which harmful mutations accumulate, and the red queen hypothesis that sex reduces the impact of parasitic attack by increasing genotypic variability. We show that the mutational hypothesis fails to provide an answer to the question because it implies that triparental sex dominates biparental sex, so the latter should never be observed. In contrast, we show that the red queen hypothesis is able to explain biparental sex without conferring an even greater advantage to triparental sex.

    Date
    Saturday, 19 December 2015
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    1091 - Evidence Games: Truth and Commitment

    Sergiu Hart, Ilan Kremer & Motty Perry

    An evidence game is a strategic disclosure game in which an informed agent who has some pieces of verifiable evidence decides which ones to disclose to an uninformed principal who chooses a reward. The agent, regardless of his information, prefers the reward to be as high as possible. We compare the setup where the principal chooses the reward after the evidence is disclosed to the mechanism-design setup where he can commit in advance to a reward policy. The main result is that under natural conditions on the truth structure of the evidence, the two setups yield the same equilibrium outcome

    Date
    Friday, 18 December 2015
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    1090 - Rational Expectations and Farsighted Stability

    Bhaskar Dutta & Rajiv Vohra

    In the study of farsighted coalitional behavior, a central role is played by the von Neumann-Morgenstern (1944) stable set and its modification that incorporates farsightedness. Such a modification was first proposed by Harsanyi (1974) and has recently been re-formulated by Ray and Vohra (2015). The farsighted stable set is based on a notion of indirect dominance in which an outcome can be dominated by a chain of coalitional ‘moves’ in which each coalition that is involved in the sequence eventually stands to gain. However, it does not require that each coalition make a maximal move, i.e., one that is not Pareto dominated (for the members of the coalition in question) by another. Nor does it restrict coalitions to hold common expectations regarding the continuation path from every state. Consequently, when there are multiple continuation paths the farsighted stable set can yield unreasonable predictions. We resolve this difficulty by requiring all coalitions to have common rational expectations about the transition from one outcome to another. This leads to two related concepts: the rational expectations farsighted stable set (REFS) and the strong rational expectations farsighted stable set (SREFS). We apply these concepts to simple games and to pillage games to illustrate the consequences of imposing rational expectations for farsighted stability

    Date
    Thursday, 17 December 2015
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    1089 - Perils of Quantitative Easing

    Michael McMahon, Udara Peiris & Herakles Polemarchakis

    Quantitative easing compromises the control of the central bank over the stochastic path of inflation.

    Date
    Wednesday, 16 December 2015
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    1088 - How Transparency Kills Information Aggregation: theory and Experiment

    Sebastian Fehrler & Niall Hughes

    We investigate the potential of transparency to influence committee decisionmaking. We present a model in which career concerned committee members receive private information of different type-dependent accuracy, deliberate and vote. We study three levels of transparency under which career concerns are predicted to affect behavior differently, and test the model’s key predictions in a laboratory experiment. The model’s predictions are largely borne out - transparency negatively affects information aggregation at the deliberation and voting stages, leading to sharply different committee error rates than under secrecy. This occurs despite subjects revealing more information under transparency than theory predicts

    Date
    Tuesday, 15 December 2015
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    1087 - The identification of beliefs from asset demand

    Felix Kubler & Herakles Polemarchakis

    The demand for assets as prices and initial wealth vary identifies beliefs and attitudes towards risk. We derive conditions that guarantee identification with no knowledge either of the cardinal utility index or of the distribution of future endowments or payoffs of assets; the argument applies even if the asset market is incomplete and demand is observed only locally.

    Date
    Monday, 14 December 2015
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    1086 - What are monetary policy shocks?

    Irfan Qureshi

    I decompose deviations of the Federal funds rate from a Taylor type monetary policy rule into exogenous monetary policy shocks and a time-varying inflation target. I show that the role of exogenous shocks may be exaggerated in a fixed inflation target model, and a large fraction of business cycle fluctuations attributed to them may actually be due to changes in the inflation target. A time-varying inflation target explains approximately half of the volatility normally attributed to these deviations, and consequently more than a quarter of the fluctuations in the business cycle. This contributes approximately 39% additional inflation volatility during the Great Inflation. I show that shocks to the inflation target imply a lower sacrifice ratio compared to exogenous changes in the interest rate and therefore propose a gradual adjustment of the inflation target in order to achieve monetary policy objectives.

    Date
    Sunday, 13 December 2015
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    1085 - On The Origins of Gender Human Capital Gaps: Short and Long Term Consequences of Teachers’ Stereotypical Biases

    Victor Lavy and Edith Sand

    In this paper, we estimate the effect of primary school teachers’ gender biases on boys’ and girls’ academic achievements during middle and high school and on the choice of advanced level courses in math and sciences during high school. For identification, we rely on the random assignments of teachers and students to classes in primary schools. Our results suggest that teachers’ biases favoring boys have an asymmetric effect by gender—positive effect on boys’ achievements and negative effect on girls’. Such gender biases also impact students’ enrollment in advanced level math courses in high school—boys positively and girls negatively. These results suggest that teachers’ biased behavior at early stage of schooling have long run implications for occupational choices and earnings at adulthood, because enrollment in advanced courses in math and science in high school is a prerequisite for post-secondary schooling in engineering, computer science and so on. This impact is heterogeneous, being larger for children from families where the father is more educated than the mother and larger on girls from low socioeconomic background.

    Date
    Saturday, 12 December 2015
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    1084 - Hedging against Risk in a Heterogeneous Leveraged Market

    Alexandros Karlis, Giorgos Galanis, Spyridon Terovitis and Matthew Turner

    This paper focuses on the use of interest rates as a tool for hedging against the default risk of heterogeneous hedge funds (HFs) in a leveraged market. We assume that the banks study the HFs survival statistics in order to compute default risk and hence the correct interest rate. The emergent non-trivial (heavy-tailed) statistics observed on the aggregate level, prevents the accurate estimation of risk in a leveraged market with heterogeneous agents. Moreover, we show that heterogeneity leads to the clustering of default events and constitutes thus a source of systemic risk.

    Date
    Friday, 11 December 2015
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    1083 - Heterogeneity and Clustering of Defaults

    Alexandros Karlis, Giorgos Galanis, Spyridon Terovitis and Matthew Turner

    This paper provides a theoretical model which highlights the role of heterogeneity of information in the emergence of temporal aggregation (clustering) of defaults in a leveraged economy. We show that the degree of heterogeneity plays a critical role in the persistence of the correlation between defaults in time. Specifically, a high degree of heterogeneity leads to an autocorrelation of the time sequence of defaults characterised by a hyperbolic decay rate, such that the autocorrelation function is not summable (infinite memory) and defaults are clustered. Conversely, if the degree of heterogeneity is reduced the autocorrelation function decays exponentially fast, and thus, correlation between defaults is only transient (short memory). Our model is also able to reproduce stylized facts, such as clustered volatility and non-Normal returns. Our findings suggest that future regulations might be directed at improving publicly available information, reducing the relative heterogeneity

    Date
    Thursday, 10 December 2015
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    1082 - Monetary Policy and Welfare in a Currency Union

    Lucio D’Aguanno

    What are the welfare gains from being in a currency union? I explore this question in the context of a dynamic stochastic general equilibrium model with monetary barriers to trade, local currency pricing and incomplete markets. The model generates a trade off between monetary independence and monetary union. On one hand, distinct national monetary authorities with separate currencies can address business cycles in a countryspecific way, which is not possible for a single central bank. On the other hand, short-run violations of the law of one price and long-run losses of international trade occur if different currencies are adopted, due to the inertia of prices in local currencies and to the presence of trade frictions. I quantify the welfare gap between these two international monetary arrangements in consumption equivalents over the lifetime of households, and decompose it into the contributions of di.erent frictions. I show that the welfare ordering of alternative currency systems depends crucially on the international correlation of macroeconomic shocks and on the strength of the monetary barriers affecting trade with separate currencies. I estimate the model on data from Italy, France, Germany and Spain using standard Bayesian tools, and I find that the trade off is resolved in favour of a currency union among these countries.

    Date
    Wednesday, 09 December 2015
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    1081 - The Political Fallout of Chernobyl: Evidence from West-German Elections

    Christoph Koenig

    What are the welfare gains from being in a currency union? I explore this question in the context of a dynamic stochastic general equilibrium model with monetary barriers to trade, local currency pricing and incomplete markets. The model generates a trade off between monetary independence and monetary union. On one hand, distinct national monetary authorities with separate currencies can address business cycles in a countryspecific way, which is not possible for a single central bank. On the other hand, short-run violations of the law of one price and long-run losses of international trade occur if different currencies are adopted, due to the inertia of prices in local currencies and to the presence of trade frictions. I quantify the welfare gap between these two international monetary arrangements in consumption equivalents over the lifetime of households, and decompose it into the contributions of di.erent frictions. I show that the welfare ordering of alternative currency systems depends crucially on the international correlation of macroeconomic shocks and on the strength of the monetary barriers affecting trade with separate currencies. I estimate the model on data from Italy, France, Germany and Spain using standard Bayesian tools, and I find that the trade off is resolved in favour of a currency union among these countries.

    Date
    Tuesday, 08 December 2015
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    1080 - Competence vs. Loyalty: Political survival and electoral fraud in Russia’s regions 2000–2012

    Christoph Koenig

    Election fraud is a pervasive feature of autocracies but often only serves lower-tier officials to cast signals of loyalty or competence to the central government in order to pursue their own interests. How much such personal interests matter for electoral fraud under autocracy has however not been studied so far. In this paper, I exploit a radical policy change in Russia which allowed the president to replace governors of the country’s 89 regions at his own will. As a result, federal elections after December 2004 were organised by two types of governors: one was handpicked by the president, the other one elected before the law change and re-appointed. Even though both types faced removal in case of bad results, the need to signal loyalty was much lower for the first type. In order to estimate the effect of handpicked governors on electoral fraud, I use a diff-in-diff framework over 7 federal elections between 2000 and 2012. For this time period, I use results from about 95,000 voting stations to construct a new indicator of suspicious votes for each region and election. I show that this indicator correlates strongly with incidents of reported fraud. My baseline estimates show that in territories with a handpicked governor the share of suspicious votes decreased on average by more than 10 percentage points and dropped even further if the region’s economy had done well over the past legislature. These findings suggest that governors have less need to use rigging as a signal once loyalty is assured unless faced with circumstances raising doubts about their competence.

    Date
    Monday, 07 December 2015
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    1079 - Loose Cannons: War Veterans and the Erosion of Democracy in Weimar Germany

    Christoph Koenig

    I study the effect of war participation on the rise of right-wing parties in Inter-war Germany. After the democratisation and surrender of Germany in 1918, 8m German soldiers of WWI were demobilised. I argue that defeat made veterans particularly sceptical about the new democratic state. Their return undermined support for democratic parties from the very beginning and facilitated the reversion to autocratic rule 15 years later. In order to quantify this effect, I construct the first disaggregated estimates of German WWI veterans since official army records were destroyed. I combine this data with a new panel of voting results from 1881 to 1933. Diff-in-Diff estimates show that war participation had a strong positive effect on support for the right-wing at the expense of socialist parties. A one standard deviation increase in veteran inflow shifted vote shares to the right by more than 2 percentage points. An IV strategy based on draft exemption rules substantiates my findings. The effect of veterans on voting is highly persistent and strongest in working class areas. Gains for the right-wing, however, are only observed after a period of Communist insurgencies. I provide suggestive evidence that veterans must have picked up especially anti- Communist sentiments after defeat, injected these into the working class and in this way eroded the future of the young democracy.

    Date
    Sunday, 06 December 2015
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    1078 - Quality and the Great Trade Collapse

    Natalie Chen and Luciana Juvenal

    We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms’ exports.

    Date
    Saturday, 05 December 2015
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    1077 - World War II: Won by American Planes and Ships, or by the Poor Bloody Russian Infantry?

    Mark Harrison

    This short paper reviews a new book about World War II. In most such books, what is new is not usually important, and what is important is not new. This one is an exception. How the War Was Won: Air-Sea Power and Allied Victory in World War II, by Phillips Payson O'Brien, sets out a new perspective on the war. An established view is that World War II was decided on the Eastern front, where multi-million armies struggled for supremacy on land and millions died. According to O’Brien, this neglects the fact that the preponderance of the Allied productive effort was devoted to building ships and planes for an air-sea battle that was fought to a limited extent in the East and with much higher intensity across the Western and Pacific theatres. The Allies’ air-sea power framed the outcomes of the great land campaigns by preventing Germany and Japan from fully realizing their economic potentials for war. Finding much to be said for this reinterpretation, I reconsider the true significance of the Eastern front.

    Date
    Friday, 04 December 2015
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    1076 - If You Do Not Change Your Behaviour: Managing Threats to State Security in Lithuania under Soviet Rule

    Mark Harrison

    In Soviet Lithuania (and elsewhere) from the 1950s to the 1980s, the KGB applied a form of "zero-tolerance" policing, or profilaktika, to incipient threats to state security. Petty deviation from socio-political norms was regarded as a person's first step towards more serious state crimes, and as a bad example for others. As long as petty violators could be classed as confused or misled rather than motivated by anti-Soviet conviction, their mistakes would be corrected by a KGB warning or "preventive discussion." Successful prevention avoided the costly removal of the subject from society. This represented a complete contrast to the Stalin years, when prevention relied largely on eliminating the subject from society. Preventive discussions were widely practised in many different circumstances. KGB internal evaluations concluded that these discussions were extremely effective in preventing further violations. This was the front line of the Soviet police state; it was perhaps the largest programme for personally targeted behaviour modification anywhere in the world at that time outside the education sector. It was also a front line of the Cold War because the foreign adversary was seen as the most important source of misleading or confusing influence. My work in progress aims to understand the origins and operation of profilaktika, including how and to whom it was applied, how it worked on the individual subject, and its wider influence on the Soviet Union’s social and political order.

    Date
    Thursday, 03 December 2015
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    1075 - Knowing who you are: The Effect of Feedback Information on Short and Long Term Outcomes

    Sofoklis Goulas and Rigissa Megalokonomou

    We study the effect of disclosing relative performance information (feedback) on students' performance in high-school and on subsequent university enrolment. We exploit a large scale natural experiment where students in some cohorts are provided with their national and school relative performance. Using unique primary collected data, we find an asymmetric response to the relative performance information: high achieving students improve their last-year performance by 0.15 standard deviations whereas the last-year performance of low achieving students drops by 0.3 standard deviations. The results are more pronounced for females indicating greater sensitivity to feedback. We also document the long term effect of feedback provision: high achieving students reduce their repetition rate of the national exams, enrol into 0.15 standard deviations more popular University Departments and their expected annual earnings increase by 0.17 standard deviations. Results are opposite for low achieving students. We find suggestive evidence that feedback encourages more students from low-income neighborhoods to enrol in university and to study in higher-quality programs indicating a potential decrease in income inequality.

    Date
    Wednesday, 02 December 2015
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    1074 - The Political Economy of Liberal Democracy

    Sharun Mukand and Dani Rodrik

    We distinguish between three sets of rights – property rights, political rights, and civil rights and provide a taxonomy of political regimes. The distinctive nature of liberal democracy is that it protects civil rights (equality before the law for minorities) in addition to the other two. Democratic transitions are typically the product of a settlement between the elite (who care mostly about property rights) and the majority (who care mostly about political rights). Such settlements rarely produce liberal democracy, as the minority has neither the resources nor the numbers to make a contribution at the bargaining table. We develop a formal model to sharpen the contrast between electoral and liberal democracies and highlight circumstances under which liberal democracy can emerge. We discuss informally the difference between social mobilizations sparked by industrialization and decolonization. Since the latter revolve around identity cleavages rather than class cleavages, they are less conducive to liberal politics.

    Date
    Tuesday, 01 December 2015
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    1073 - QE and the Bank Lending Channel in the United Kingdom

    Nick Buttz, Rohan Churmz, Michael McMahon, Arpad Morotzz and Jochen Schanz

    We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives 'flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we nd no evidence of a BLC.

    Date
    Monday, 30 November 2015
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    1072 - Boss Competence and Worker Well-being

    Benjamin Artz, Amanda H Goodall, and Andrew J Oswald

    Nearly all workers have a supervisor or ‘boss’. Yet little is known about how bosses influence the quality of employees’ lives. This study is a cautious attempt to provide new formal evidence. First, it is shown that a boss’s technical competence is the single strongest predictor of a worker’s job satisfaction. Second, it is demonstrated in longitudinal data -- after controlling for fixed effects -- that even if a worker stays in the same job and workplace a rise in the competence of a supervisor is associated with an improvement in the worker’s well-being. Third, a variety of robustness checks, including tentative instrumental-variable results, are reported. These findings, which draw on US and British data, contribute to an emerging literature on the role of expert leaders in organizations. Finally, the paper discusses potential weaknesses of existing evidence and necessary future research.

    Date
    Sunday, 29 November 2015
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    1071 - National Well-being Policy and a Weighted Approach to Human Feelings

    Gus O'Donnell and Andrew J Oswald

    Governments are becoming interested in the concept of human well-being and how truly to assess it. As an alternative to traditional economic measures, some nations have begun to collect information on citizens’ happiness, life satisfaction, and other psychological scores. Yet how could such data actually be used? This paper is a cautious attempt to contribute to thinking on that question. It suggests a possible weighting method to calculate first-order changes in society’s well-being, discusses some of the potential principles of democratic ‘well-being policy’, and (as an illustrative example) reports data on how sub-samples of citizens believe feelings might be weighted.

    Date
    Saturday, 28 November 2015
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    1070 - Under the Radar: The Effects of Monitoring Firms on Tax Compliance

    Miguel Almunia & David Lopez-Rodriguez

    This paper analyzes the effects on tax compliance of monitoring the information trails generated by firms’ activities. We exploit quasi-experimental variation generated by a Large Taxpayers Unit (LTU) in Spain, which monitors firms with more than 6 million euros in reported revenue. Firms strategically bunch below this threshold in order to avoid stricter tax enforcement. This response is stronger in sectors where transactions leave more paper trail, implying that monitoring effort and the traceability of information reported by firms are complements. We calculate that there would be substantial welfare gains from extending stricter tax monitoring to smaller businesses.

    Date
    Friday, 27 November 2015
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    1069 - Sovereign Risk, Private Credit, and Stabilization Policies

    Roberto Pancrazi, Hernan D. Seoane & Marija Vukotic

    In this paper we examine the impact of bailout policies in small open economies that are subject to financial frictions. We extend standard endogenous default models in two ways. First, we augment the government’s choice set with a bailout option. In addition to the standard choice of defaulting or repaying the debt, a government can also choose to ask for a third-party bailout, which comes at a cost of an imposed borrowing limit. Second, we introduce financial frictions and a financial intermediation channel, which tie conditions on the private credit market to the conditions on the sovereign credit market. This link has been very strong in European countries during the recent sovereign crisis. We find that the existence of a bailout option reduces sovereign spreads and, through the described link, private credit rates as well. The implementation of a rescue program reduces output losses and increases welfare, measured in consumption equivalent terms. Moreover, bailout benefits emerge even when a government only has the option of asking for a bailout, but does not take advantage of it.

    Date
    Thursday, 26 November 2015
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    1068 - Natural Expectations and Home Equity Extraction

    Roberto Pancrazi & Mario Pietrunti

    In this paper we propose a novel explanation for the increase in households' leverage during the recent boom in U.S. housing prices. We use the U.S. housing market's boombust episode that led to the Great Recession as a case study, and we show that biased long-run expectations of both households and, especially, nancial intermediaries about future housing prices had a large impact on households' indebtedness. Specically, first we show that it is likely that financial intermediaries used forecasting models that ignored the long-run mean reversion of housing prices after a short-run momentum, thus leading to an overestimation of future households' housing wealth. We frame this finding in the theory of natural expectations, proposed by Fuster et al. (2010), to the housing market. Then, using a tractable model of collateralized credit market populated by households and banks, we find that: (1) mild variations in long-run forecasts of housing prices result in quantitatively considerable dierences in the amount of home equity extracted during a housing price boom; (2) the equilibrium levels of debt and interest rate are particularly sensitive to nancial intermediaries' naturalness; (3) home equity extraction data are better matched by models in which agents are fairly natural. 1068

    Date
    Wednesday, 25 November 2015
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    1067 - The Inequality Accelerator

    Eric Mengus and Roberto Pancrazi

    We show that the transition from an economy characterized by idiosyncratic income shocks and incomplete markets a la Aiyagari (1994) to markets where statecontingent assets are available but costly (in order to purchase a contingent asset, households have to pay a xed participation cost) leads to a large increase of wealth inequality. Using a standard calibration our model can match a Gini of 0.93 close to the level of wealth inequality observed in the US. In addition, under this level of participation costs, wealth inequality is particularly sensitive to income inequality.We label this phenomenon as the Inequality Accelerator. We demonstrate how costly access to contingent asset-markets generates these eects. The key insight stems from the non-monotonic relationship between wealth and desired degree of insurance, in an economy with participation costs. Poor borrowing constrained households remain uninsured, middle-class households are almost perfectly insured, while rich households decide to self-insure by purchasing risk-free assets. This feature of households' risk management has crucial eects in asset prices, wealth inequality, and social mobility.

    Date
    Tuesday, 24 November 2015
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    1066 - Supplement to Fuzzy Differences-in-Difference

    Clement de Chaisemartin and Xavier D'Haultfoeuille

    This paper gathers the supplementary material to de Chaisemartin & D'Haultfoeuille (2015). First, we show that two commonly used IV and OLS regressions with time and group fixed effects estimate weighted averages of Wald-DIDs. It then follows from Theorem 3.1 in de Chaisemartin & D'Haultfoeuille (2015) that these regressions estimate weighted sums of LATEs, with potentially many negative weights as we illustrate through two applications. We review all papers published in the American Economic Review between 2010 and 2012 and find that 10.1% of these papers estimate one or the other regression. Second, we consider estimators of the bounds on average and quantile treatment effects derived in Theorems 3.2 and 3.3 in de Chaisemartin & D'Haultfoeuille (2015) and we study their asymptotic behavior. Third, we revisit Gentzkow et al. (2011) and Field (2007) using our estimators. Finally, we present all the remaining proofs not included in the main paper.

    Date
    Monday, 23 November 2015
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    1065 - Fuzzy Differences-in-Differences

    Clement de Chaisemartin and Xavier D'Haultfoeuille

    In many applications of the differences-in-differences (DID) method, the treatment increases more in the treatment group, but some units are also treated in the control group. In such fuzzy designs, a popular estimator of treatment effects is the DID of the outcome divided by the DID of the treatment, or OLS and 2SLS regressions with time and group fixed effects estimating weighted averages of this ratio across groups. We start by showing that when the treatment also increases in the control group, this ratio estimates a causal effect only if treatment effects are homogenous in the two groups. Even when the distribution of treatment is stable, it requires that the effect of time be the same on all counterfactual outcomes. As this assumption is not always applicable, we propose two alternative estimators. The first estimator relies on a generalization of common trends assumptions to fuzzy designs, while the second extends the changes-in-changes estimator of Athey & Imbens (2006). When the distribution of treatment changes in the control group, treatment effects are partially identified. Finally, we prove that our estimators are asymptotically normal and use them to revisit applied papers using fuzzy designs.

    Date
    Sunday, 22 November 2015
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    1064 - E-Cigarettes: The Extent and Impact of Complementary Dual-Use

    Chris Doyle, David Ronayne and Daniel Sgroi

    The highly controversial e-cigarette industry has generated considerable policy debate and mixed regulatory responses worldwide. Surprisingly, an issue thathas been largely ignored is the categorisation of e-cigarettes as substitutes or (dynamic) complements for conventional smoking. We conduct an online survey ofUS participants finding that 37% of e-cigarette users view them primarily as complementary. We use this result along-side publicly available data to calibrate a cost-benefit analysis, estimating that complementarity reduces the potential cost-savings of e-cigarettes by as much as 57% (or $3.3-4.9bn p.a.) relative to case with zero complementarity.

    Date
    Saturday, 21 November 2015
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    1063 - Negative Voters: Electoral Competition with Loss-Aversion

    Ben Lockwood and James Rockey

    This paper studies how voter loss-aversion affects electoral competition in a Downsian setting. Assuming that the voters’ reference point is the status quo, we show that loss-aversion has a number of effects. First, for some values of the status quo, there is policy rigidity both parties choose platforms equal to the status quo, regardless of other parameters. Second, there is a moderation effect when there is policy rigidity, the equilibrium policy outcome is closer to the moderate voters’ ideal point than in the absence of loss-aversion. In a dynamic extension of the model, we consider how parties strategically manipulate the status quo to their advantage, and we find that this increases policy rigidity. Finally, we show that with loss-aversion, incumbents adjust less than challengers to changes in voter preferences. The underlying force is that the status quo works to the advantage of the incumbent. This prediction of asymmetric adjustment is new, and we test it using elections to US state legislatures. The results are as predicted: incumbent parties respond less to shocks in the preferences of the median voter.

    Date
    Friday, 20 November 2015
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    1062 - The Vanishing Procyclicality of Labor Productivity

    Jordi Gali and Thijs van Rens

    We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity vanished, (ii) the relative volatility of employment rose, and (iii) the relative (and absolute) volatility of the real wage rose. We propose an explanation for all three changes that is based on a common source: the decline in labor market turnover, which reduced hiring frictions. We develop a simple model with hiring frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the decline
    in turnover may also have contributed to the observed decline in output volatility.

    Date
    Thursday, 19 November 2015
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    1061 - Accounting for Mismatch Employment

    Jordi Gali and Thijs van Rens

    We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity vanished, (ii) the relative volatility of employment rose, and (iii) the relative (and absolute) volatility of the real wage rose. We propose an explanation for all three changes that is based on a common source: the decline in labor market turnover, which reduced hiring frictions. We develop a simple model with hiring frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the decline
    in turnover may also have contributed to the observed decline in output volatility

    Date
    Wednesday, 18 November 2015
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    1060 - Catastrophic Risk, Rare Events, and Black Swans: Could There Be a Countably Additive Synthesis?

    Peter Hammond

    Catastrophic risk, rare events, and black swans are phenomena that require special attention in normative decision theory. Several papers by Chichilnisky integrate them into a single framework with nitely additive subjective probabilities.Some precursors include: (i) following Jones-Lee (1974), undened willingness to pay to avoid catastrophic risk; (ii) following Renyi (1955, 1956) and many successors, rare events whose probability is innitesimal. Also, when rationality is bounded, enlivened decision trees can represent a dynamic process involving successively unforeseen \true black swan" events. One conjectures that a dierent integrated framework could be developed to include these three phenomena while preserving countably additive probabilities.

    Date
    Tuesday, 17 November 2015
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    1059 - Ready for boarding? The effects of a boarding school for disadvantaged students

    Luc Behaghel, Clement de Chaisemartin and Marc Gurgand

    Boarding schools substitute school to home, but little is known on the eects this substitution produces on students. We present results of an experiment in which seats in a boarding school for disadvantaged students were randomly allocated. Boarders enjoy better studying conditions than control students. However, they start outperforming control students in mathematics only two years after admission, and this effect mostly comes from strong students. After one year, levels of well-being are lower among boarders, but in their second year, students adjust: well-being catches-up. This suggests that substituting school to home is disruptive: only strong students benet from the boarding school, once they have managed to adapt to their new environment.

    Date
    Monday, 16 November 2015
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    1058 - The Role of Product Diversification in Skill-Biased Technological Change

    Choong Hyun Nam

    Since the 1980s, labour demand has shifted toward more educated workers in the US. The most common explanation is that the productivity of skilled workers has risen relative to the unskilled, but it is not easy to explain why aggregate labour productivity was stagnant during the 1980s.This paper suggests an alternative story: introducing new goods involves a fixed labour input, which is biased toward white-collar workers. Hence the transition from Ford-style mass production towards more diversied one has shifted labour demand toward white-collar workers.

    Date
    Sunday, 15 November 2015
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    1057 - How Transparency Kills Information Aggregation: Theory and Experiment

    Niall Hughes and Sebastian Fehrler

    We investigate the potential of transparency to influence committee decisionmaking.We present a model in which career concerned committee members receive private information of different type-dependent accuracy, deliberate and vote. We study three levels of transparency under which career concerns are predicted to affect behavior differently, and test the model’s key predictions in a laboratory experiment. The model’s predictions are largely borne out - transparency negatively affects information aggregation at the deliberation and voting stages, leading to sharply different committee error rates than under secrecy. This occurs despite subjects revealing more information under transparency than theory predicts.

    Date
    Saturday, 14 November 2015
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    1056 - Price Comparison Websites

    David Ronayne

    The large and growing industry of price comparison websites (PCWs) or “web aggregators” is poised to benefit consumers by increasing competitive pricing pressure on firms by acquainting shoppers with more prices. However, these sites also charge firms for sales, which feeds back to raise prices. I find that introducing any number of PCWs to a market increases prices for all consumers, both those who use the sites, and those who do not. I then use my framework to identify ways in which a more competitive environment could be achieved

     

    Date
    Friday, 13 November 2015
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    1055 - Voting in Legislative Elections Under Plurality Rule

    Niall Hughes

    Conventional models of single district plurality elections show that with three parties anything can happen - extreme policies can win regardless of voter preferences. I show that when when single district elections are used to fill a legislature we get back to a world where the median voter matters. An extreme policy will generally only come about if it is preferred by the median voter in a majority of districts, while the mere existence of a centrist party can lead to moderate outcomes even if the party itself wins few seats. Furthermore, I show that while standard single district elections always have misaligned voting i.e. some voters do not vote for their preferred choice, equilibria of the legislative election exist with no misaligned voting in any district. Finally, I show that when parties are impatient, a xed rule on how legislative bargaining occurs will lead to more coalition governments, while uncertainty will favour single party governments

    Date
    Thursday, 30 October 2014
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    1054 - Incentives to Innovate, Compatibility and Efficiency in Durable Goods Markets with Network Effects

    Thanos Athanasopoulos

    This paper investigates the relation between firms’ R&D incentives and their compatibility decisions regarding durable, imperfectly substitutable network goods in the presence of forward looking consumers. Non drastic product innovation is sequential and both an initially dominant firm and a smaller rival are potential inventors. For sufficiently innovative future products, our first key result is that the dominant firm invests more when there is compatibility and voluntarily decides to supply interoperability information. This happens as the probability that he is the only inventor increases, allowing him to enjoy a higher expected future profit that outweighs the current lost revenue. For economies whose initial market size is considerably large, the rival also demands compatibility but this is no longer true in industries with a relatively smaller number of existing consumers. For less innovative new versions, the dominant firm rejects compatibility and there is a cutoff in network externalities below which he invests more when there is incompatibility. Regarding welfare, we find that a laissez faire Competition Law with respect to the IPR holders is socially preferable.

    Date
    Wednesday, 29 October 2014
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    1053 - Effects of Marginal Specifications on Copula Estimation

    Kazim Azam

    This paper studies the effect of marginal distributions on a copula, in the case of mixed discrete-continuous random variables. The existing literature has proposed various methods to deal with mixed marginals: this paper is the first to quantify their effect in a unified Bayesian setting. Using order statistics based information for the marginals, as proposed by Ho (2007), we find that in small samples the bias and mean square error are at least half in size as compared to those of empirical or misspecified marginal distributions. The difference in the bias and mean square error enlarges with increasing sample size, especially for low count discrete variables. We employ the order statistics method on firm-level patents data, containing both discrete and continuous random variables, and consistently estimate their correlation.

    Date
    Tuesday, 28 October 2014
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    1052 - Dependence Analysis between Foreign Exchange Rates: A Semi-Parametric Copula Approach

    Kazim Azam

    Not only currencies are assets in investor's portfolio, central banks use them for implementing economic policies.This implies existence of some type of dependence pattern among the currencies. We investigate such patterns among daily Deutsche Mark (DM) (Euro later), UK Sterling (GBP) and the Japanese Yen (JPY) exchange rate, all considered against the US Dollar during various economic conditions. To overcome the short-comings of mis- specification, normality and linear dependence for such time series, a exible semi-parametric copula methodology is adopted where the marginals are non-parametric but the copula is parametrically specified. Dependence is estimated both as a constant and time-varying measure. During the Pre-Euro period, we find slightly more dependence when both DM (Euro)/USD and GBP/USD jointly appreciate as compared to joint depreciation, especially in the late 90s. Such results are reversed for GBP/USD and JPY/USD in the early 90s. Post-Euro, DM (Euro)/USD and GBP/USD exhibit stronger dependen e when they jointly appreciate, which could indicate preference for price-stability in EU zone. Whereas the dependence of JPY/USD with both DM (Euro)/USD and GBP/USD is stronger when they jointly depreciate, this could imply preference for export competitiveness among the countries. In the beginning of Recent-Crisis period, DM (EURO)/USD and GBP/USD show more dependence when they jointly depreciate, but later we see the similar tendency for these currencies to be related more when they jointly appreciate. Such measures of asymmetric dependence among the currencies provide vital insight into Central banks preferences and investors portfolio balancing.

    Date
    Monday, 27 October 2014
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    1051 - Mike Pitt and Kazim Azam

    Mike Pitt and Kazim Azam

    This paper presents a method to specify a strictly stationary univariate time series model with particular emphasis on the marginal characteristics (fat tailedness, skewness etc.). It is the first time in time series models with specified marginal distribution, a non-parametric specification is used. Through a Copula distribution, the marginal aspect are separated and the information contained within the order statistics allow to efficiently model a discretely-varied time series. The estimation is done through Bayesian method. The method is invariant to any copula family and for any level of heterogeneity in the random variable. Using count times series of weekly rearm homicides in Cape Town, South Africa, we show our method eciently estimates the copula parameter representing the first-order Markov chain transition density.

    Date
    Sunday, 26 October 2014
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    1050 - Optimal Security Design under Asymmetric Information and Profit Manipulation

    Kostas Koufopoulos , Roman Kozhan, Giulio Trigilia

    We consider a model of external financing under ex ante asymmetric information and profit manipulation (non veriability). Contrary to conventional wisdom, the optimal contract is not standard debt, and it is not monotonic. Instead, it resembles a contingent convertible (CoCo) bond. In particular: (i) if the profit manipulation and/or adverse selection are not severe, there exists a unique separating equilibrium in CoCos; (ii) in the intermediate region, if the distribution of earnings is unbounded above there exists a unique pooling equilibrium in CoCos, otherwise debt might be issued but it is never the unique equilibrium; (iii) nally, if profit manipulation is severe, there is no financing. These findings suggest that the standard monotonicity constraint exogenously imposed in the security design literature must be reconsidered. Crucially, profit manipulation is part of the optimal contract, and non-monotonic, convertible securities mitigate the asymmetric information problem. We discuss milestone payments in venture capital as an application.

    Date
    Saturday, 25 October 2014
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    1049 - The Wind of Change: Maritime Technology, Trade and Economic Development

    Luigi Pascali

    The 1870-1913 period marked the birth of the first era of trade globalization. How did this tremendous increase in trade affect economic development? This work isolates a causality channel by exploiting the fact that the steamship produced an asymmetric change in trade distances among countries. Before the invention of the steamship, trade routes depended on wind patterns. The introduction of the steamship in the shipping industry reduced shipping costs and time in a disproportionate manner across countries and trade routes. Using this source of variation and a completely novel set of data on shipping times, trade, and development that spans the great majority of the world between 1850 and 1900, I find that 1) the adoption of the steamship was the major reason for the first wave of trade globalization, 2) only a small number of countries that were characterized by more inclusive institutions benefited from globalization, and 3) globalization exerted a negative effect on both urbanization rates and economic deelopment in most other countries.

    Date
    Friday, 24 October 2014
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    1048 - Optimal strategies for operating energy storage in an arbitrage market

    Lisa Flatley, Robert S MacKay , Michael Waterson

    We characterise profit-maximising operating strategies, over some time horizon [0, T], for an energy store which is trading in an arbitrage market. Our theory allows for leakage, operating inefficiencies and general cost functions. In the special case where the operating cost of a store depends only on its instantaneous power ouput (or input), we present an algorithm to determine the optimal strategies. A key feature is that this algorithm is localised in time, in the sense that the action of the store at a time t 2 [0, T] only requires information about electricity prices over some subinterval of time [t, ] [t, T].

    Date
    Thursday, 23 October 2014
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    1047 - A vision of the European energy future? The impact of the German response to the Fukushima earthquake

    Luigi Grossi , Sven Heim and Michael Waterson

    The German response to the Fukushima nuclear power plant incident was possibly the most significant change of policy towards nuclear power outside Japan, leading to a sudden and very significant shift in the underlying power generation structure in Germany. This provides a very useful natural experiment on the impact of increasing proportions of renewable compared to conventional fuel inputs into power production, helping us to see how changed proportions in future as a result of policy moves in favour of renewables are likely to impact. We find through quasi-experimental exploration of a modified demand-supply framework that despite the swift, unpredicted change, the main impact was a significant increase in prices, partly caused by more frequent situations with unilateral market power. The price impact was also most significant in off-peak hours leading to changed investment incentives. There were no appreciable quantity effects on the market, such as power outages, contrary to some views that the impacts w uld be significant. Furthermore, we find the sudden and unilateral phase-out decision by the German government has significantly affected electricity prices and thus competitiveness in neighbouring countries.

    Date
    Wednesday, 22 October 2014
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    1046 - Individual and Societal Wisdom: Explaining the Paradox of Human Aging and High Well-Being

    Dilip V. Jeste and Andrew J. Oswald

    Objective: Although human aging is characterized by loss of fertility and progressive decline in physical abilities, later life is associated with better psychological health and well-being. Furthermore, there has been an unprecedented increase in average lifespan over the past century without corresponding extensions of fertile and healthy age spans. We propose a possible explanation for these paradoxical phenomena. Method: We reviewed the relevant literature on aging, well-being, and wisdom. Results: An increase in specific components of individual wisdom in later life may make up for the loss of fertility as well as declining physical health. However, current data on the relationship between aging and individual wisdom are not consistent, and do not explain increased longevity in the general population during the past century. We propose that greater societal wisdom (including compassion) may account for the notable increase in average lifespan over the last century. Data in older adults with serious mentaillnesses are limited, but suggest that many of them too experience improved psychosocial functioning, although their longevity has not yet increased, suggesting persistent stigma against mental illness and inadequate societal compassion.

    Date
    Tuesday, 21 October 2014
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    1045 - Cooperation and Personality

    Eugenio Proto and Aldo Rustichini

    Cooperating behavior may be fostered by personality traits reflecting either favorable inclination to others or willingness to comply with norms and rules. We test the relative importance of these two factors in an experiment where subjects provide real mental effort in two treatments with identical task, differing only by whether others' payment is affected. If the first hypothesis is true, subjects reporting high agreeableness score should put more effort; if the second is true, reporting higher conscientiousness should predict more effort. We find experimental support for the second hypothesis but not for the first, as subjects reporting high Altruism do not behave consistently with this statement.

    Date
    Monday, 20 October 2014
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    1044 - The Effects of Entry in Oligopoly with Bargained Wages

    Robin Naylor and Christian Soegaard

    We show that a firm's profits under Cournot oligopoly can be increasing in the number of firms in the industry if wages are determined by decentralised bargaining in unionised bilateral oligopoly. The intuition for the result is that increased product market competition following an increase in the number of firms is mirrored by increased labour market rivalry which induces (profit-enhancing) wage moderation. Whether the product or labour market effect dominates depends both on the extent of union bargaining power and on the nature of union preferences. An incumbent monopolist will have an incentive to accommodate entry if the labour market effect dominates. We also show that this incentive is stronger if the incumbent anticipates that, post entry, it will be able to act as a Stackelberg leader.

    Date
    Sunday, 19 October 2014
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    1043 - Compatibility, Intellectual Property, Innovation and Welfare in Durable Goods Markets with Network Effects

    Thanos Athanasopoulos

    This paper serves as a new contribution in understanding how firms’ decisions regarding compatibility relate to their incentives to invest into improving their durable, network goods in the presence of forward looking consumers. It is the first attempt to introduce a new framework in the literature by using a sequential game where the smaller firm can build on the dominant firm’s existing knowledge. Our first key result is that the market leader may indeed support compatibility with its rival and this happens when it anticipates a substantial quality improvement by the competitor allowing him to extract in the present market more of the higher total expected surplus that emerges when interoperability is present. On the other hand, the rival always supports compatibility because she can charge a higher price due to a larger network. Furthermore, we find that interoperability does not de-facto maximise social welfare and we identify no market failure when network effects are not particularly strong.

    Date
    Saturday, 18 October 2014
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    1042 - Corporate Taxes and the Growth of the Firm

    Federica Liberini

    It is desirable to reduce the number of "artificial" merger and acquisitions (MA) designed to escape from high tax jurisdictions, without discouraging domestic firms from growing into highly productive multinational corporations. This paper studies the effect of corporate taxes on the headquarter's decision to expand its extensive margins through the acquisition of pre-existing firms. A model for the investment behaviour of heterogeneous firms is built, and Corporate taxes are introduced. The model shows that higher home statutory corporate tax rates make exports relatively more expensive, making firms more likely to serve foreign demand through cross-border acquisitions. The model's predictions are tested on a dynamic random parameter probit model estimated on firm-level data. The model's predictions are confirmed by the results from the empirical investigation. The data also support the hypothesis that there are sunk costs associated with becoming a multinational corporation, and that domestic firm that overcome these costs and acquire their first foreign subsidiary are more likely to complete further acquisitions. In addition, the inability to shift profit to foreign locations makes domestic firms more sensitive to home corporate taxes, as their capacity to capture investment opportunity is negatively affected by a reduction in net tax profit.

    Date
    Friday, 17 October 2014
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    1041 - Price Flexibility in British Supermarkets: Moderation and Recession

    Huw Dixon, Jonathon S Seaton and Michael Waterson

    This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies, largely resulting from the fact that our weekly price data for the three major British supermarkets spans a seven year period including the crisis years 2008-2010. We find that there is a large and significant change in the behaviour of prices from 2008 onwards: prices change more frequently and the average duration of price spells declines significantly. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes.

    Date
    Thursday, 16 October 2014
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    1040 - The Effect of Stolen Goods Markets on Crime: Evidence from a Quasi - Natural Experiment

    Rocco D'Este

    This paper investigates the effect of stolen goods markets on crime. We focus on pawnshops, a business that have long been suspected of illicit trade. The analysis of a unique panel dataset of 2176 US counties from 1997 - 2010 uncovers an elasticity of pawnshops to theft crimes of 0.8 to 1.4. We then exploit the raise in gold price as a quasi - natural experiment, where the intensity of the treatment is given by the predetermined concentration of pawnshops in the county. A one standard deviation increase in pawnshops’ initial allocation raises the effect of gold price on burglaries by 0.05 to 0.10 standard deviation. No effect is ever detected on any other type of crime.

    Date
    Wednesday, 15 October 2014
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    1039 - Does Money Make People Right-Wing and Inegalitarian? A Longitudinal Study of Lottery Winners

    Nattavudh Powdthavee & Andrew J. Oswald

    The causes of people’s political attitudes are largely unknown. We study this issue by exploiting longitudinal data on lottery winners. Comparing people before and after a lottery windfall, we show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. This relationship is robust to (i) different ways of defining right-wing, (ii) a variety of estimation methods, and (iii) methods that condition on the person previously having voted left. It is strongest for males. Our findings are consistent with the view that voting is driven partly by human self-interest. Money apparently makes people more right-wing.

    Date
    Tuesday, 14 October 2014
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    1038 - Human Well-Being and In-Work Benefits: A Randomized Controlled Trial

    Richard Dorsett & Andrew J. Oswald

    Many politicians believe they can intervene in the economy to improve people’s lives. But can they? In a social experiment carried out in the United Kingdom, extensive in-work support was randomly assigned among 16,000 disadvantaged people. We follow a sub-sample of 3,500 single parents for 5 ensuing years. The results reveal a remarkable, and troubling, finding. Long after eligibility had ceased, the treated individuals had substantially lower psychological well-being, worried more about money, and were increasingly prone to debt. Thus helping people apparently hurt them. We discuss a behavioral framework consistent with our findings and reflect on implications for policy.

    Date
    Monday, 13 October 2014
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    1037 - Longitudinal Evidence for a Midlife Nadir in Human Well-being: Results from Four Data Sets

    Terence C. Chenga, Nattavudh Powdthavee & Andrew J. Oswald

    There is a large amount of cross-sectional evidence for a midlife low in the life cycle of human happiness and well-being (a ‘U shape’). Yet no genuinely longitudinal inquiry has uncovered evidence for a U-shaped pattern. Thus some researchers believe the U is a statistical artefact. We re-examine this fundamental cross-disciplinary question. We suggest a new test. Drawing on four data sets, and only within-person changes in well-being, we document powerful support for a U-shape in unadjusted longitudinal data without the need for regression equations. The paper’s methodological contribution is to exploit the first-derivative properties of a well-being equation.

    Date
    Sunday, 12 October 2014
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    1036 - Temptation with Uncertain Normative Preferences

    John Stovall

    We model a decision maker who anticipates being aected by temptation but is also uncertain about what is normatively best. Our model is an extended version of Gul and Pesendorfer's (2001) where there are three time periods: in the ex-ante period the agent chooses a set of menus, in the interim period she chooses a menu from this set, and in the nal period she chooses from the menu. We posit axioms from the ex-ante perspective. Our main axiom on preference states that the agent prefers to have the option to commit in the interim period. Our representation is a generalization of Dekel et al.'s (2009) and identies the agent's multiple normative preferences and multiple temptations. We also characterize the uncertain normative preference analogue to the representation in Stovall (2010). Finally, we characterize the special case where normative preference is not uncertain. This special case allows us to uniquely identify therepresentations of Dekel et al. (2009) and Stovall (2010).

    Date
    Saturday, 11 October 2014
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    1035 - Collective Rationality and Monostone Path Division Rules

    John Stovall

    We impose the axiom Independence of Irrelevant Alternatives on division rules for the conflicting claims problem. With the addition of Consistency and Resource Monotonicity, this characterizes a family of rules which can be described in three different but intuitive ways. First, a rule is identified with a fixed monotone path in the space of awards, and for a given claims vector, the path of awards for that claims vector is simply the monotone path truncated by the claims vector. Second, a rule is identified with a set of parametric functions indexed by the claimants, and for a given claims problem, each claimant receives the value of his parametric function at a common parameter value, but truncated by his claim. Third, a rule is identified with an additively separable, strictly concave social welfare function, and for a given claims problem, the mount awarded is the maximizer of the social welfare function subject to the constraint of choosing a feasible award. This third way of describing the family of rule is similar to Lensberg's (1987) solution for bargaining problems applied to conflicting claims problems.

    Date
    Friday, 10 October 2014
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    1034 - Globalized Market for Talents and Inequality: What Can Be Learnt from European Football?

    Chrysovalantis Vasilakis

    Complex interactions between high-skilled migration and aggregate performance govern the dynamics of growth and inequality across nations. Due to lack of data, these interdependencies have not been extensively studied in the economics literature. This paper takes advantage of the availability of rich panel data on the mobility of talented football players, and the performances of national leagues and teams to quantify the effect of a "globalization" shock, the 1995 Bosman rule, on global efficiency and cross-country inequality in football. I built a micro-founded model endogenizing migration decisions, inequality and training; I estimated its structural parameters; and I used numerical simulations to compare actual data with a counterfactual no-Bosman trajectory. My analysis reveals that the Bosman shock (i) increased global efficiency in football, (ii) increased inequality across leagues, and (iii) decreased inequality across national teams. I quantify the effect of the Bosman rule on the football hierarchy f UEFA and FIFA. Countries from Africa, South (except Argentina and Brazil) and Central America have produced more talents and benefitted from brain-gain type effects. My results also show that this brain-gain mechanism is the major source of efficiency gains. However, it plays only a minor role in explaining the rising inequality  

    Date
    Wednesday, 30 October 2013
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    1033 - Rationality and Dynamic Consistency under Risk and Uncertainty

    Peter J. Hammond and Horst Zank

    For choice with deterministic consequences, the standard rationality hypothesis is ordinality|i.e., maximization of a weak preference ordering. For choice under risk (resp. uncertainty), preferences are assumed to be represented by the objectively (resp. subjectively) expected value of a von Neumann{ Morgenstern utility function. For choice under risk, this implies a key independence axiom; under uncertainty, it implies some version of Savage's sure thing principle. This chapter investigates the extent to which ordinality, independence, and the sure thing principle can be derived from more fundamental axioms concerning behaviour in decision trees. Following Cubitt (1996), these principles include dynamic consistency, separability, and reduction of sequential choice, which can be derived in turn from one consequentialist hypothesis applied to continuation subtrees as well as entire decision trees. Examples of behavior violating these principles are also reviewed, as are possible explanations of why such violat ons are often observed in experiments.

    Date
    Tuesday, 29 October 2013
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    1032 - The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports

    Rocco Macchiavello and Ameet Morjaria

    This paper provides evidence on the importance of reputation, intended as beliefs buyers hold about seller’s reliability, in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. We show that 1) the value of the relationship increases with the age of the relationship; 2) during an exogenous negative supply shock sellers prioritize relationships consistently with the predictions of the model; and 3) reliability at the time of the shock positively correlates with future survival and relationship value. Models exclusively focussing on enforcement or insurance considerations cannot account for the evidence.

    Date
    Monday, 28 October 2013
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    1031 - Too Good to Be True: Asset Pricing Implications of Pessimism

    Pablo F. Beker and Emilio Espino

    We evaluate whether the introduction of pessimistic homogeneous beliefs in the frictionless Lucas-Mehra-Prescott model and the Kehoe-Levine-Alvarez-Jermann model with endogenous borrowing constraints, helps explain the equity premium, the risk-free rate and the equity volatility puzzles as well as the short-term momentum and long-term reversal of excess returns. We calibrate the model to U.S. data as in Alvarez and Jermann [4] and we find that the data does not contradict the qualitative predictions of the models. When the preferences parameters are disciplined to match both the average annual risk-free rate and equity premium, the Lucas-Mehra- Prescott model gives a more quantitatively accurate explanation for short-term momentum than the Kehoe-Levine-Alvarez-Jermann model but the latter gives a more quantitatively accurate explanation for the equity volatility puzzle. Long-term reversal remains quantitatively unexplained in both models.

    Date
    Sunday, 27 October 2013
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    1030 - Do Research Joint Ventures Serve a Collusive Function?

    Michelle Sovinsky and Eric Helland

    Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of 34% among telecommu- nications firms, 33% among computer and semiconductor manufacturers, and 27% among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function.

    Date
    Saturday, 26 October 2013
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    1029 - Reviews, Prices and Endogenous Information Transmission

    Luciana A Nicollier

    Empirical evidence suggests that online reviews are an important source of consumers information and a relevant determinant of the firms revenues. Little is known, however, about how prices and reviews affect each other. This paper proposes a dynamic game to investigate this relationship. A long-lived monopoly faces a sequence of short-lived consumers whose only information about the value of an experience good is the one contained in the reviews completed by previous buyers. Neither the monopoly nor the consumers have private information about the value of the good. After buying the good, the consumers observe a quality realisation that is correlated with the actual value of the good and decide whether to complete reviews. The consumers complete reviews according to a social rule that maximises the present value of current and future consumers utility. It is shown that a necessary condition for the existence of reviews is that the rm cannot fully appropriate the surplus generated by this increased information Furthermore, the reviews induce a mean preserving spread on the posterior beliefs about the value of the good which, combined with the convexity with respect to the prior of the indirect utility and prot functions, implies that reviews are valuable for both the consumers and the firm. Hence, both parties are willing to face some cost in order to increase the information available in the market. The main result of the paper is that, from the firm's perspective, this cost takes the form of a discount in the price oered to current consumers.

    Date
    Friday, 25 October 2013
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    1028 - On the Origin of the Family

    Marco Francesconi, Christian Ghiglino and Motty Perry

    We present a game theoretic model to explain why people form life long monogamous families. Three components are essential in our framework, paternal investment, fatherhood uncertainty, and, perhaps the most distinctive feature of all, the overlap of children of dif- ferent ages. When all three conditions are present, monogamy is the most ecient form of sexual organization in the sense that it yields greater survivorship than serial monogamy, group marriage, and polygyny. Monogamy is also the only configuration that fosters altruistic ties among siblings. Finally, our result sheds light to the understanding of why most religions center around the monogamous delity family.

    Date
    Thursday, 24 October 2013
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    1027 - Productivity and the Welfare of Nations

    Susanto Basu, Luigi Pascali and Fabio Schiantarelli

    We show that the welfare of a country’s infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP) and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare di¤erences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advaned and developing countries.

    Date
    Wednesday, 23 October 2013
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    1026 - Banks and Development: Jewish Communities in the Italian Renaissance and Current Economic Performance

    Luigi Pascali

    Are differences in local banking development long-lasting? Do they a¤ect long-term economic performance? I answer these questions by relying on an historical development that occurred in Italian cities during the 15th century. A sudden change in the Catholic doctrine had driven the Jews toward money lending. Cities that were hosting Jewish communities developed complex banking institutions for two reasons: first, the Jews were the only people in Italy who were allowed to lend for a profit and, second, the Franciscan reaction to Jewish usury led to the creation of charity lending institutions, the Monti di Pietà, that have survived until today and have become the basis of the Italian banking system. Using Jewish demography in 1500 as an instrument, I provide evidence of (1) an extraordinary persistence in the level of banking development across Italian cities (2) large effects of current local banking development on per-capita income. Additional firm-level analyses suggest that well-functioning local banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms. I exploit the expulsion of the Jews from the Spanish territories in Italy in 1541 to argue that my results are not driven by omitted institutional, cultural and geographical characteristics. In particular, I show that, in Central Italy, the difference in current income between cities that hosted Jewish communities and cities that did not exists only in those regions that were not Spanish territories in the 16th century.

    Date
    Tuesday, 22 October 2013
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    1025 - Financing Experimentation

    Rocco Macchiavello

    Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is financed by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "no-compete" clauses cannot be enforced ex-post, we show that financing experimentation can become harder precisely when it is more profitable, i.e., for lower values of the known-arm and for more optimistic priors. Endogenous collateral requirements (like those frequently observed in micro-credit schemes) are shown to be part of the optimal contract.

    Date
    Monday, 21 October 2013
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    1024 - Implementing the "Wisdom of the Crowd"

    Ilan Kremer, Yishay Mansour and Motty Perry

    We study a novel mechanism design model in which agents each arrive sequentially and choose one action from a set of actions with unknown rewards. The information revealed by the principal affects the incentives of the agents to explore and generate new information. We characterize the optimal disclosure policy of a planner whose goal is to maximize social welfare. One interpretation of our result is the implementation of what is known as the "wisdom of the crowd". This topic has become increasingly relevant with the rapid spread of the Internet over the past decade.

    Date
    Sunday, 20 October 2013
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    1023 - Parliamentary Questions and the Probability of Re-election in the UK House of Commons

    Luc Tucker

    Members of worldwide parliaments partake in debates, where they have the opportunity to hold governments to account by asking pre-submitted questions. The UK House of Commons uses a ballot system to determine which members are selected to ask a question from those who expressed an interest in doing so. This paper is the first in the literature to exploit this randomization to show that the asking of such questions increases a member’s chances of being reelected by their constituents. It is shown that while the ordering of parliamentary questions is determined at random, the practicalities of conducting debates introduce a potentially endogenous element to the determination of which questions receive oral answers (particularly the speed at which questions are answered). This paper uses a matched sampling approach to cope with such non-random cases, but also includes alternative results, to show that the findings are not reliant on the use of this technique.

    Date
    Saturday, 19 October 2013
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    1022 - Why Blame?

    Mehmet Gurdal, Joshua B. Miller & Aldo Rustichini

    We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.

    Date
    Friday, 18 October 2013
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    1021 - A Political Economy of the Separation of Electoral Origin

    In democratic politics, voters delegate competing policy-making responsibilities to multiple elected agents: one agent is frequently tasked with initiating policies (the proposer) whilst the other is charged with scrutinizing and either passing or rejecting these policies (the veto player ). A fundamental distinction lies in whether both oces are subject to direct and separate election, or whether the voter instead may directly elect only one oce. Why should the voter benefit from a relatively coarse electoral instrument? When politicians' abilities are private information, actions taken by one agent provide information about both agents' types. A system in which their electoral fates are institutionally fused reduces the incentives of the veto player to build reputation through the specious rejection of the proposer's policy initiatives. This can improve the voter's welfare, relative to a system in which the survival of the veto player is institutionally separated from that of the proposer.

    Date
    Thursday, 17 October 2013
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    1020 - Defying the LATE? Identification of local treatment effects when the instrument violates monotonicity

    Clement de Chaisemartin

    The instrumental variable method relies on a strong no-defiers condition, which requires that the instrument affect every subject's treatment decision in the same direction. This paper shows that no-defiers can be replaced by a weaker compliers- defiers condition, which requires that a subgroup of compliers have the same size and the same distribution of potential outcomes as defiers. This condition is necessary and sucient for IV to capture causal effects for the remaining part of compliers. In many applications, compliers-defiers is a very weak condition. For instance, in Angrist & Evans (1998), 94% of DGPs compatible with the data satisfy compliers-defiers, while 0% satisfy no-defiers.

    Date
    Wednesday, 16 October 2013
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