19-01 Shaun McRae, Frank Wolak. Market Power and Incentive-Based Capacity Payment Mechanisms
Abstract:
Capacity markets provide guaranteed payments to electricity generation unit owners for having the “firm capacity” to produce electricity. Historically, these markets are plagued by the weak incentives they provide for plants to be available during high-demand hours. The reliability payment mechanism in the Colombian electricity market provides market-based incentives for plants to produce during periods of system scarcity. This market has served as a model for the design of capacity markets in a number of jurisdictions in North America and Europe. We demonstrate severe shortcomings of this mechanism. By adjusting their price and quantity offers, generators with the ability to exercise unilateral market power can choose whether or not a scarcity condition exists. We find that this mechanism can make it privately profitable for a firms to withhold output and create a scarcity condition. We illustrate this problem using hourly data from the first ten years of operation of the reliability payment mechanism in Colombia. The mechanism not only fails to minimize the cost of meeting electricity demand but also creates perverse incentives for electricity generators that could reduce the reliability of electricity supply. We quantify the cost of the perverse incentives caused by this capacity payment mechanism by computing a counterfactual dynamic oligopoly equilibrium for the 2015–16 El Niño event in Colombia.
19-02 Ryan Lampe and Romans Pancs. Mean Reversion in Investment Decisions: The Case of Hollywood
Abstract:
One explanation for the comparatively lower quality of movie sequels is selection bias, known in personnel economics as the Peter principle (Lazear, 2004). Only abnormally successful movies are selected for a sequel. Another explanation is a deterministic depreciation in quality due to the decline in the novelty of the sequel’s characters and storyline. Both explanations predict that, relative to the original, the sequel’s performance will revert towards the mean. We develop a structural model to decompose the two explanations, and estimate its parameters using detailed data on 306 franchise films and 2,823 non-franchise films between 1995 and 2014. Parameter estimates provide evidence of selection bias for action, adventure, and horror movies, and evidence of a deterministic decline in quality for comedies.
19-03 Isaac Mbiti, Mauricio Romero and Youdi Schippe. Designing Effective Teacher Performance Pay Programs:Experimental Evidence from Tanzania, May 2019.
Abstract:
We use a field experiment in Tanzania to compare the effectiveness on learning of two teacherperformance pay systems. The first is a Pay for Percentile system (a rank-order tournament). Thesecond rewards teachers based on multiple proficiency thresholds. Pay for Percentile can (undercertain conditions) induce optimal effort among teachers, but our threshold system is easier to im-plement and provides teachers with clearer goals and targets. Both systems improved student testscores. However, the multiple-thresholds system was more effective in boosting student learningand is less costly.
19-04 Lisa Chen, Noriko Magari and Mauricio Romero. Cross-Age Tutoring: Experimental Evidence from Kenya, February 5, 2021.
Abstract:
There is an increasing stock of evidence showing that tailoring teaching to students’ learning levels can improve learning outcomes in low-income countries. Cross-age tutoring, where older students tutor younger students, is an inexpensive alternative for providing personalized instruction to younger students at the cost of the older students’ time. We present results from a large experiment in Kenya, in which schools were randomly assigned to implement either an English or a math tutoring program. Students in grades 3-7 tutor students in grades 1-2 and preschool. Tutoring in math, relative to tutoring in English, had a small positive effect (0.06 SD, p-value of 0.073) on math test scores. These results do not hold for English tutoring: relative to math tutoring, it had no positive effect on English test scores (we can rule out an effect of 0.077 SD with 95% confidence). There is considerable heterogeneity according to students’ baseline learning levels: The effect was largest for students in the middle of the ability distribution (0.144 SD, p-value of 0.005), while the effect was almost zero for students with either very low or very high baseline learning levels. We do not find any effect (positive or negative) on tutors.
19-05 Mauricio Romero and Santiago Saavedra. Local incentives and national tax evasion: The response of illegal mining to a tax reform in Colombia, European Economic Reveiw, Volume 138, September 2021, 103843
Abstract:
Achieving a fair distribution of resources is one of the key goals of fiscal policy. To do this, governments often transfer tax resources from rich to marginalized areas. We study whether lower transfers dampen the incentives of local authorities to curb tax evasion in the context of mining in Colombia. To overcome the challenge of measuring tax evasion (via illegal mining in this case) we use machine learning on satellite images. Using differences-in-differences strategies we find that a reduction in the share of revenue transferred back to mining municipalities led to an increase in illegal mining. This result illustrates the difficulties of redistributing tax revenues.
19-06 Cristián Sánchez. Skipping your Exam? The Unexpected Response to a Targeted Voucher Policy
Abstract:
I use rich administrative data from Chile and a diff-in-diff strategy to show that the positive effects on test scores of a recent targeted voucher reform found in the literature need to be taken with caution, as I find that the reform significantly decreased the likelihood that low-performing students take the national standardized tests. Specifically, low-performing students are 14.7 percentage points less likely to take the national exams four years after the introduction of the reform, while high-performing students are as likely to take the exams after the introduction of the reform as they were before. Such result cannot be explained by the observed increase in class attendance attributed to the program, but rather suggests a strategic response from schools to the requirement of constantly increasing performance in order to secure the receipt of the new subsidy. The ultimate consequence of this strategic behavior is that the resulting observed distribution of standardized test scores, an instrument that is used by the government to guide many of its policies, and by families to guide their enrollment decisions, may no longer be an accurate representation of the actual distribution, leading to inefficiencies in the allocation of resources.
19-07 Cristián Sánchez, The Effects of For-profit and Nonprofit Schools on Academic Performance: Evidence from Chile
Abstract:
In a context with multiple treatments, I estimate the effects of attending for-profit and nonprofit high schools in Chile. I do so by estimating a structural model of high school-type choice and academic performance, that allows me to control for endogenous outcomes and students’ unobserved heterogeneity. The identification strategy helps interpret the unobserved heterogeneity as a combination of students’ latent academic abilities. I fit my model to rich administrative data for the universe of Chilean students attending public and voucher subsidized private (for- and nonprofit) schools. Using the estimates from the model, I define and compute treatment on the treated (TT) effects of attending a public, private for-profit, and private nonprofit high school. My results show that attending a public high school decreases verbal scores by about 0.11–0.15 standard deviations (σ), and decreases math scores by about 0.18–0.24σ. Attending a for-profit high school has associated the following TT effects: -0.07–0.04σ for verbal, and -0.09–0.11σ for math. Finally, attending a nonprofit high school increases verbal scores by about 0.11–0.13σ, and increases math scores by about 0.13–0.21σ. I also show important heterogeneity in the TT effects with respect to the unobserved ability and the level of education of the mother.
19-08 Arturo Aguilar, Barnard, Cristina, De Giorgi, Giacomo, Long-Term Effects of PROSPERA on Welfare, World Bank Policy Research Working Paper No. 9002. Latest version: September 2019.
Abstract:
The long-term effects of Mexico's conditional cash transfer program, PROSPERA, on poor households are of great interest to policy makers and academics alike. This paper analyzes the long-term effects on the welfare of the original participant households and their offspring, about 20 years after the inception of the program. To complement other studies that look into the effects on schooling and health, the analysis focuses on a utilitarian definition of welfare and employs two empirical strategies. The first uses the 1997-2000 experiment as the cleanest, albeit limited, source of variation. The analysis finds that by 2017–18, the offspring of original beneficiary households are more likely to have formed their own households, to have migrated to different localities, and to have more durable assets and larger consumption expenditures than their control counterpart. The second strategy confirms and expands those findings using a difference-in-difference methodology based on the localities' rollout of the program and the age of the individuals, as a proxy of exposure. This second approach covers a much larger and representative sample, while also directly observing self-reported vulnerability in food consumption. The findings confirm the generally positive outlook in terms of durable assets and lower food vulnerability. Perhaps more interestingly and relevant for evaluating the success of the program is that it improved intergenerational mobility. Using the 1997-2000 experiment, the analysis finds that the young adults who benefited from the program improved with respect to their parents in education, assets holding, and income. They appear to be climbing the ladder of assets and income.
19-09 Tomás Rau, Cristián Sánchez, Sergio Urzúa, "The Schooling and Labor Market Effects of Vouchers", May 14, 2019.
Abstract:
We investigate the effects of attending a private-voucher high school on short- and longer-term educational outcomes, namely test scores, college enrollment, and college degree attainment. We do so by estimating a sequential model of schooling decisions and outcomes using data from Chile, a middle-income country with more than thirty of years of experience with a nationwide voucher program. Our model allows for both observed and unobserved characteristics to influence decisions and outcomes, and for heterogeneity in the treatment effect, even after controlling for selection and observed characteristics. We find that attending a voucher high school has positive effects on test scores (0.07σ and 0.01σ in verbal and math, respectively), small effects on college enrollment (1.9 p.p.), and no effects on the likelihood of earning a college degree. We also find substantial heterogeneity in the treatment effects, where in general low-ability students benefit more from vouchers than high-ability students. At the moment, we are in the process of merging our current data with labor market records to uncover the effects of vouchers on employment and wages.