18-01. Yuhta Ishii, Aniko Ory and Adrien Vigier. Competing for Talent. Cowles Foundation Discussion Paper No. 2119, 52 Pages Posted: 30 Jan 2018 Last revised: 16 Mar 2018
Abstract:
In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get oered and sign long-term contracts even though waiting could reveal signicant information about their capabilities. This phenomenon is called unraveling. We examine the link between wage bargaining and unraveling. Two rms, an incumbent and an entrant, compete to hire a worker of unknown talent. Informational frictions prevent the incumbent from always observing the entrant's arrival, inducing unraveling in all equilibria. We analyze the extent of unraveling, surplus shares, the average talent of employed workers, and the distribution of wages within and across rms.
18-02. Bertan Turhan. Welfare and Incentives in Partitioned School Choice., Games and Economic Behavior, Volume 113, January 2019, Pages 199-208
Abstract:
Divided enrollment systems cause school assignments to be unfair and wasteful. Iterative version of the student-optimal stable mechanism (I-SOSM), proposed by Manjunathand Turhan (2016), achieves individually rational and fair assignments in such partitioned school choice markets for any number of iteration. It also reaches a nonwasteful matching when iterated sufficiently many times. This paper examines the effects of partition structure of schools on students’ welfare and incentives they face under I-SOSM. I find that when school partition gets coarser students’ welfare weakly increases under I-SOSM for any number of iteration. I also show that under coarser school partitions I-SOSM becomes weakly less manipulable for students according to a criteria defined by Pathak and Sönmez (2013). These results suggest that when full integration is not possible keeping school partition as coarse as possible benefits students with respect to their welfare and incentives they face if stability is a concern for policymakers.
18-03. Mustafa O˘guz Afacany, Inácio Bóz and Bertan Turhan. Assignment Maximization.
Abstract:
We evaluate the goal of maximizing the number of individually rational assignments. We show that it implies incentive, fairness, and implementation impossibilities. Despite that, we present two classes of mechanisms that maximize assignments. The first are Pareto efficient, and undominated – in terms of number of assignments – in equilibrium. The second are fair for unassigned students and assign weakly more students than stable mechanisms in equilibrium. We provide comparisons with well-known mechanisms through computer simulations. Those show that the difference in number of matched agents between the proposed mechanisms and others in the literature is large and significant.
18.04 Igor L. Kheifets. Multivariate Specification Tests Based on a Dynamic Rosenblatt Transform, Computational Statistics & Data Analysis, Volume 124, August 2018, Pages 1-14.
Abstract:
This paper considers parametric model adequacy tests for nonlinear multivariate dynamic models. It is shown that commonly used Kolmogorov-type tests do not take into account cross-sectional nor time-dependence structure, and a test, based on multi-parameter empirical processes, is proposed that overcomes these problems. The tests are applied to a nonlinear LSTAR-type model of joint movements of UK output growth and interest rate spreads. A simulation experiment illustrates the properties of the tests in finite samples. Asymptotic properties of the test statistics under the null of correct specification and under the local alternative, and justification of a parametric bootstrap to obtain critical values, are provided.
18-05 Felipe Meza. Mexico from the 1960s to the 21st Century: From Fiscal Dominance to Debt Crisis to Low Inflation. 2018.
Abstract:
The objective of this paper is to analyze the monetary and fiscal history of Mexico using as framework the model of Sargent and Wallace (1981). I study the period 1960-2016. I evaluate the ability of the model to explain the crises of 1982 and 1994. The model can explain the 1982 Debt Crisis, but cannot explain the 1994 Crisis. A constitutional change in the relation between the Federal Government and Banco de México, and policy choices made in the aftermath of the 1994 Crisis, are consistent with a transition from fiscal dominance to an independent central bank. Inflation fell persistently after 1995, reaching values of 3 percent per year in mid-2016. That number is the target of the central bank. After a long transition after the 1982 Crisis Mexico succeeded controlling inflation. I discuss the forces that reduced inflation over time: A long sequence of primary surpluses, negotiations between the government, workers and businessmen, the constitutional change that gave independence and a goal to the central bank, and the current inflation targeting regime. On the fiscal side I observe a change in the downward trend of the total debt to GDP ratio, as it fell from the 1980s to 2009, year in which it started growing persistently.
18-06 Timothy N. Cason, Tridib Sharma and Radovan Vadovic, Correlated beliefs: Predicting outcomes in 2X2 games.
Abstract:
Studies of strategic sophistication in experimental normal form games commonly assume that subjects' beliefs are consistent with independent choice. This paper examines whether beliefs are consistent with correlated choice. Players play a sequence of simple 2X2 normal form games with distinct opponents and no feedback. Another set of players, called predictors, report a likelihood ranking over possible outcomes. A substantial proportion of the reported rankings are consistent with the predictors believing that the choice of actions in the 2X2 game are correlated. The extent of correlation over action profiles varies systematically between the type of games (i.e., prisoner's dilemma, stag hunt, coordination, and strictly competitive) as well as the kind of payments within each type of game (i.e., high vs. low deviation payoffs and symmetric vs. asymmetric payoffs).
18-07 Parimal K. Bagy and Tridib Sharma, Sequential Expert Advice: Superiority of Closed-Door Meetings.
Abstract:
Sequential advice to a decision maker by experts with career concerns has previously been studied under transparency. In a two-expert model and a Bayesian decision maker(D), our nding is that secrecy (weakly) dominates transparency, yielding superior decisions for D. The subtle insight is that secrecy empowers experts moving late to be pivotal more often. We show two other results: (i) only secrecy enables the second expert to partially communicate her information and its high precision level to D and swing the decision away from the rst expert's recommendation; (ii) if the experts on average have high precision, then the second expert is eective only under secrecy. We also show that the efficacy of secrecy is further enhanced if either (1) the experts are allowed to revise their advice following each other's initial recommendation (i.e., deliberate), or (2) the experts are allowed to make detailed recommendations (i.e., give advice and also report its quality). Expanding the message space under deliberation or under detailed recommendation, both generate the possibility of fully revealing equilibria, leading to informationally efficient choice by D.
18-08 Arturo Arturo and Marta Vicarelli. El Niño and Mexican children: medium-term effects of early-life weather shocks on cognitive and health outcomes.
Abstract:
Evidence has shown that shocks in early life have long-term consequences. This paper contributes to our understanding of the channels. Four years after being exposed to exogenous precipitation anomalies during early stages of life, we examine the eects on key developmental indicators. Children aected present lower cognitive development (measured through language, working and long-term memory and visual-spatial thinking) in the magnitude of 0.14 to 0.16 SDs. Lower height, weight and higher anxiety-depression impacts are also identied. Food consumption and diet composition appear to be key drivers behind these impacts. No mitigation from the delivery of conditional cash transfers is found.
18-09 Aguilar Arturo, Emilio Gutierrez and Paula Soto. Benefits and Unintended Consequences of Gender Segregation in Public Transportation: Evidence from Mexico City’s Subway System.
Abstract:
For most people, transportation is a basic everyday activity. Costs imposed by violence in the public transportation context might have far reaching economic and social consequences. We conduct a survey and exploit the discontinuity in the hours of operation of a program that reserves subway cars exclusively for women in Mexico City to estimate its impact on self-reported sexual harassment. We find that the program seems to achieve its purpose: it reduces the incidence of sexual harassment towards women by 2.9 percentage points. However, it also produces unintended consequences by increasing the incidence of non-sexual aggression (e.g. insults, shoving) experienced by men in 15.3 percentage points. A willingness-to-pay exercise suggests that from a welfare perspective, it is unclear if the program conveys positive results.
18-10 Lucas Davis, Shaun McRae, Enrique Seira. An Economic Perspective on Mexico's Nascent Deregulation of Retail Petroleum Markets
Abstract:
Retail petroleum markets in Mexico are on the cusp of a historic deregulation. For decades, all 11,000 gasoline stations nationwide have carried the brand of the state-owned petroleum company Pemex and sold Pemex gasoline at federally regulated retail prices. This industry structure is changing, however, as part of Mexico’s broader energy reforms aimed at increasing private investment. Since April 2016, independent companies can import, transport, store, distribute, and sell gasoline and diesel. In this paper, we provide an economic perspective on Mexico’s nascent deregulation. Although in many ways the reforms are unprecedented, we argue that past experiences in other markets give important clues about what to expect, as well as about potential pitfalls. Turning Mexico’s retail petroleum sector into a competitive market will not be easy, but the deregulation has the potential to increase efficiency and, eventually, to reduce prices.
18-11 Moussa Blimpo, Shaun McRae, Jevgenijs Steinbuks. Why are Connection Charges so High? An Analysis of the Electricity Sector in Sub-Saharan Africa
Abstract:
This study develops and structurally estimates a model of household and electric utility behavior to describe how the low access rates and high connection charges that are common in the Sub-Saharan Africa region arise from regulated electricity tariffs being set too low. As a result, the utilities lose money on each connected customer and low electricity consumption by households makes it difficult to recover the cost of providing a connection. For each possible choice of the regulated tariff, the optimal upfront connection charge is computed that will maximize profits for the utility in its service territory. Higher tariffs are associated with lower optimal connection charges and higher electrification rates. Nonetheless, due to households’ low willingness to pay for electricity services, the equilibrium electrification rates in the model are much lower than 100 percent. Future advances in electrification will require higher incomes, increased coverage of the distribution network, and lower connection costs.
18-12 Shaun McRae. Crude Oil Price Differentials and Pipeline Infrastructure.
Abstract:
Crude oil production in the United States increased by nearly 80 percent between 2008 and 2016, mostly in areas that were far from existing refining and pipeline infrastructure. The production increase led to substantial discounts for oil producers to reflect the high cost of alternative transportation methods. I show how the expansion of the crude oil pipeline network reduced oil price differentials, which fell from a mean state-level difference of $10 per barrel in 2011 to about $1 per barrel in 2016. Using data for the Permian Basin, I estimate that the elimination of pipeline constraints increased local prices by between $6 and $11 per barrel. Slightly less than 90 percent of this gain for oil producers was a transfer from existing oil refiners and shippers. Refiners did not pass on these higher costs to consumers in the form of higher gasoline prices.
18-13 Ryan Lampe, Shaun McRae. Self-Regulation vs State Regulation: Evidence from Cinema Age Restrictions.
Abstract:
Motion picture ratings systems classify a movie’s violent and sexual content and potentially require theater owners to restrict entry to minors. We study the impact of self-regulation on the leniency of ratings using cross-country variation in the level of restrictions applied to 1,810 movies that were released in 34 countries or provinces between 2000 and 2011. While ratings in most countries are issued by state-regulated bodies, ratings in six countries are issued by agencies created and operated by the film industry. Our data indicate that these self-regulatory organizations issue more lenient ratings to films with strong teenage appeal, which we demonstrate are most affected by restrictive ratings. Compared to movies with low teenage appeal, movies with high teenage appeal are available to audiences 2.6 months younger on average in countries with a self-regulated ratings agency.
18-14 Patrick Harless and Romans Pancs. A Social-Status Rationale for Repugnant and Protected Market Transactions.
Abstract:
Individuals deem repugnant and societies proscribe market transactions in sex, organs, and surrogacy — despite potential gains from trade. We resolve this tension by observing that repugnance norms help status-conscious individuals. We study an exchange economy in which agents abhor consumption dominance: one loses social status if another consumes more of every good. Repugnance norms forestall dominance by partitioning goods into submarkets and proscribing trade across submarkets. With multiple equilibria, there is scope for coordinating on, or protecting, status goods.
18-15 Cristián Sánchez. Understanding School Competition Under Voucher Regimes
Abstract:
I study how different voucher designs and policies affect school competition in education markets, and their consequences for students’ school choices and welfare. To that end, I build a structural model of demand and supply for primary education in markets that allow the use of vouchers. Unlike previous studies, I not only model schools’ pricing behavior, but also their program participation decisions, a discrete strategy that adds an additional layer of complexity to the solution of the supply side game. I fit my model to rich administrative data from Chile, and leverage its simultaneous implementation of universal (available to all students) and targeted (available only to low-income students) vouchers to estimate my model’s parameters. Counterfactual simulations indicate that universal and targeted vouchers affect school competition differently. On the one hand, a higher targeted voucher attracts more schools to participate in the targeted program. However, high-quality schools join only if the subsidy is sufficiently high. On the other hand, a higher universal voucher induces schools to lower the top-up fees they charge to parents. Specifically, a $1 increase in the subsidy translates into a $0.58 decrease in the average fee. Finally, policies that favor the universal voucher are more mobility- and welfare-enhancing in the aggregate, but increase the welfare gap between low- and high-income students, relative to policies favoring the targeted voucher.
18-16 Tiago Tavares. Labor Market Distortions under Sovereign Default Crises.
Abstract:
Risk of sovereign debt default has frequently affected emerging market and developed economies. Such financial crisis are often accompanied with severe declines of employment that are hard to justify using a standard dynamic stochastic model. In this paper, I document that a labor wedge deteriorates substantially around swift reversals of current accounts or default episodes. I propose and evaluate two different explanations for these movements by linking the wedges to changes in labor taxes and in the cost of working capital. By adding these two features in a dynamic model of equilibrium default I am able to replicate the behavior of the labor wedge observed in the data around financial crisis. In the model, higher interest rates are propagated into larger costs of hiring labor through the presence of working capital. As an economy is hit with a stream of bad productivity shocks, the incentives to default become stronger, thus increasing the cost of debt. This reduces firm demand for labor and generates a labor wedge. A similar effect is obtained with a counter-cyclical income tax rate policy. The model is used to shed light on the recent events of the Euro Area debt crisis and in particular of the Greek default event.
18-17 Tiago Tavares. The Role of International Reserves in Sovereign Debt Restructuring under Fiscal Adjustment.
Abstract:
Highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments borrow with an interest rate penalty to compensate lenders for default risk. Reducing debt to the same extent as reserves would reduce interest payments, however reserves also have insurance benefits during default crises. Moreover reserves can also be used to improve lenders recovery rates upon default, thus decreasing the interest rate penalty in non-defaulting times. A standard model of sovereign default risk, augmented with distortionary tax policies and debt restructuring, can quantitatively replicate the observed data patterns on debt and reserves holdings.
18-18 Arturo Aguilar with Manett Vargas, "The power of information and motivation on maternal and child health knowledge: an application with ad-hoc SMS in Mexico’s Prospera program", Latest version: August 2018.
Abtract:
Abstract: Access to information is a necessary, but not sufficient condition to achieve health improvements. In this paper, we evaluate the impact of four interventions that seek to improve maternal and early childhood health outcomes. The interventions being evaluated focus on empowering, motivating and providing behaviorally-designed messages delivered to beneficiaries by SMS. This paper (the first of a series) investigates the impact of the program on women’s knowledge about adequate care practices, which is a key mechanism to achieve health improvements. For such purpose, an original battery of 21 questions was designed, gathered and analyzed. To assess the impact on knowledge, we compared the responses of two sets of women: one group had already received a key piece of information (through SMS), while the other were still about to receive it. By comparing both groups we find a 12 percent increase in the proportion of correct answers as a result of the information delivery. Interestingly, an intervention focused on framing messages by adding motivationally-charged content achieves an increase in knowledge even before receiving the information, but is later caught up by the rest of the interventions.