Working Papers

Authors: Pawel Dziewulski

Jun 2015

The literature has documented a positive effect of foreign ownership on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we focus on divestments, that is, foreign affiliates that are sold to local owners. To establish a causal effect of the ownership change we combine a difference-in-differences approach with propensity score matching. We use plant-level panel data from the Indonesian Census of Manufacturing covering the period 1990-2009. We consider 157 cases of divestment, where a large set of plant characteristics is available two years before and three years after the ownership change and for which observationally similar control plants exist. The results indicate that divestment is associated with a drop in total factor productivity accompanied by a decline in output, markups as well as export and import intensity. The findings are consistent with the benefits of foreign ownership being driven by continuous supply of headquarter services from the foreign parent. 

 

JEL Codes: C14, C60,C61,D11,D12

Keywords: revealed preference, testable restrictions, rationalisation, time-preference, discounted utility, hyperbolic discounting, exponential discounting

Reference: 748

Individual View

Authors: Claudia Herresthal

Jun 2015

School choice reforms allow families to apply to non-local schools and assign additional funding to schools based on families' demand. For these reforms to promote high-quality schools, families need to infer school quality from past performance, but past performance also depends on student ability. Because reforms alter the allocation of students to schools, it is unclear whether performance becomes more or less informative about quality. I model families as trading off estimated quality against proximity, and analyze a steady-state Bayesian-Nash equilibrium. I show that performance-based rankings become more informative about quality only if oversubscribed schools can choose whom to accept.

JEL Codes: D80,I20

Keywords: rankings, performance, school quality, school choice

Reference: 747

Individual View

Authors: Julio Martinez-Galarraga; Francisco Beltrán Tapia

Jun 2015

By collecting a large dataset in mid-19th century Spain, this paper contributes to the debate on institutions and economic development by examining the historical link between land access inequality and education. This paper analyses information from the 464 districts existent in 1860 and confirms that there is a negative relationship between the fraction of farm labourers and literacy rates. This result does not disappear when a large set of potential confounding factors are included in the analysis. The use of the Reconquest as a quasi-natural experiment allows us to rule out further concerns about potential endogeneity. Likewise, by employing data on schooling enrolment rates and number of teachers, this paper explores the mechanisms behind the observed relationship in order to ascertain to which extent demand or supply factors are responsible for it. Lastly, the gender composition of the data, which enables distinguishing between female and male literacy levels, together with boys and girls schooling enrolment rates, is also examined.

Keywords: economic history, inequality, land access inequality, education inequality, Spain, Pre-Industrial Spain

Reference: Number 137

Individual View

Authors: Francesco Zanetti

May 2015

This paper investigates the effect of …financial shocks using an estimated gen-
eral equilibrium model that links the …firm's ‡flows of …financing with labor market
variables. The results show that fi…nancial shocks have sizeable effects on …financial
variables, vacancy posting, unemployment and wages. Shocks to the job destruc-
tion rate are important in describing ‡fluctuations in unemployment. The analysis
also investigates the underlying driving forces of some key comovements in the
data.

JEL Codes: E32, E44

Keywords: Business cycle, labor market frictions, financial shocks.

Reference: Number 746

Individual View

Authors: Robin Winkler

May 2015

How good was the standard of living in pre-war Nazi Germany? Some historians have argued that household food consumption in the 1930s was at least as high as in the Weimar Republic, in spite of militarisation. This article provides new evidence against this view by demonstrating that food price controls significantly distorted consumption patterns. We estimate that involuntary substitution effects cost average working-class households 7% of their disposable income. Consumer welfare in Nazi Germany was thus meaningfully lower than observed consumption levels and prices suggest. Our finding is based on microeconometric welfare analysis of detailed budget data for 4,376 individual German households surveyed in 1927 and 1937.

JEL Codes: N14, N34, D12, D52

Keywords: economic history, economic development, standard of living, consumer welfare, Germany

Reference: Number 136

Individual View

Authors: Francesco Zanetti, Konstantinos Theodoridis

Apr 2015

We enrich a baseline RBC model with search and matching frictions on the labor market and real frictions that are helpful in accounting for the response of macroeconomic aggregates to shocks.  The analysis allows shocks to have an unanticipated and a new (i.e. anticipated) component.  The Bayesian estimation of the model reveals that the model which includes news shocks on macroeconomic aggregates produces a remarkable fit of the data.  News shocks in stationary and non-stationary TFP, investment-specific productivity and preference shocks significantly affect labor market variables and explain a sizeable fraction of macroeconomic fluctuations at medium- and long-run horizons.  Historically, news shocks have played a relevant role for output, but they have had a limited influence on unemployment.

JEL Codes: E32, C32, C52

Keywords: Anticipated productivity shocks, Bayesian SVAR methods, labour market search frictions

Reference: 745

Individual View

Authors: Pablo Astorga

Apr 2015

This paper presents a new consistent yearly series of gross income (between-group) inequality Ginis for four occupational categories in Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela over the period 1900-2011 using a newly assembled wage dataset.  The approach used differentiates labour by skill level and allows for changing allocation of the labour force over time.  Profits and rents are calculated as a residual.  Our regional Gini shows a changing secular process with a reclined "S" shape with an inflection point around 1940 and a peak in the 1990s.  There are mixed country trends in the early and middle decades, but in most cases inequality was on the rise in the 1960s.  There was also a tendency for narrowing wage inequality in the middle decades of the last century - at the time of the Great Levelling in the developed economies - but whose impact was more than off-set by a rising share of the top group.  Inequality in the 20th century is a story of increased polarisation - particularly post 1970 - amid significant social mobility.

JEL Codes: N36, O15, O54

Keywords: economic history, economic development, income inequality, Latin America

Reference: Number 135

Individual View

Authors: Luke Samy

Apr 2015

Data from two different primary sources were used to construct indices of house prices (HPI) and rents (RRPI) of residential property located in London and the Home Counties between 1895 and 1939.  The indices were derived using the hedonics method of price index measurement, which extracts the variation in prices due to differences in the quality of dwellings that form the sample across different time periods.  Both nominal and real HPIs and RRPIs are reported in the paper, as well as simple summary statistics on the levels of house prices and rental values, years purchase and returns on housing for a selected number of boroughs in London over time.

Keywords: housing, rents, inflation, building societies

Reference: Number 134

Individual View

Authors: Andrew Mell, Simon Radford, Seth Alexander Thevoz

Mar 2015

Trust in political institutions has declined across developed democracies.  One of the main reasons cited for this lack of trust in public opinion polls has been the role of money in politics.  The Supreme Court decisions in Citizens United and McCutcheon, amongst others, have increased the political salience of potential campaign finance reforms, and the Great Recession has reinvigorated a public debate on regulatory capture by Wall Street.  So too scholars have taken up the topic with renewed vigor.  Political scientists have tried to tackle the issue in two main steps: firstly, by showing that money can buy access to legislators; and secondly, that legislators are thereby more responsive to the wishes of donors when writing and voting on laws.  Researchers have used experiments and other techniques to show that Congressional staffs are more responsive to requests from donors compared to others, and have also shown aggregate trends in responsiveness to the preferences of the wealthier. In this paper we try and go one step further: to show that donors can become legislators.  We do this by looking at a novel example: the United Kingdom's appointed Second Chamber, the House of Lords.  Compiling an original dataset of large donations and nominations for "peerages" that allow them to take a seat in the Lords, the authors show that, when the "usual suspects" for a position, like former MPs and party workers, are accounted for, donations seem to play an outsize role in accounting for the remaining peers.  Given the widespread concern at undue influence accorded to large donors, understanding the extent of how donations influence politics and evaluating proposals for democratic renewal should be a major concern of political scienes.

JEL Codes: K42, P48

Keywords: Illegal Behaviour, IlIicit Trade

Reference: 744

Individual View

Authors: Beata Javorcik, Esther Ann BolerKaren Helene Ulltveit-Moe

Mar 2015

While the impact of globalization on income inequality has received a lot of attention, little is known about its effect on the gender wage gap (GWG).  This study argues that there is a systematic difference in the GWG between exporting firms and non-exporters.  By the virtue of being exposed to higher competition, exporters require greater commitment and flexibility from their employees.  If commitment is not easily observable and women are perceived as less committed workers than men, exporters will statistically discriminate against female employees and will exhibit a higher GWG than non-exporters.  We test this hypothesis using matched employer-employee data from the Norwegian manufacturing sector from 1996 to 2010.  Our identification strategy relies on an exogenous shock, namely, the legislative changes that increased the length of the parental leave that is available only to fathers.  We argue that these changes have narrowed the perceived commitment gap between the genders and show that the initially higher GWG observed in exporting firms relative to non-exporters has gone down after the changes took place.

JEL Codes: F10, F14, F16, J16

Keywords: Exporters, Globalization, Gender Wage Gap

Reference: 743

Individual View

Authors: Sara Horrell, Deborah Oxley

Mar 2015

Gender bias against girls in nineteenth-century England has received much interest but establishing its existence has proved difficult.  We utilise data on heights of 16,402 children working in northern textile factories in 1837 to examine whether gender bias was evident.  Current interpretations argue against any difference.  Here our comparisons with modern height standards reveal greater deprivation for girls than for boys.  But this result cannot be taken at face value.  We query whether modern standards require adjustment to account for the later timing of puberty in historical populations and develop an alternative.  Gender discrimination remains, although its absence amongst younger children precludes an indictment of culturally-founded gender bias.  The height data must remain mute on the source of this discrimination but we utilise additional information to examine some hypotheses: occupational sorting, differential susceptibility to disease, poorer nutrition for girls, disproportionate stunting from the effects of nutritional deprivation, and type and amount of work undertaken, specifically labour additional to paid work in the domestic sphere.  Of these, we favour housework as the main culprit, factory girls undertook more physical labour than factory boys and this was reflected in disproportionate stunting.  The 'double burden' was, and remains, a form of gender discrimination.

Reference: Number 133

Individual View

Authors: Bary S.R. Pradelski

Feb 2015

Individual behaviors such as smoking, fashion, and the adoption of new products is influenced by taking account of others' actions in one's decisions.  We study social influence in a heterogeneous population and analyze the long-run behavior of the dynamics.  We distinguish between cases in which social influence arises from responding to the number of current adopters, and cases in which social influence arises from responding to the cumulative usage.  We identify the equilibria of the dynamics and show which equilibrium is observed in the long-run.  We find that the models exhibit different behaviour and hence this differentiation is of importance.  We also provide an intuition for the different outcomes.

JEL Codes: C62, C70, D70, G00

Keywords: social influence, imitation, equilibrium selection

Reference: 742

Individual View

Authors: Dominik Karos

Feb 2015

We provide a model of coalitional bargaining with claims in order to solve games with non-transferable utilities and externalities.  We show that, for each such game, payoff configurations exist which will not be renegoiated.  In the original game derived from these payoff configurations, we can find a partition in which no group of players has an incentive to jointly change their coalitions.  For games without externalities this partition and the corrresponding payoffs constitute a strong Nash equilirium in a strategic form game with complete information.  We use our model to provide a common framework for a variety of solutions for cooperative games, bargaining problems and bankruptcy problems.

JEL Codes: C71, C78, G34

Keywords: Games with non-transferable utilities in partition function form, Bargaining with claims, Ordinal games, Core stable partitions, Non-cooperative coalition formation

Reference: 741

Individual View

Authors: Yehuda Levy

Jan 2015

Mertens and Parthasarathy (1987) proved the existence of sub-game perfect equilibria in discounted stochastic games.  Their method involved new techniques in dynamic programming, which were presented in a very general framework, with no expense spared in highlighting versatility and scope.  This paper presents the fundamentals of their technique which are necessary, as well as identifies and elaborates on the components of their method, hence giving the core of the proof in a much more concise, direct, and illuminating manner.

JEL Codes: C62, C65, C73

Keywords: Stochastic Games, Equilibrium Existence, Subgame-Perfect Equilibrium

Reference: 739

Individual View

Authors: Ying-Ying Lee

Jan 2015

We study the role of the propensity scores in estimating treatment effects for the treated with a multi-valued treatment.  Assume assignment to one of the multiple treatments is random given observed characteristics.  Valid causal comparisons for the subpopulation who has been treated a particular treatment level are based on two propensity scores - one for the treatment level and one for the counterfactual level.  In contrast to the binary treatment case, these two propensity scores do not add up to one.  This is the key feature that allows us to distinguish different roles of the propensity scores and to provide new insight in well-known paradoxes in the binary treatment effect and missing data literature.  We formally show that knowledge of the propensity score for the treated level decreases the semiparametric efficiency bound, regardless of knowledge of the propensity score for the counterfactual level.  We propose efficient kernel regression estimators that project on a nonparametrically estimated propensity score for the counterfactual level and the true propensity score for the treated level.  A surprising result is implied for the binary treatment effect for the treated: when the propensity scores are known, using one estimated propensity score is not efficient.  Our efficient estimator regresses on a normalized propensity score that utilizes the information contained in the nonparametrically estimated and the true propensity scores.

JEL Codes: C01, C14, C21

Keywords: propensity score, multi-valued treatment, semiparametric efficiency bound, unconfoundedness, generated regressor

Reference: 738

Individual View

Authors: Alan Beggs

Jan 2015

This paper studies learning in monotone Bayesian games with one-dimensional types and finitely many actions. Players switch between actions at a set of thresholds.  A learning algorithm under which players adjust their strategies in the direction of better ones using payoffs received at similar signals to their current thresholds is examined.  Convergence to equilibrium is shown in the case of supermodular games and potential games.

JEL Codes: C72, D83

Keywords: bayesian games, monotone strategies, learning, stochastic approximation, supermodular games

Reference: 737

Individual View

Authors: Rebecca K Scott

Dec 2014

A recent surge of literature on tax salience has included studies that use tax type as a proxy for salience.  The relationship between tax type and salience is not always apparent, however, nor is salience the only feature by which taxes differ.  In fact, taxes' behaviour over time suggests an alternative explanation for consumers' tax sensitivity: rational habits or forward-looking investment.  Consumers affected by these intertemporal issues will be more responsive to price components that carry stronger signals about future prices-price components such as the specific taxes posited to be particularly salient.  This paper develops a model to disentangle and test for tax salience and rational habits effects.  Differentiating the two effects is important, as they carry vastly different policy implications: tax salience implies that publicity and nominal incidence matter; rational habits imply all that matters is an instrument's effects on price behaviour.  Examining the case of beer demand, I find evidence that favours a rational habits mechanism over a salience effect.  Examining the case of gasoline demand, I find rational habits to be the more plausible explanation for consumers' sensitivity to specific taxes, though a salience effect cannot be ruled out definitively.

JEL Codes: D12, Q41, H30

Keywords: gasoline demand, tax salience, rational habits, price elasticity

Reference: 736

Individual View

Authors: David Hendry, Jurgen A. Doornik

Dec 2014

Big Data offer potential benefits for statistical modelling, but confront problems like an excess of false positives, mistaking correlations for causes, ignoring sampling biases, and selecting by inappropriate methods.  We consider the many important requirements when searching for a data-based relationship using Big Data, and the possible role of Autometrics in that context.  Paramount considerations include embedding relationships in general initial models, possibly restricting the number of variables to be selected over by non-statistical criteria (the formulation problem), using good quality data on all variables, analyzed with tight significance levels by a powerful selection procedure, retaining available theory insights (the selection problem) while testing for relationships being well specified and invariant to shifts in explanatory variables (the evaluation problem), using a viable approach that resolves the computational problem of immense numbers of possible models.

JEL Codes: C51, C22

Keywords: Big Data, Model Selection, Location Shifts, Autometrics

Reference: 735

Individual View

Authors: Erik Mohlin, Robert Ostling, Joseph Tao-yi Wang

Nov 2014

We exploit a unique opportunity to study how a large population of players in the field learn to play a novel game with a complicated and non-intuitive mixed strategy equilibrium.  We argue that standard models of belief-based learning and reinforcement learning are unable to explain the data, but that a simple model of similarity-based global cumulative imitation can do so.  We corroborate our findings using laboratory data from a scaled-down version of the same game, as well as from three other games.  The theoretical properties of the proposed learning model are studied by means of stochastic approximation.

JEL Codes: C72, C73, L83

Keywords: Learning, imitation, behavioral game theory, evolutionary game theory, stochastic approximation, replicator dynamic, similarity-based reasoning, generalization, mixed equilibrium

Reference: 734

Individual View

Authors: Simon Quinn, Tom Gole

Nov 2014

When members of a committee have incentives to agree with each other, they over-weight public information: this can generate status quo bias.  We test this hypothesis using a novel field experiment -  a large debate tournament with random assignment of judges to committees.  To analyse our experimental data, we develop a new structural methodology for estimating discrete dynamic Bayesian games using Markov Perfect Equililbrium.  Our method allows for correlated unobservable signals and for rational dynamic updating of coordination preferences along the equilibrium path.  Our structural estimates show that judges with greater desire to coordinate are more likely to vote for teams with better past records; this shows that, in a committee context, public information can cause coordination on weaker candidates.

JEL Codes: C57, C93

Keywords: committees, discrete games, identification, field experiments, discrimination

Reference: 733

Individual View

Authors: James Malcomson

Nov 2014

This paper explores the implications of specific training for relational contracts.  A standard result for sustaining a relational contract is that the parties must jointly receive a surplus over what they can get by separating.  This has been interpreted as employees with relational contracts having discretely higher pay and productivity than inherently equally productive, or near equally productive employees without relational contracts.  Investment in specific training relaxes the incentive constraints on relational contracts, so the optimal level of investment can be higher for those with a relational contract than for those without, adding further to the productivity of those employed under a relational contract.  But the additional cost of optimal investment precisely offsets the post-investment surplus for marginal employees in relational contracts, which removes the discontinuity in the joint payoff from a relational contract.  An example shows that with optimal investment there may not even be a discontinuity in productivity between those employed with a relational contract and those employed without one because the incentive constraints on the former result in lower effort despite their higher training.

JEL Codes: C73, D82, D86

Keywords: relational incentive contracts, investment, specific training, dual labour market

Reference: 732

Individual View

Authors: Yehuda Levy

Nov 2014

A long-standing open question raised in the seminal paper of Kalai and Lehrer (1993) is whether or not the play of a repeated game, in the rational learning model introduced there, must eventually resemble play of exact equilibria, and not just play of approximate equilibria as demonstrated there.  This paper shows that play may remain distant - in fact, mutually singular - from the play of any equilibrium of the repeated game.  We further show that the same inaccessibility holds in Bayesian games, where the play of a Bayesian equilibrium may continue to remain distant from the play of any equilibrium of the true game.

JEL Codes: C65, C72, C73

Keywords: Rational Learning, Repeated Games, Nash Equilibrium

Reference: 731

Individual View

Authors: Jasper van Dijk

Nov 2014

This paper shows that within a regional economy, employment in the nontradable sector benefits from attracting jobs in the tradable sector.  I rework Moretti's study of U.S. cities (AER 2010) and find that one new job in a given city's tradable sector will result into 1.02 new jobs in the nontradable sector in the same city.  I show Moretti overestimated the size of this local multiplier by 0.57, because he made five perfunctory assumptions that had a major impact on his results.  Subsequently I show that Moretti's assertion that skilled tradable jobs have a larger multiplier than unskilled tradable jobs is not supported by the data.  The evidence provided by Moretti was only significant due to an endogeneity effect.

Keywords: Local labour market, multiplier, tradable, nontradable

Reference: 730

Individual View

Authors: Mark Armstrong,John Vickers

Oct 2014

We provide a simple necessary and sufficient condition for when a multiproduct demand system can be generated from a discrete choice model with unit demands.

JEL Codes: D01, D11

Keywords: Discrete choice, unit demand, multiproduct demand functions

Reference: 729

Individual View

Authors: Francesco Zanetti, Haroon Mumtaz

Oct 2014

This paper studies how key labor market stylized facts and the responses of labor market variables to technology shocks vary over the US postwar period.  It uses a benchmark DSGE model enriched with labor market frictions and investment specific technological progress that enables a novel identification scheme based on sign restrictions on a SVAR with time-varying coefficients and stochastic volatility.  Key findings are: i) the volatility in job finding and separation rates has declined over time, while their correlation varies across time; ii) the job finding rate plays an important role for unemployment, and the two series are strongly negatively correlated over the sample period; iii) the magnitude of the response of labor market variables to technology shocks varies across the sample period.

JEL Codes: E32, C32

Keywords: Technology shocks, labor market frictions, Bayesian SVAR methods, sign restrictions

Reference: 728

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