Working Papers

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

Individual View

Authors: Andrew Martinez

Oct 2014

This paper compares annual one-year-ahead and five-year-ahead forecasts from government agencies for the U.S. gross federal debt and deficit from 1984 to 2013.  Other studies have compared two of these agencies' forecasts, but not for debt.  The current paper finds that the forecast from the Analysis of the President's Budget performs best across both horizons but does not encompass the other forecasts.  Instead, each of the forecasts lacks information included by the other agencies and therefore a combination of all three outperforms any forecast individually.

JEL Codes: C53, H68

Keywords: Evaluating Forecasts, Government Forecasting, Macroeconomic Forecasts, Forecast Encompassing, Deficit

Reference: 727

Individual View

Authors: H Peyton Young

Oct 2014

Social norms are patterns of behavior that are self-enforcing at the group level: everyone wants to conform when they expect everyone else to conform.  There are multiple mechanisms that sustain social norms, including a desire to coordinate, fear of being sanctioned, signaling membership in the group, or simply following the lead of others.  This article shows how stochastic evolutionary game theory can be used to study the dynamics of norms.  We illustrate with a variety of examples drawn from economics, sociology, demography, and political science.  These include bargaining norms, norms governing the terms of contracts, norms of retirement, duelling, footbinding, medical treatment, and the use of contraceptives.  These cases highlight the challenges of applying the theory to empirical cases.  They also show that the modern theory of norm dynamics yields insights and predictions that go beyond conventional equilibrium analysis.

JEL Codes: C73, A120, O10

Keywords: evolutionary game theory, equilibrium selection, stochastic stability

Reference: 726

Individual View

Authors: Ansgar Walther

Sep 2014

Banks create excessive systemic risk through leverage and maturity mismatch, as financial constraints introduce welfare-reducing pecuniary externalities.  Macroprudential regulators can achieve efficiency with simple linear constraints on banks' balance sheets, which require less information than Pigouvian taxes.  These can be implemented using the Liquidity Coverage and Net Stable Funding ratios of Basel III.  When bank failures are socially costly, microprudential regulation of leverage is also required.  Optimally, macroprudential policy reacts to changes in systematic risk and credit conditions over the business cycle, while microprudential policy reacts to both systematic and idiosyncratic risk.

JEL Codes: G18, G21, G28, E44

Keywords: Systemic risk, leverage, maturity mismatch, macroprudential regulation, liquidiity, capital requirements, fire sales

Reference: 725

Individual View

Authors: James Forder

Sep 2014

There is a widely believed but entirely mythical story to the effect that the discovery of 'the Phillips curve' was, in the 1960s and perhaps later, an inspiration to inflationist policy.  The point that this is a myth is argued in Forder, Macroeconomics and the Phillips curve myth, OUP 2014.  One aspect of the explanation of how that myth came to be widely believed is considered in this paper.  It is noted that the expression 'Phillips curve' was applied in a number of quite distinct and inconsistent ways, and as a result there was, by about 1980, an enormous confusion as to what that label meant.  This confusion, as well as the multiplicity of possible meanings, it is suggested, made the acceptance of the myth much easier, and is therefore part, although only part, of the story of its acceptance.

JEL Codes: B22, B29

Keywords: Phillips curve, expectations, Phillips curve myth

Reference: 724

Individual View

Authors: James Forder

Sep 2014

Friedman (1968) - his famous Presidential Address to the American Economic Association - contains an elementary error right at the heart of what is usually supposed to be the paper's crucial argument.  That is the argument to the effect that during an inflation, changing expectations shift in Phillips curve.  It is suggested that the fact of this mistake, and of its having gone all-but unnoticed are points of historical interest.  Further reflections, drawing on the arguments of Forder (2014) Macroeconomics and the Phillips curve myth, are suggested.

JEL Codes: B22, E31

Keywords: Phillips, Friedman, Expectations

Reference: 723

Individual View

Authors: Pawel Dziewulski,John Quah

Sep 2014

Suppose we observe a finite number of input decisions made by a firm, as well as the prices at which those inputs were acquired.  What conditions on the set of observations are necessary and sufficient for it to be consistent with a firm choosing inputs to maximize profit, subject to a production function exhibiting production complementarities?  In this paper, we develop an axiomatic characterisation of this hypothesis and also develop a test that can be easily applied to finite data sets.

JEL Codes: D21, D24

Keywords: profit maximisation, production complementarities, supermodular production, modern manufacturing, cyclical monotonicity, quasilinear preferences

Reference: 722

Individual View

Authors: John Knight, Ramani Gunatilaka

Aug 2014

The paper contrasts early theories of the utility function (starting with Bentham and elaborated by Jevons) with the modern theory (laid down by Fisher and Samuelson).  The former include in the utility function not only the sensation of current events but also the memory of past events and the anticipation of future events.  The alternative hypotheses are tested by introducing both past and expected future income into the estimated subjective well-being function, using an appropriate data set for China.  The tests favour the early theories.  Implications are drawn.

JEL Codes: B13, B21, D60

Keywords: Anticipation, China, Discounted utility, Memory, Subjective well-being, Utility function

Reference: 721

Individual View

Authors: Selma Telalagic

Aug 2014

This paper provides a causal reason for failure in productive efficiency in the household and explains why some households may be less efficient than others.  In the theoretical model, spouses make labour allocation decisions in each period to generate income, facing a threat of divorce in the next period.  This threat of divorce encourages spouses to invest in their outside options.  If decision-making is noncooperative, asymmetric outside options lead to lower productivity.  Using exogenous variation in inheritance rules in Malawi as a measure of outside options, the empirical results show that matrilineal households (where women have access to land) have 10% higher consumption than patrilineal households (where women have no access to land).  These resuls are robust to a wide variety of specifications and are corroborated by an analysis of labour allocation and income.  The results suggest that variation in spouses' outside options can help explain variation in household productivity.

JEL Codes: D12, D13, J12, J16

Keywords: Productive efficiency, Households, Land rights, Matriliny, Malawi

Reference: 720

Individual View

Authors: Donna Harris, Benedikt Herrmann, Andreas Kontoleon, Jonathan Newtonor

Aug 2014

This paper examines the relationship between norm enforcement and in-group favouritism behaviour.  Using a new two-stage allocation experiment with punishments, we investigate whether in-group favouritism is considered as a social norm in itself or as a violation of a different norm, such as egalitarian norm.  We find that which norm of behaviour is enforced depends on who the punisher is.  If the punishers belong to the in-group, in-group favouritism is considered a norm and it does not get punished.  If the punishers belong to the out-group, in-group favouritism is frequently punished.  If the punishers belong to no group and merely observe in-group favouritism (the third-party), they do not seem to care sufficiently to be willing to punish this behavour.  Our results shed a new light on the effectiveness of altruistic norm enforcement when group identities are taken into account and help to explain why in-group favouritism is widespread across societies.

JEL Codes: C92, D70, D73

Keywords: In-group Favouritism, Group Identity, Social Norms, In-group Punishment, Out-group Punishment, Third-party Punishment

Reference: 719

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