Working Papers

Authors: Eric B. Schneider

May 2014

This paper presents a new adaptive framework for understanding children's growth in the past.  Drawing upon the recent work of Gluckman and Hanson (2006) and their co-authors on adaptive responses in relation to growth, I present three prenatal and three postnatal adaptive mechanisms that affect the growth patterns of children.  The most novel adaptive response to the historical literature is the prenatal predictive adaptive response where the foetus develops assuming that the postnatal environment will closely match prenatal conditions.  Thus, the metalbolism and growth trajectory of a child is programmed during the prenatal period: children experiencing good conditions in utero would have a higher metabolism and growth trajectory than their counterparts facing poor conditions.  Having discussed the framework and other responses in detail, I then use it to reinterpret the growth pattern of American slaves (Steckel, 1979, 1986).  I argue that the mismatch between relatively good conditions in utero and absolutely appalling conditions in infancy and early childhood led slave children to become incredibly stunted by age three or four.  However, after this age, slave children experienced rapid catch-up growth, first because their immune systems had become more developed and had adapted to the poor disease environment and later because their diet improved tremendously and hookworm exposure was reduced when they entered the labour force around age ten.  Thus, American slave children were able to experience rapid catch-up growth because they were prenatally programmed for a higher metabolism and growth trajectory.  The paper concludes by setting out some stylized facts about children's growth in the past and pointing toward areas of future research.

Reference: 130

Individual View

Authors: Maria Porter, Abigail Adams

May 2014

This paper examines the motivation for intergenerational transfers between adult children and their parents, and the nature of preferences for such giving behaviour, in an experimental setting.  Participants in our experiment play a series of dictator games with parents and strangers, in which we vary endowments and prices for giving to each recipient.  We find that preferences for giving are typically rational.  When parents are recipients as opposed to strangers, participants display greater sensitivity to the price of giving, and a higher relative proclivity for giving.  Our findings also provide evidence of reciprocal motivations for giving, as players give more to parents who have full information regarding the context in which giving occurs.

JEL Codes: C91, D12, D64

Keywords: transfer motives, intergenerational, dictator games, lab experiments, altruism, reciprocity

Reference: 709

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Authors: John Quah

May 2014

We identify necessary and sufficient conditions under which a finite data set of price vectors and consumption bundles can be rationalized by a weakly separable utility function.  Our result could be understood as a generalization of Afriat's Theorem.

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

Keywords: Afriat's Theorem, utility function, revealed preference, generalized axiom

Reference: 708

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Authors: Mark Armstrong

May 2014

Traditionally, the scholarly journal market operates so that research institutions are charged high prices and the wider public is often excluded altogether, while authors can usually publish for free and commercial publishers enjoy high profits.  Two forms of open access regulation can mitigate these problems: (i) direct price regulation of the form whereby a journal must charge a price of zero to all readers, or (ii) mandating authors or publishers to make freely available an inferior substitute to the publishing paper.  The former policy is likely to result in authors paying to publish, which may lead to a reduction in the quantity of published papers and may make authors less willing to publish in selective journals.  Recent UK policy towards open access is discussed.

JEL Codes: D83, I23, L17, L51, L86

Keywords: publishing, journals, open access, two-sided markets, regulation

Reference: 707

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Authors: Ying-Ying Lee

May 2014

Partial mean processes with generated regressors arise in several important econometric problems, such as the distribution of potential outcomes with continuous treatments and the quantile structural function in a nonseparable triangular model.  This paper proposes a fully nonparametric estimator for the partial mean process, where the second step consists of a kernel regression on regressors that are estimated in the first step.  The main contribution is a uniform expansion that characterizes in detail how the estimation error associated with the generated regressor affects the limiting distribution of the marginal integration estimator.  The general results are illustrated with three examples: control variables in triangular models (Newey, Powell, and Vella, 1999; Imbens and Newey, 2009), the generalized propensity score for a continuus treatment (Hirano and Imbens, 2004), and the propensity score for sample selection (Das, Newey, and Vella, 2003).

JEL Codes: C13, C14, C31

Keywords: Continuous treatment, partial means, nonseparable models, generated regressors, control function

Reference: 706

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Authors: Pierre-Louis Vezina, Christopher Parsons

May 2014

We provide cogent evidence for the causal pro-trade effect of migrants and in doing so establish an important link between migrant networks and long-run economic development.  To this end, we exploit a unique event in human history, the exodus of the Vietnamese Boat People to the US.  This episode represents an ideal natural experiment as the large immigration shock, the first wave of which comprised refugees exogenously allocated across the US, occurred over a twenty-year period during which time the US imposed a complete trade embargo on Vietnam.  Following the lifting of trade restrictions in 1994, the share of US exports going to Vietnam was higher and more diversified in those US States with larger Vietnamese populations, themselves the result of larger refugee inflows 20 years earlier.

JEL Codes: F14, F22

Keywords: Migrant Networks, US Exports, Natural Experiment

Reference: 705

Individual View

Authors: Simon Wren-Lewis, Jonathan Portes

May 2014

Theory suggests that government should as far as possible smooth taxes and its recurrent consumption spending, which means that government debts should act as a shock absorber, and any planned adjustments in debt should be gradual.  This suggests that operational targets for governments (e.g. for 5 years ahead should involve deficits rather than debt, because such rules will be more robust to shocks.  Beyond that, fiscal rules need to reflect the constraints on  monetary policy, and the extent to which governments are subject to deficit bias.  Fiscal rules for countries in a monetary union or fixed exchange rate regime need to include a strong countercyclical element.  Fiscal rule should also contain a 'knock out' if interest rates hit the zero lower bound: in that case the fiscal and monetary authorities should cooperate to formulate a fiscal expansion package that allows interest rates to rise above this bound.  In more normal times, the design of fiscal policy rules is likely to depend on the extent to which governments are subject to deficit bias, and the effectiveness of any national fiscal council.  For example, governments that had not shown a history of deficit bias could aim to target deficits five years ahead (rolling targets), and these would not require cyclical adjustment.  In contrast, governments that were more prone to bias could target a cyclically adjusted deficit at the end of their expected period of office.  In both cases fiscal councils would have an important role to play, in ensuring plans were implemented in the first case and allowing for departures from target when exernal shocks occurrred in the second.

JEL Codes: E62

Keywords: fiscal policy, fiscal rules, fiscal councils

Reference: 704

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Authors: Vellore Arthi

Apr 2014

 I use variation in childhood exposure to the Dust Bowl, an environmental shock to health and income, as a natural experiment to explain variation in adult human capital.  I find that the Dust Bowl produced significant adverse impacts in later life, especially when exposure was in utero, increasing rates of poverty and disability, and decreasing rates of fertility and college completion.  Dependence on agriculture exacerbates these effects, suggesting that the Dust Bowl was most damaging via the destruction of farming livelihoods.  This collapse of farm incomes, however, had the positive effect of reducing demand for child farm labor and thus decreasing the opportunity costs of secondary schooling, as evidence by increases in high school completion amongst the exposed.

Keywords: Dust Bowl, environmental shock, human capital formation, early life health

Reference: 129

Individual View

Authors: Damoun Ashournia, Jakob MunchDaniel Nguyen

Apr 2014

The impact of imports from low-wage countries on domestic labor market outcomes has been a hotly debated issue for decades.  The recent surge in imports from China has reignited this debate.  Since the 1980s several developed economies have experienced contemporaneous increases in the volume of imports and in the wage gap between high- and low-skilled workers.  However, the literature has not been able to document a strong causal relationship between imports and the wage gap.  Instead, past studies have attributed the widening wage gap to skill biased technological change.  This paper finds evidence for the direct impact of low wage imports on the wage gap.  Using detailed Danish panel data for firms and workers, it measures the effects of Chinese import penetration at the firm level on wages within job-spells and over the longer term taking transitions in the labor market into account.  We find that greater exposure to Chinese imports corresponds to a negative firm-level demand shock, which is biased towards low-skill intensive products.  Consistent with this an increase in Chinese import penetration results in lower wages for low skilled employees.

JEL Codes: F16

Keywords: Chinese import penetration, wage inequality, firm heterogeneity

Reference: 703

Individual View

Authors: Francesco Zanetti

Apr 2014

This paper estimates a New Keynesian model to investigate to what extent labour market reforms undertaken by the Thatcher government in the late 1930s and the introduction of a constant inflation target in 1992 might have changed the UK economic outlook if they had been introduced in the early 1970s.  The results suggest that a stronger reaction to deviations of inflation from target have contributed to a more stable economic outlook, while labour market reforms and the introduction of a constant inflation target are unlikely to have produced a different outcome.

JEL Codes: E24, E32, E52, J64

Keywords: Labour market reforms, Search and matching, New Keynesian model

Reference: 702

Individual View

Authors: Tim Willems, Shaun Larcom, Mare Sarr

Apr 2014

History offers many examples of dictators who worsened their behavior significantly over time (like Zimbabwe's Robert Mugabe), while there are also cases of dictators who have displayed remarkable improvements (like Jerry Rawlings of Ghana).  We show that such mutations can result from rational behavior when the dictator's flow use of repression is complementary to his accumulated stock of wrongdoings.  This complementarity gives rise to two steady states (one where repression is low and one where repression is high) and implies that any individual rising to power in this setup has the potential to end up as either a moderate leader, or as a dreaded tyrant.  Our model shows that dictators are more likely to derail with higher levels of divertible funds available, for example stemming from fungible aid inflows or from the exploitation of natural resources.

JEL Codes: D72, D74, N47, O10

Keywords: Dictatorship, Repression, Political violence, Resource curse, Learning, Multiple steady states

Reference: 701

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Authors: Gregg Huff, Gillian Huff

Apr 2014

This working paper analyzes demographic change in Southeast Asia's main cities during and soon after the World War II Japanese occupation.  We argue that two main patterns of population movements are evident.  In food-deficient areas, a search for food security typically led to large net inflows to main urban centres.  By contrast, an urban exodus dominated in food surplus regions because the chief risk was to personal safety, especially from Japanese and Allied bombing.  Black markets were ubiquitous, and essential to sustaining livelihoods in cities with food-deficit hinterlands.  In Rangoon and Manila, wartime population fluctuations were enormous.  Famines in Java and northern Indochina severely impacted Jakarta and Hanoi through inflows of people from rural areas.  In most countries, the war's aftermath of refugees, revolution and political disruption generated major rural-urban population relocations.  Turmoil in the 1940s had the permanent consequences of augmenting the primacy of Southeast Asia's main cities and promoting squatter settlement.

JEL Codes: N15, N90, N95, R11

Keywords: urbanization, Southeast Asia, famine, World War II, entitlements, Japan

Reference: 128

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Authors: Kevin Hjortshøj O'Rourke, Gregory Clark, Alan M. Taylor

Mar 2014

Many previous studies of the role of trade during the British Industrial Revolution have found little or no role for trade in explaining British living standards or growth rates.  We construct a three-region model of the world in which Britain trades with North America and the rest of the world, and calibrate the model to data from the 1760s and 1850s.  We find that while trade had only a small impact on British welfare in the 1760s, it had a very large impact in the 1850s.  This contrast is robust to a large range of parameter perturbations.  Biased technological change and population growth were key in explaining Britain's growing dependent on trade during the Industrial Revolution.

JEL Codes: F11, F14, F43, N10, N70, O40

Keywords: British Industrial Revolution, Great Divergence, trade, colonies, growth, specialization

Reference: 126

Individual View

Authors: Jane Humphries, Jacob Weisdorf

Mar 2014

This paper presents a wage series for unskilled English women workers from 1260 to 1850 and compares it with existing evidence for men.  Our series cast light on long run trends in women's agency and wellbeing, revealing an intractable, indeed widening gap between women and men's remuneration in the centuries following the Black Death.  This informs several debates: first whether or not "the golden age of the English peasantry" included women; and second whether or not industrialization provided women with greater opportunities.  Our contributions to both debates have implications for analyses of growth and trends in wellbeing.  If the rise in wages that followed the Black Death enticed female servants to delay marriage, it contributed to the formation of the European Marriage Pattern, a demographic regime which positioned England on a path to modern economic growth.  If the industrial revolution provided women with improved economic options, their gains should be included in any overall assessment of trends in the standard of living distorts the overall evaluation of the gains from industrialization.

JEL Codes: J3, J4, J5, J6, J7, J8, N33

Keywords: Black Death, England, gender wage gap, industrial revolution, gender segregation, wages, women

Reference: 127

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Authors: Bary S.R. Pradelski

Mar 2014

We study decentralized learning dynamics for the classic assignment game with transferable utility.  At random points in time firms and workers match, break up, and re-match in the sesarch for better opportunities.  We propose a simple learning process in which players have no knowledge about other players' payoffs or actions and they update their behavior in a myopic fashion.  Behavior fluctuates according to a random variable that reflects current market conditions: sometimes the firms exhibit greater price stickiness than the workers, and at other times the reverse holds.  We show that this stochastic learning process converges in polynomial time to the core.  While convergence to the core is known for some types of decentralized dynamics this paper is the first to prove fast convergence, a crucial feature from a practical standpoint.  The proof relies on novel results for random walks on graphs, and more generally suggests a fruitful connection between the theory of random walks and matching theory.

JEL Codes: C71, C73, C78, D83

Keywords: assignment games, core, evolutionary game theory, matching markets, convergence time, random walks

Reference: 700

Individual View

Authors: James Fenske, Achyuta Adhvaryu, Anant Nyshadham

Feb 2014

We show that psychological well-being in adulthood varies substantially with circumstance in early life.  Combining a time series of real producer prices of cocoa with a nationally representative household survey in Ghana, we find that a one standard deviation rise in the cocoa price in early life decreases the likelihood of severe mental distress in adulthood by 3 percentage points (or half the mean prevalence) for cohorts born in cocoa-producing regions relative to those born in other regions.  Impacts on related personality traits are consistent with this result.  Maternal nutrition, reinforcing childhood investments, and adult circumstances are operative channels of impact.

JEL Codes: I12, I15, I31, Q02, O12

Keywords: mental health, subjective well-being, early life, fetal origins, endowments, commodity prices

Reference: 698

Individual View

Authors: Francesco Zanetti, Konstantinos Theodoridis

Feb 2014

This paper uses a VAR model estimated with Bayesian methods to identify the effect of productivity news shocks on labor market variables by imposing that they are orthogonal to current technology but they explain future observed technology.  In the aftermath of a positive news shock, unemployment falls, whereas wages and the job finding rate increase.  The analysis establishes that news shocks are important in explaining the historical developments in labor market variables, whereas they play a minor role for movements in real activity.  We show that the empirical responses to news shocks are in line with those of a baseline search and matching model of the labor market and that the job destruction rate and real wage rigidities are critical for the variables' responses to the news shock.

JEL Codes: E32, C32. C52

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

Reference: 699

Individual View

Authors: Jennifer Aston, Paolo Di Martino

Feb 2014

Authors: Jennifer Castle,David Hendry, Michael P. Clements

Jan 2014

We investigate alternative robust approaches to forecasting, using a new class of robust devices, contrasted with equilibrium correction models.  Their forecasting properties are derived facing a range of likely empirical problems at the forecast origin, including measurement errors, implulses, omitted variables, unanticipated location shifts and incorrectly included variables that experience a shift.  We derive the resulting forecast biases and error variances, and indicate when the methods are likely to perform well.  The robust methods are applied to forecasting US GDP using autoregressive models, and also to autoregressive models with factors extracted from a large dataset of macroeconomic variables.  We consider forecasting performance over the Great Recession, and over an earlier more quiescent period.

JEL Codes: C51, C53

Keywords: Robust forecasts, Smoothed Forecasting devices, Factor models, GDP forecasts, Location shifts

Reference: 697

Individual View

Authors: Climent Quintana-Domeque, Pierre-Andre Chiappori, Sonia Oreffice

Jan 2014

We develop a bidimensional matching model under transferable utility, where individuals are characterized by a continuous trait (e.g., socioeconomic status) and a binary attribute (e.g., smoking status).  The model is "truly multidimensional", in the sense that the impact of the traits cannot be summarized by a one-dimensional index.  We present a general resolution strategy based on optimal control theory, and characterize the stable matching.  We derive testable predictions about equilibrium matching patterns.  Using US data, we find that the observed marital sorting of smokers and non-smokers by education is consistent with our model.

JEL Codes: D1, J1

Keywords: Marriage market, multidimensional matching, continuous and discrete characteristics, heterogeneous preferences

Reference: 696

Individual View

Authors: Ian Jewitt,Clare Leaver, Heski Bar-Isaac

Jan 2014

This paper develops a framework for the analysis of how asymmetric information impacts on adverse selection and market efficiency.  We adopt Akerlof's (1970) unit-demand model extended to a setting with multidimensional public and private information.  Adverse selection and efficiency are defined quantitatively as real valued random variables.  We characterize how public information disclosure and private information acquisition affect the relationship between adverse selection and efficiency.  These results are applied to inform welfare and empirical analysis and, in an employer learning setting, to study the endogenous choice of information structures.  Equilibrium information structures impose adverse selection efficiently.  We show that this makes adverse selection hard to detect using standard positive correlation tests.

JEL Codes: D82, J30

Keywords: asymmetric information, adverse selection, information structures, information acquisition, information disclosure, employer learning

Reference: 695

Individual View

Authors: Peter Neary, Monika Mrazova

Jan 2014

We show that relaxing the assumption of CES preferences in monopolistic competition has surprising implications when trade is restricted.  Integrated and segmented markets behave differently, the latter typically exhibiting reciprocal dumping.  Globalization and lower trade costs have different effects: the former reduces spending on all existing varieties, the latter switches spending from home to imported varieties; when demands are less convex than CES, globalization raises whereas lower trade costs reduce firm output.  Finally,calibrating gains from trade is harder.  Many more parameters are needed, while import demand elasticities typically overestimate the true elasticities, and so underestimate the gains from trade.

JEL Codes: F12, F15, F17

Keywords: Additively Separable Preference, CES Preference, Iceberg Trade Costs, Quantifying Gains from Trade, Super- and Subconvexity of Demand, Super- and Subconcavity of Utility

Reference: 694

Individual View

Authors: Kevin Hjortshøj O'Rourke, Alan Fernihough

Jan 2014

We examine the importance of geographical proximity to coal as a factor underpinning comparative European economic development during the Industrial Revolution.  Our analysis exploits geographical variation in city and coalfield locations, alongside temporal variation in the availability of coal-powered technologies, to quantify the effect of coal availability on historic city population sizes.  Since we suspect that our coal measure could be endogenous, we use a geologically derived measure as an instrumental variable: proximity to rock strata from the Carboniferous era.  Consistent with traditional historical accounts of the Industrial Revolution, we find that coal exhibits a strong influence on city population size from 1800 onward.  Counterfactual estimates of city population sizes indicate that our estimated coal effect explains at least 60% of the growth in European city populations from 1750 to 1900.  This result is robust to a number of alternative modelling assumptions regarding missing historical population data, spatially lagged effects, and the exclusion of the United Kingdom from the estimation sample.

Keywords: Coal, Historical Population, Geography

Reference: 124

Individual View

Authors: Francesco Zanetti

Jan 2014

This paper derives closed-form and numerical solutions for relative risk aversion in a standard consumption-based model enriched with housing.  The presence of housing enables the household to hedge against unexpected shocks and may decrease relative risk aversion.  In addition, housing may generate state-dependent, time-varying risk aversion.

JEL Codes: D81, E21, R21

Keywords: Relative risk aversion, housing

Reference: 693

Individual View

Authors: Sujoy Mukerji, Robin Cubitt, Gijs van de Kuilen

Jan 2014

The exchange between Epstein (2010) and Klibanoff et al. (2012) identified a behavioral issue that sharply distinguishes between two classes of models of ambiguity sensitivity, exemplified by the α-MEU model and the smooth ambiguity model, respectively. The issue in question is whether a subject

JEL Codes: C91, D01, D03, D81, G02

Keywords: Ambiguity sensitivity; ambiguity attitude; testing models of ambiguity sensitive preference

Reference: 692

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