Economics Publications

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Balancing supply and demand under bilateral constraints
(The Econometric Society, 2012) Bochet, Olivier; İlkılıç, Rahmi; Moulin, Hervé; Sethuraman, Jay
In a moneyless market, a nondisposable homogeneous commodity is reallocated between agents with single-peaked preferences. Agents are either suppliers or demanders. Transfers between a supplier and a demander are feasible only if they are linked. The links form an arbitrary bipartite graph. Typically, supply is short in one segment of the market, while demand is short in another. Our egalitarian transfer solution generalizes Sprumont’s (1991) and Klaus et al.’s (1998) uniformallocation rules. It rations only the long side in each market segment, equalizing the net transfers of rationed agents as much as permitted by the bilateral constraints. It elicits a truthful report of both preferences and links: removing a feasible link is never profitable to either one of its two agents. Together with efficiency and a version of equal treatment of equals, these properties are characteristic.
The Effect of Punishment Severity on Plea Bargaining
(The University of Chicago Press, 2012-08) Boylan, Richard T.
This study examines whether criminal suspects facing more severe punishments are more likely to go to trial. Sample selection makes it difficult to obtain valid proxies for severity; for instance, I expect severity to be positively related to the prosecutorﾒs decision to indict, to indict in federal court (versus state court), and to try the suspect. Theoretical and empirical findings indicate that in samples containing only indicted, convicted, or tried suspects, reasonable proxies for severity may be negatively related to actual severity. The assignment of defendants to judges randomizes the severity of punishment in a manner that is unrelated to sample selection. Thus, by examining the effect of these assignments, I find that a 10-month increase in prison sentences raises trial rates by 1 percentage point.
Genericity and Robustness of Full Surplus Extraction
(Wiley, 2013) Chen, Yi-Chun; Xiong, Siyang
We study whether priors that admit full surplus extraction (FSE) are generic, an issue that becomes a gauge to evaluate the validity of the current mechanism design paradigm. We consider the space of priors on the universal type space, and thereby relax the assumption of a fixed finite number of types made by Crémer and McLean (1988). We show that FSE priors are topologically generic, contrary to the result of Heifetz and Neeman (2006) that FSE is generically impossible, both geometrically and measure-theoretically. Instead of using the BDP approach or convex combinations of priors adopted in Heifetz and Neeman (2006), we prove our genericity results by showing a robustness property of Crémer–McLean mechanisms
Intended and Unintended Consequences of Prison Reform
(Oxford University Press, 2013) Boylan, Richard T.; Mocan, Naci
The United States Supreme Court ruled in May 2011 that prison overcrowding in California constituted cruel and unusual punishment. This decision revived a long-standing debate among scholars and policy makers as to whether courts should intervene to protect the well-being of the disfranchised, by forcing states to improve schools, prisons, and mental institutions. We use data that span 1951-2006 to examine the impact of federal court orders condemning prison crowding, and the impact of statesﾒ releases from these court orders. We find that these interventions are associated with lower inmate mortality rates and fewer prisoners per capita. Correctional expenditures increase and welfare cash expenditures decrease while states are under court order, suggesting that the burden of improved prison conditions is borne by welfare recipients. Furthermore, states do not alter correctional spending and welfare cash payments spending after their release from court order, making the original changes in spending permanent. (JEL H7, I38, K4)
Nonstationarity and Stochastic Stability of Relative Income Clubs
(International Association for Research in Income and Wealth, 2013) El-Gamal, Mahmoud A.; Ryu, Deockhyun
The recent literature on “convergence” of cross-country per capita incomes has been dominated by the two hypotheses of “global convergence” and “club-convergence,” pertaining to limits of estimated income distribution dynamics. Utilizing a new measure of “stochastic stability,” we establish two stylized facts regarding short- and medium-term distribution dynamics. The first is non-stationarity of transition dynamics, in the sense of changing transition kernels, and the second is emergence, disappearance, and re-emergence of a “stochastically stable” middle income group. This middle income group emerges as the gap between rich and poor clubs gets larger, and it changes the dynamics of transition to and from the rich and poor clubs, eventually narrowing the gap between the poor and rich as the middle club vanishes. Analyzing the stochastic stability of middle-income groups is thus a first step toward understanding higher-order dynamics of narrowing or widening of the gap between rich and poor countries.
Risk and return: Long-run relations, fractional cointegration, and return predictability
(Elsevier, 2013) Bollerslev, Tim; Osterrieder, Daniela; Sizova, Natalia; Tauchen, George
Univariate dependencies in market volatility, both objective and risk neutral, are best described by long-memory fractionally integrated processes. Meanwhile, the ex post difference, or the variance swap payoff reflecting the reward for bearing volatility risk, displays far less persistent dynamics. Using intraday data for the Standard & Poor's 500 and the volatility index (VIX), coupled with frequency domain methods, we separate the series into various components. We find that the coherence between volatility and the volatility-risk reward is the strongest at long-run frequencies. Our results are consistent with generalized long-run risk models and help explain why classical efforts of establishing a naïve return-volatility relation fail. We also estimate a fractionally cointegrated vector autoregression (CFVAR). The model-implied long-run equilibrium relation between the two variance variables results in nontrivial return predictability over interdaily and monthly horizons, supporting the idea that the cointegrating relation between the two variance measures proxies for the economic uncertainty rewarded by the market.
Promoting Growth, Maintaining Progressivity, and Dealing with the Fiscal Crisis: CGE Simulations of a Temporary VAT Used for Debt Reduction
(Sage, 2013) Diamond, John W.; Zodrow, George R.; Tax and Expenditure Policy Program, Baker Institute for Public Policy
Trade-offs between economic efficiency, growth, and distributional equity permeate economics, including discussions of tax policy and tax reform. Computable general equilibrium (CGE) modeling is one tool that is often used to estimate the magnitudes of the variables that determine the efficiency, growth, and equity properties of alternative tax reforms. In this article, we report the results of simulations of a CGE model that examines the economic and distributional effects of the enactment in the United States of a temporary value-added tax used to reduce the level of the national debt. The results suggest that such a reform is generally moderately progressive both for cohorts alive at the time of reform and for future generations, at least within the context of lifetime measures of tax burden, and that current middle-aged and elderly generations must bear a burden to confer a gain, relative to the status quo, on younger and future generations.
The Influence of Complications on the Costs of Complex Cancer Surgery
(Wiley, 2013) Short, Marah Noel; Aloia, Thomas A.; Ho, Vivian; James A. Baker III Institute for Public Policy
It is widely known that outcomes after cancer surgery vary widely, depending on interactions between patient, tumor, neoadjuvant therapy, and provider factors. Within this complex milieu, the influence of complications on the cost of surgical oncology care remains unknown. The authors examined rates of Patient Safety Indicator (PSI) occurrence for 6 cancer operations and their association with costs of care. The Agency for Healthcare Research and Quality (AHRQ) PSI definitions were used to identify patient safety-related complications in Medicare claims data. Hospital and inpatient physician claims for the years 2005 through 2009 were analyzed for 6 cancer resections: colectomy, rectal resection, pulmonary lobectomy, pneumonectomy, esophagectomy, and pancreatic resection. Risk-adjusted regression analyses were used to measure the association between each PSI and hospitalization costs. Overall PSI rates ranged from a low of 0.01% for postoperative hip fracture to a high of 2.58% for respiratory failure. Death among inpatients with serious treatable complications, postoperative respiratory failure, postoperative thromboembolism, and accidental puncture/laceration were >1% for all 6 cancer operations. Several PSIs?including decubitus ulcer, death among surgical inpatients with serious treatable complications, and postoperative thromboembolism?raised hospitalization costs by ? 20% for most cancer surgery types. Postoperative respiratory failure resulted in a cost increase >50% for all cancer resections. The consistently higher costs associated with cancer surgery PSIs indicate that substantial health care savings could be achieved by targeting these indicators for quality improvement.
The effects of efficiency and TFP growth on pollution in Europe: a multistage spatial analysis
(Springer, 2014) Adetutu, Morakinyo; Glass, Anthony J.; Kenjegalieva, Karligash; Sickles, Robin C.
It is common in efficiency studies which analyse the environment for pollution to form part of the production technology. Pollution therefore affects efficiency and the TFP growth decomposition. As an alternative approach we draw on theoretical studies from the environmental economics literature, which demonstrate that TFP affects environmental quality. Along these lines we adopt a two-stage empirical methodology. Firstly, we obtain two estimates of productive performance (efficiency and TFP growth) using a stochastic production frontier framework in Stage 1 for European countries (1995–2008), from which we omit emissions. Secondly, in Stage 2 these measures of productive performance are used as regressors in spatial models of per capita nitrogen and sulphur emissions for European countries. From our preferred Stage 2 spatial models we find that a country’s TFP growth must fall to reduce its per capita nitrogen and sulphur emissions. This is likely to be because nitrogen and sulphur emissions in the EU have been tightly regulated for a long period of time via air quality standards and consequently, substantial reductions in emissions from cleaner and more productive technology were achieved some time ago.
Semi-nonparametric spline modifications to the Cornwell–Schmidt–Sickles estimator: an analysis of US banking productivity
(Springer, 2015) Almanidis, Pavlos; Karagiannis, Giannis; Sickles, Robin C.
This paper modifies the Cornwell, Schmidt and Sickles [CSS (J Econom 46:185–200, 1990)] time-varying specification of technical efficiency to allow for switching patterns in temporal changes, which may occur more than once during the sample period. For this purpose, we move from the (second-order) polynomial specification of the standard CSS to a spline function setup, while keeping CSS’s flexibility regarding the cross-sectional dimension. The spline function specification of the temporal pattern of technical efficiency can accommodate more than one turning point and thus can be non-monotonic. This allows the modeler to account for firm or individual efficiency gains that can occur relatively quickly, for example, changes related to regulation or policy changes, as well as those related to ownership/organization changes (e.g., merger or acquisitions).
Aligning Learning Incentives of Students and Teachers: Results from a Social Experiment in Mexican High Schools
(University of Chicago Press, 2015) Behrman, Jere R.; Parker, Susan W.; Todd, Petra E.; Wolpin, Kenneth I.
This paper evaluates the impact of three different performance incentive schemes using data from a social experiment that randomized 88 Mexican high schools with over 40,000 students into three treatment groups and a control group. Treatment 1 provides individual incentives for performance on curriculum-based mathematics tests to students only, treatment 2 to teachers only, and treatment 3 gives both individual and group incentives to students, teachers, and school administrators. Program impact estimates reveal the largest average effects for treatment 3, smaller impacts for treatment 1, and no impact for treatment 2.
Competition in Business Taxes and Public Services: Are Production-Based Taxes Superior to Capital Taxes?
(National Tax Association, 2015) Gugl, Elisabeth; Zodrow, George R.; Baker Institute for Public Policy
Although most of the tax competition literature focuses on the provision of local public services to households, several papers analyze tax competition when capital taxes are used to finance local public services provided to businesses, examining the conditions under which such services are provided efficiently, under-provided, or over-provided. In addition, several prominent observers have noted that “benefit-related” business taxation is desirable on both efficiency and equity grounds and argued that such taxation should take the form of a tax based on production, such as an origin-based value-added tax. We evaluate this contention in this paper, comparing the relative efficiency properties of these alternative business taxes. Our simulation results suggest that under many, but not all, circumstances it is more efficient to finance business public services with an origin-based production tax rather than a source-based capital tax.
Regulation and Capacity Competition in Health Care: Evidence from U.S. Dialysis Markets
(MIT Press, 2015) Dai, Mian; Tang, Xun
This paper studies entry and capacity decisions by dialysis providers in the United States. We estimate a structural model where providers make continuous strategic choices of capacity based on their private information about own costs and knowledge of the distribution of competitors’ private information. We evaluate the impact on the market structure and providers’ profits under counterfactual regulatory policies that increase the costs or reduce the payment per unit of capacity. We find that these policies reduce the market capacity as measured by the number of dialysis stations. However, the downward-sloping reaction curve shields some providers from negative profit shocks in certain markets. The paper also has a methodological contribution in that it proposes new estimators for Bayesian games with continuous actions.
Balancing act: weighing the factors affecting the taxation of capital income in a small open economy
(Springer, 2016) McKeehan, Margaret K.; Zodrow, George R.; Baker Institute
Alternative economic theories yield dramatically different prescriptions for optimal capital taxation in small open economies. On the one hand, foreign firms, including those with investments that yield firm-specific above-normal returns, have a large number of alternative investment opportunities; this suggests that the supply of foreign direct investment is highly elastic, which implies that small open economies should avoid imposing any source-based taxes on capital income. On the other hand, governments invariably want to tax any above-normal returns earned by location-specific capital, especially if the returns accrue to foreigners, and to take full advantage of the potential revenue increase from any “treasury transfer” effect that arises due to residence-based tax systems with foreign tax credits, such as that utilized by the USA. These factors suggest that investment is highly inelastic with respect to capital taxation, so that source-based capital income taxation is desirable; indeed, in one special case, the capital income tax rate for a small open economy should equal the relatively high US tax rate. Moreover, this difficult trade-off is in practice complicated by numerous additional factors: deferral of unrepatriated profits and cross-crediting of foreign tax credits for the US multinationals, foreign direct investment from firms from countries that, unlike the USA, operate territorial systems, and the existence of opportunities for both international capital income shifting and labor income shifting. In this paper, we analyze optimal capital income taxation in a small open economy model that attempts to balance these conflicting factors.
A Nationwide Assessment of the Association of Smoking Bans and Cigarette Taxes With Hospitalizations for Acute Myocardial Infarction, Heart Failure, and Pneumonia
(Sage, 2016) Ho, Vivian; Ross, Joseph S.; Steiner, Claudia A.; Mandawat, Aditya; Short, Marah; Ku-Goto, Meei-Hsiang; Krumholz, Harlan M.
Multiple studies claim that public place smoking bans are associated with reductions in smoking-related hospitalization rates. No national study using complete hospitalization counts by area that accounts for contemporaneous controls including state cigarette taxes has been conducted. We examine the association between county-level smoking-related hospitalization rates and comprehensive smoking bans in 28 states from 2001 to 2008. Differences-in-differences analysis measures changes in hospitalization rates before versus after introducing bans in bars, restaurants, and workplaces, controlling for cigarette taxes, adjusting for local health and provider characteristics. Smoking bans were not associated with acute myocardial infarction or heart failure hospitalizations, but lowered pneumonia hospitalization rates for persons ages 60 to 74 years. Higher cigarette taxes were associated with lower heart failure hospitalizations for all ages and fewer pneumonia hospitalizations for adults aged 60 to 74. Previous studies may have overestimated the relation between smoking bans and hospitalizations and underestimated the effects of cigarette taxes.
Power to the People: Does Ownership Type Influence Electricity Service?
(University of Chicago Press, 2016) Boylan, Richard T.
After storm-related power outages, many have recommended municipalizing investor-owned utilities, claiming that profit-making utilities have insufficient incentive to prepare for storms. I provide empirical evidence that municipal utilities spend more on maintenance of their distribution network than investor-owned utilities. Nonetheless, I find that storms significantly disrupt electricity consumption in areas served by municipal utilities but do not disrupt areas served by investor-owned utilities. These results are based on a stratified random sample of 241 investor-owned, 96 cooperative, and 94 municipal utilities in the United States between 1999 and 2012. I conclude that municipal utilitiesﾒ in-efficiencies are more important in causing power outages than investor-owned utilitiesﾒ disincentives to spend on maintenance.
Teacher Quality in Public and Private Schools under a Voucher System: The Case of Chile
(University of Chicago Press, 2016) Behrman, Jere R.; Tincani, Michela M.; Todd, Petra E.; Wolpin, Kenneth I.
Chile is unusual in having long-term experience with nationwide school vouchers. A key criticism of school voucher systems is that they make it easier for private schools to attract better teachers to the detriment of public schools. This paper uses longitudinal data from Chile to estimate a discrete choice dynamic programming (DCDP) model of teacher and nonteacher labor supply decisions and to explore how wage policies affect the composition of the teacher labor force in public and private schools. In the model, individuals first decide whether to get a teaching degree and then choose annually from among five work/home sector alternatives. Empirical results show that private voucher schools attract better teachers than public schools. However, the existence of the private voucher sector also draws higher-productivity individuals into the teaching profession.
How Well Do All Patient Refined–Diagnosis-Related Groups Explain Costs of Pediatric Cancer Chemotherapy Admissions in the United States?
(American Society of Clinical Oncology, 2016) Russell, Heidi; Street, Andrew; Ho, Vivian
Purpose: State-based Medicaid programs have begun using All Patient RefinedﾖDiagnosis-Related Groups (APR-DRGs) to determine hospital reimbursement rates. Medicaid provides coverage for 45% of childhood cancer admissions. This study aimed to examine how well APR-DRGs reflect admission costs for childhood cancer chemotherapy to inform clinicians, hospitals, and policymakers in the wake of policy changes. Methods: We identified 25,613 chemotherapy admissions in the 2009 Kidsﾒ Inpatient Database. To determine how well APR-DRGs explain costs, we applied a hierarchic linear regression model of hospital costs, allowing for a variety of patient, hospital, and geographic confounders. Results: APR-DRGs proved to be the most important predictors of admission costs (P < .001), with costs increasing by DRG severity code. Diagnosis, age, and hospital characteristics also predicted costs above and beyond those explained by APR-DRGs. Compared with admissions for patients with acute lymphoblastic leukemia, costs of admissions for patients with acute myelomonocytic leukemia were 82% higher; non-Hodgkin lymphoma, 20% higher; Hodgkin lymphoma, 25% lower; and CNS tumors, 27% lower. Admissions for children who were 10 years of age or older cost 26% to 35% more than admissions for infants. Admissions to childrenﾒs hospitals cost 46% more than admissions to other hospital types. Conclusion: APR-DRGs developed for adults are applicable to childhood cancer chemotherapy but should be refined to account for cancer diagnosis and patient age. Possible policy and clinical management changes merit further study to address factors not captured by APR-DRGs.
Robust dynamic energy use and climate change
(Wiley, 2016) Li, Xin; Narajabad, Borghan; Temzelides, Ted; James A. Baker III Institute for Public Policy
We study a dynamic stochastic general equilibrium model in which agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions damages the economy's capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, as opposed to risk, and we use robust control to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and characterize dynamic optimal taxation. The optimal tax that restores the socially optimal allocation is Pigouvian. We study optimal output growth in the presence and in the absence of concerns about model uncertainty, and find that these can lead to substantially different conclusions regarding the optimal emissions and the optimal mix of fossil fuel. In particular, the optimal use of coal will be significantly lower on a robust path, while the optimal use of oil/gas will edge down.
Early life height and weight production functions with endogenous energy and protein inputs
(Elsevier, 2016) Puentes, Esteban; Wang, Fan; Behrman, Jere R.; Cunha, Flavio; Hoddinott, John; Maluccio, John A.; Adair, Linda S.; Borja, Judith B.; Martorell, Reynaldo; Stein, Aryeh D.
We examine effects of protein and energy intakes on height and weight growth for children between 6 and 24 months old in Guatemala and the Philippines. Using instrumental variables to control for endogeneity and estimating multiple specifications, we find that protein intake plays an important and positive role in height and weight growth in the 6ﾖ24 month period. Energy from other macronutrients, however, does not have a robust relation with these two anthropometric measures. Our estimates indicate that in contexts with substantial child undernutrition, increases in protein-rich food intake in the first 24 months can have important growth effects, which previous studies indicate are related significantly to a range of outcomes over the life cycle.

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