Economics Publications

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A double-slit experiment with human subjects
(Public Library of Science, 2021) Duffy, John; Loch-Temzelides, Ted
We study a sequence of “double-slit” experiments designed to perform repeated measurements of an attribute in a large pool of subjects using Amazon’s Mechanical Turk. Our findings contrast the prescriptions of decision theory in novel and interesting ways. The response to an identical sequel measurement of the same attribute can be at significant variance with the initial measurement. Furthermore, the response to the sequel measurement depends on whether the initial measurement has taken place. In the absence of the initial measurement, the sequel measurement reveals additional variability, leading to a multimodal frequency distribution which is largely absent if the first measurement has taken place.
A note on identification of discrete choice models for bundles and binary games
(Wiley, 2017) Fox, Jeremy T.; Lazzati, Natalia
We study nonparametric identification of single-agent discrete choice models for bundles (without requiring bundle-specific prices) and of binary games of complete information. We show that these two models are quite similar from an identification standpoint. Moreover, they are mathematically equivalent when we restrict attention to the class of potential games and impose a specific equilibrium selection mechanism in the data generating process. We provide new identification results for the two related models.
A Pseudo-Market Approach to Allocation with Priorities
(American Economic Association, 2018) He, Yinghua; Miralles, Antonio; Pycia, Marek; Yan, Jianye
We propose a pseudo-market mechanism for no-monetary-transfer allocation of indivisible objects based on priorities such as those in school choice. Agents are given token money, face priority-specific prices, and buy utility-maximizing random assignments. The mechanism is asymptotically incentive compatible, and the resulting assignments are fair and constrained Pareto efficient. Aanund Hylland & Richard Zeckhauser (1979)'s position-allocation problem is a special case of our framework, and our results on incentives and fairness are also new in their classical setting.
A wavelet method for panel models with jump discontinuities in the parameters
(Elsevier, 2022) Bada, O.; Kneip, A.; Liebl, D.; Mensinger, T.; Gualtieri, J.; Sickles R.C.
While a substantial literature on structural break change point analysis exists for univariate time series, research on large panel data models has not been as extensive. In this paper, a novel method for estimating panel models with multiple structural changes is proposed. The breaks are allowed to occur at unknown points in time and may affect the multivariate slope parameters individually. Our method adapts Haar wavelets to the structure of the observed variables in order to detect the change points of the parameters consistently. We also develop methods to address endogenous regressors within our modeling framework. The asymptotic property of our estimator is established. In our application, we examine the impact of algorithmic trading on standard measures of market quality such as liquidity and volatility over a time period that covers the financial meltdown that began in 2007. We are able to detect jumps in regression slope parameters automatically without using ad-hoc subsample selection criteria.
Accounting for Mathematics Performance of High School Students in Mexico: Estimating a Coordination Game in the Classroom
(The University of Chicago Press, 2018) Todd, Petra; Wolpin, Kenneth I.
This paper estimates a model of the effort decisions of students and teachers in a classroom setting to understand the performance of Mexican high school students on curriculum-based examinations. The model allows for student heterogeneity in initial mathematics preparation and knowledge preference and for teacher heterogeneity in instructional ability and preferences for student knowledge. Survey data include multiple measurements of student and teacher effort, student and teacher preferences, student initial knowledge, and teacher ability. The most important factor accounting for poor performance, the lack of sufficient prior preparation, suggests a mismatch between the curriculum content and entering grade-level mathematics knowledge.
Adherence to treatment guidelines and survival for older patients with stage II or III colon cancer in Texas from 2001 through 2011
(Wiley, 2018) Zhao, Hui; Zhang, Ning; Ho, Vivian; Ding, Minming; He, Weiguo; Niu, Jiangong; Yang, Ming; Du, Xianglin; Zorzi, Daria; Chavez-MacGregor, Mariana; Giordano, Sharon H.
BACKGROUND: Treatment guidelines for colon cancer recommend colectomy with lymphadenectomy of at least 12 lymph nodes for patients with stage I to stage III disease as surgery adherence (SA) and adjuvant chemotherapy for individuals with stage III disease. Herein, the authors evaluated adherence to these guidelines among older patients in Texas with colon cancer and the associated survival outcomes. METHODS: Using Texas Cancer Registry data linked with Medicare data, the authors included patients with AJCC stage II and III colon cancer who were aged ?66 years and diagnosed between 2001 and 2011. SA and adjuvant chemotherapy adherence rates to treatment guidelines were estimated. The chi-square test, general linear regression, survival probability, and Cox regression were used to identify factors associated with adherence and survival. RESULTS: The rate of SA increased from 47.2% to 84% among 6029 patients with stage II or stage III disease from 2001 to 2011, and the rate of adjuvant chemotherapy increased from 48.9% to 53.1% for patients with stage III disease during the same time period. SA was associated with marital status, tumor size, surgeon specialty, and year of diagnosis. Patient age, sex, marital status, Medicare state buy-in status, comorbidity status, and year of diagnosis were found to be associated with adjuvant chemotherapy. The 5-year survival probability for patients receiving guideline-concordant treatment was the highest at 87% for patients with stage II disease and was 73% for those with stage III disease. After adjusting for demographic and tumor characteristics, improved cancer cause-specific survival was associated with the receipt of stage-specific, guideline-concordant treatment for patients with stage II or stage III disease. CONCLUSIONS: The adherence to guideline-concordant treatment among older patients with colon cancer residing in Texas improved over time, and was associated with better survival outcomes. Future studies should be focused on identifying interventions to improve guideline-concordant treatment adherence.
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.
An Anatomy of U.S. Personal Bankruptcy under Chapter 13
(Wiley, 2017) Eraslan, Hülya; Koşar, Gizem; Li, Wenli; Sarte, Pierre-Daniel
We build a structural model that captures salient features of personal bankruptcy under Chapter 13. We estimate our model using a novel data set that we construct from bankruptcies filed in Delaware between 2001 and 2002. Our estimation results highlight the importance of a debtor's choice of repayment plan length on other Chapter 13 outcomes. We use the estimated model to conduct policy experiments to evaluate the impact of more stringent laws that impose restrictions on the length of repayment plans. We find that these provisions would not materially affect creditor recovery rates and would not necessarily make discharge more likely.
Are the geographic disparities in U.S. violent crime rising?
(Public Library of Science, 2024) Boylan, Richard T.
Inequality in economic and social outcomes across U.S. regions has grown in recent decades. The economic theory of crime predicts that this increased variability would raise geographic disparities in violent crime. Instead, I find that geographic disparities in homicide rates decreased. Moreover, these same decades saw decreases in the geographic disparities in policing, incarceration, and the share of the population that is African American. Thus, changes in policing, incarcerations, and racial composition could have led to a decrease in inequality in homicide rates. Moreover, the joint provision of law enforcement by local, state, and federal authorities may have reduced the impact of economic distress on violent crime.
Association of Level I and II Trauma Center Expansion With Insurer Payments in Texas From 2011 to 2019
(American Medical Association, 2022) Ho, Vivian; Short, Marah N.; Coughlin, Maura; McClure, Shara; Suliburk, James W.; Baker Institute for Public Policy
(Bad) reputation in relational contracting
(Wiley, 2022) Deb, Rahul; Mitchell, Matthew; Pai, Mallesh M.
Motivated by markets for “expertise,” we study a bandit model where a principal chooses between a safe and risky arm. A strategic agent controls the risky arm and privately knows whether its type is high or low. Irrespective of type, the agent wants to maximize duration of experimentation with the risky arm. However, only the high type arm can generate value for the principal. Our main insight is that reputational incentives can be exceedingly strong unless both players coordinate on maximally inefficient strategies on path. We discuss implications for online content markets, term limits for politicians, and experts in organizations.
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.
Balancing economic and epidemiological interventions in the early stages of pathogen emergence
(AAAS, 2023) Dobson, Andy; Ricci, Cristiano; Boucekkine, Raouf; Gozzi, Fausto; Fabbri, Giorgio; Loch-Temzelides, Ted; Pascual, Mercedes; Baker Institute for Public Policy
The global pandemic of COVID-19 has underlined the need for more coordinated responses to emergent pathogens. These responses need to balance epidemic control in ways that concomitantly minimize hospitalizations and economic damages. We develop a hybrid economic-epidemiological modeling framework that allows us to examine the interaction between economic and health impacts over the first period of pathogen emergence when lockdown, testing, and isolation are the only means of containing the epidemic. This operational mathematical setting allows us to determine the optimal policy interventions under a variety of scenarios that might prevail in the first period of a large-scale epidemic outbreak. Combining testing with isolation emerges as a more effective policy than lockdowns, substantially reducing deaths and the number of infected hosts, at lower economic cost. If a lockdown is put in place early in the course of the epidemic, it always dominates the “laissez-faire” policy of doing nothing.
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.
Cheap Money, Geopolitics and Supernormal Backwardation of the WTI Forward Curve
(IAEE, 2023) El-Gamal, Mahmoud A.; Jaffe, Amy M.; Medlock, Kenneth B. III
Financial speculators frequently trade in the most liquid short-tenor contracts. We study repeating patterns of sharply steepening slopes in the WTI forward curve to investigate whether, after controlling for macroeconomic variables, physical market fundamentals, and basic arbitrage, calendar spread behavior is partly explained by speculation related to assessed geopolitical risk. We estimate WTI forward curve backwardation using the slope component from the parsimonious Dynamic Nelson-Siegel factor model, and then regress the resulting time series on a variety of economic, financial, and geopolitical variables. Results show that geopolitical risk in juxtaposition with low interest rates explains a significant percentage of the slope variation from 2011 to 2021. We then investigate whether there is evidence to support the common narrative that speculators buy the geopolitical threat and sell the event. We find confirmation of the hypothesis. We further study the dynamic effects of interest rate and geopolitical risk on speculative activity using a Factor-Augmented Vector Autoregression analysis. Impulse response functions from the latter indicate that independent shocks related to geopolitical threat result in heightened supernormal backwardation for a month or more. We recommend changing margin requirements in WTI futures markets in light of these findings to disincentivize this speculative behavior.
Collusive Outcomes via Pricing Algorithms
(Oxford University Press, 2021) Hansen, Karsten T.; Misra, Kanishka; Pai, Mallesh M.
Comparing Utilization and Costs of Care in Freestanding Emergency Departments, Hospital Emergency Departments, and Urgent Care Centers
(Elsevier, 2017) Ho, Vivian; Metcalfe, Leanne; Dark, Cedric; Vu, Lan; Weber, Ellerie; Shelton, George; Underwood, Howard R.
Study objective: We compare utilization, price per visit, and the types of care delivered across freestanding emergency departments (EDs), hospital-based EDs, and urgent care centers in Texas. Methods: We analyzed insurance claims processed by Blue Cross Blue Shield of Texas from 2012 to 2015 for patient visits to freestanding EDs, hospital-based EDs, or urgent care centers in 16 Texas metropolitan statistical areas containing 84.1% of the state’s population. We calculated the aggregate number of visits, average price per visit, proportion of price attributable to facility and physician services, and proportion of price billed to Blue Cross Blue Shield of Texas versus out of pocket, by facility type. Prices for the top 20 diagnoses and procedures by facility type are compared. Results: Texans use hospital-based EDs and urgent care centers much more than freestanding EDs, but freestanding ED utilization increased 236% between 2012 and 2015. The average price per visit was lower for freestanding EDs versus hospital-based EDs in 2012 ($1,431 versus $1,842), but prices in 2015 were comparable ($2,199 versus $2,259). Prices for urgent care centers were only $164 and $168 in 2012 and 2015. Out-of-pocket liability for consumers for all these facilities increased slightly from 2012 to 2015. There was 75% overlap in the 20 most common diagnoses at freestanding EDs versus urgent care centers and 60% overlap for hospital-based EDs and urgent care centers. However, prices for patients with the same diagnosis were on average almost 10 times higher at freestanding and hospital-based EDs relative to urgent care centers. Conclusion: Utilization of freestanding EDs is rapidly expanding in Texas. Higher prices at freestanding and hospital-based EDs relative to urgent care centers, despite substantial overlap in services delivered, imply potential inefficient use of emergency facilities.
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.
Conservation, risk aversion, and livestock insurance: The case of the snow leopard
(Wiley, 2021) Loch-Temzelides, Ted; James A. Baker III Institute for Public Policy
Livestock insurance consists of livestock owners pooling resources together in order to hedge against the risk of attacks by predators on their individual herds. We use an economic model to study optimal livestock insurance and to discuss its viability in improving outcomes for livestock owners. The benefit from insurance depends on the livestock owners' level of risk aversion. We calibrate the model using data from Project Snow Leopard and investigate the potential of livestock insurance for achieving conservation goals. The model predicts that leopard killings would decline under the proposed livestock insurance contract. The level of the decline depends on the degree of risk aversion. Our analysis calls for surveys that measure risk aversion of local livestock owners to be conducted in any situation where insurance is considered as a policy towards achieving conservation goals. Finally, we discuss how the proposed livestock insurance scheme could be implemented in practice.
Continuous implementation with direct revelation mechanisms
(Elsevier, 2022) Chen, Yi-Chun; Mueller-Frank, Manuel; Pai, Mallesh M.
We investigate how a principal's knowledge of agents' higher-order beliefs impacts their ability to robustly implement a given social choice function. We adapt a formulation of Oury and Tercieux (2012): a social choice function is continuously implementable if it is partially implementable for types in an initial model and “nearby” types. We characterize when a social choice function is truthfully continuously implementable, i.e., using game forms corresponding to direct revelation mechanisms for the initial model. Our characterization hinges on how our formalization of the notion of nearby preserves agents' higher order beliefs. If nearby types have similar higher order beliefs, truthful continuous implementation is roughly equivalent to requiring that the social choice function is implementable in strict equilibrium in the initial model, a very permissive solution concept. If they do not, then our notion is equivalent to requiring that the social choice function is implementable in unique rationalizable strategies in the initial model. Truthful continuous implementation is thus very demanding without non-trivial knowledge of agents' higher order beliefs.

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