We conducted a natural field experiment to further our understanding of the economics of charity. Using direct mail solicitations to over 50,000 prior donors of a nonprofit organization, we tested the effectiveness of a matching grant on charitable giving. We find that the match offer increases both the revenue per solicitation and the response rate. Larger match ratios (i.e., 3:1 and 2:1) relative to a smaller match ratio (1:1) had no additional impact, however. The results provide avenues for future empirical and theoretical work on charitable giving, cost-benefit analysis, and the private provision of public goods.
Identification and Estimation of Bidders' Risk Aversion in First-Price Auctions by Isabelle Perrigne and Quang Vuong. Published in volume 97, issue 2, pages 444-448 of American Economic Review, May 2007
Central bank money is the foundation of modern monetary and payment systems. Central bank money defines a unit of account; the price at which this money trades determines “monetary policy”; and most payment systems require the transfer of central bank funds before a transaction is legally final, or “settled.” Despite its current ubiquity, the origins of central bank money have remained obscure, and the present-day system involves a remarkable conceptual leap from earlier coin-based systems. In this paper we recount how the critical innovation—the creation of a unit of account that could be maintained solely through open market operations—took place in the seventeenth-century Dutch Republic (for a more detailed examination see Stephen Quinn and William Roberds 2005, Quinn and Roberds 2006). The villain in our story is the incremental debasement that unsettled the quality of new coins and price of old coins. The protagonists are the Dutch authorities who contended with debasement by regulating the price of coins and by creating “exchange banks, ” the Bank of Amsterdam in particular, to assure the quality of coins. The plot is propelled forward because well-intentioned regulatory changes exacerbated the debasement
We study alternate approaches to implement congestion pricing at US airports. Conventional formulations toll all aircraft without determining whether a plane operated by a given airline delays other planes that it operates or planes operated by other airlines. Recent work points out optimal pricing calls for carriers to be charged only for the delay they impose on other airlines. We find a small difference between the net benefits generated by the two congestion-pricing policies because the bulk of airport delays are not internalized and because the efficiency loss from pricing internalized congestion is small.
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Normative analysis asks how we (as a society) should make trade-offs between individuals. Behavioral welfare economics extends the scope of this analysis to a single individual, asking how the individual should trade off potential motives. We argue that any faith in economists’ (behavioral or otherwise) abilities to resolve such problems in moral philosophy cannot be based on past accomplishments of welfare economics, and that the best way to understand welfare economics is to view it as a part of positive economics with no normative content. We distinguish three types of welfare analysis. We refer to them as welfare I, II, and III. Welfare I identifies Pareto efficient outcomes within a particular model and relates those to equilibrium outcomes. Welfare I includes results such as the first theorem of welfare economics or the Myerson and Satterthwaite theorem on two-sided bargaining—results that show when an efficient outcome must, or cannot, be attained in equilibrium. Such results are used to explain the persistence of certain economic institutions (such as competitive markets) or derive limitations on what can be achieved within any institutional framework (such as bargaining or auctions). Welfare II posits an objective function for a policymaker and evaluates different policies or institutions according to that objective function. In other words, welfare II analyzes the implications of a policymaker’s preferences. Policymakers often pursue sophisticated objectives that cannot be captured by the standard functional forms used to describe simple, selfinterested economic agents. Moreover, evidence regarding policymakers’ preferences is typically limited. Hence, discussions of policymaker
Inward Foreign Direct Investment and Racial Employment Patterns in US Manufacturing by Abera Gelan, Kaye Husbands Fealing and James Peoples. Published in volume 97, issue 2, pages 378-382 of American Economic Review, May 2007
Most previous studies on intertemporal labor supply found very small or insignificant substitution effects. It is possible that these results are due to constraints on workers' labor supply choices. We conducted a field experiment in a setting in which workers were free to choose hours worked and effort per hour. We document a large positive elasticity of overall labor supply and an even larger elasticity of hours, which implies that the elasticity of effort per hour is negative. We examine two candidate models to explain these findings: a modified neoclassical model with preference spillovers across periods, and a model with reference dependent, loss-averse preferences. With the help of a further experiment, we can show that only loss-averse individuals exhibit a negative effort response to the wage increase.
Many countries have recently enacted or proposed reforms aimed at increasing citizens’ information on the quality of some public sector services. Disclosure of schools’and teachers’ quality is the case that has generated the biggest public debate. In the US, the No Child Left Behind Act (NCLB) requires learning progress to be measured for every child and results from students’tests be made available in annual report cards, so that parents can evaluate schools’ performances. Similar reforms have also been proposed for many other public services. In the UK, legislation introduced in the year 2000 now requires that the performance of each Local Government is reviewed and made public with regards to provision of services such as …re, police, housing, social services and education, but also like the condition of roads, the average time taken to remove ‡y-tips and the amount of household waste recycled. 1 By and large, most of these reforms have been opposed by the public sector employees a¤ected. In the US, the largest teachers union- the National Education Association- spent more than $8 million in an e¤ort to derail NCLB. In the UK, public service unions greeted reforms with increased scepticism and ultimately hostility. More generally, it is di ¢ cult to …nd groups of public sector workers or trade unions lobbying the government to disclose more information about quality. Moreover, in contrast with the private sector, it is much less common to see even the highest quality providers (hospitals, schools,....) trying to