Knowledge that Transforms

This paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a political agency model with career concerns and endogenous entry of candidates. The data refer to Brazil, where federal transfers to municipal governments change exogenously at given population thresholds, allowing us to implement a regression discontinuity design. The empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor. These and other more specific empirical results are in line with the predictions of the theory.

We explore empirically models of aggregate fluctuations in which consumers form anticipations about the future based on noisy sources of information and these anticipations affect output in the short run. Our objective is to separate fluctuations due to changes in fundamentals (news) from those due to temporary errors in agents' estimates (noise). We show that structural VARs cannot be used to identify news and noise shocks, but identification is possible via a method of moments or maximum likelihood. Next, we estimate our model on US data. Our results suggest that noise shocks explain a sizable fraction of short-run consumption fluctuations.

We compare nonparametric instrumental variables (IV) models with linear models and 2SLS methods when dependent variables are discrete. A 2SLS method can deliver a consistent estimator of a Local Average Treatment Effect but is not informative about other treatment effect parameters. The IV models set identify a range of interesting structural and treatment effect parameters. We give set identification results for a counterfactual probability and an Average Treatment Effect in a IV binary threshold crossing model. We illustrate using data on female employment and family size (employed by Joshua Angrist and William Evans (1998)) and compare with their LATE estimates.

The strong dislike evidenced by the American public towards the estate tax suggests that the wealthy wish to transfer resources to their heirs tax-free and would thus exploit mechanisms allowing them to reduce the tax burden whenever possible. However, I find strong evidence that the wealthy fail to utilize what is perhaps the simplest method of tax avoidance--that of making transfers to eventual heirs up to the annual exclusion. Instead they transfer far less than the amount permitted by the tax code, whether measured in cross-section or over time. In failing to give more, they forgo significant tax savings.

A bidding process can be organized so that offers are submitted simultaneously or sequentially. In the latter case, potential buyers can condition their behavior on previous entrants' decisions. The relative performance of these mechanisms is investigated when entry is costly and selective, meaning that potential buyers with higher values are more likely to participate. A simple sequential mechanism can give both buyers and sellers significantly higher payoffs than the commonly used simultaneous bid auction. The findings are illustrated with parameters estimated from simultaneous entry USFS timber auctions where our estimates predict that the sequential mechanism would increase revenue and efficiency.

We consider a model with on-the-job search where current wages depend only on current aggregate labor market conditions and idiosyncratic match-specific productivities. We show theoretically that the model replicates the findings in Bils (1985) and Beaudry and DiNardo (1991) on the history dependence in wages. We develop a method to measure match qualities in the data and show empirically that various variables summarizing past aggregate labor market conditions have explanatory power for current wages only because they are correlated with match qualities. They lose any predictive power once match qualities are accounted for.

A large and growing share of world trade travels by air. We model exporters' choice between fast, expensive air cargo and slow, cheap ocean cargo, which depends on the price elasticity of demand and the value that consumers attach to fast delivery. We use US imports data that provide rich variation in the premium paid for air shipping and in time lags for ocean transit to extract consumers' valuation of time. We estimate that each day in transit is equivalent to an advalorem tariff of 0.6 to 2.1 percent. The most time-sensitive trade flows involve parts and components trade.

This study is the first in the economics literature to explore the labor market consequences of sexual violence toward women. Using data from the Add Health, we find that sexual violence against women is associated with a 6.6 percent lower probability of labor force participation and 5.1 percent lower average wages. These estimates are robust to controls for unobserved heterogeneity at the school- and family-levels, as well as detailed controls for personality, personal discount rates, and risk preferences. We find that the adverse labor market effects of sexual violence are partially explained by its adverse psychological and physical consequences.

Using recent results in the measurement error literature, we show that the official US unemployment rate substantially underestimates the true level of unemployment, due to misclassification errors in the labor force status in the Current Population Survey. During the period from January 1996 to August 2011, the corrected monthly unemployment rates are between 1 and 4.4 percentage points (2.1 percentage points on average) higher than the official rates, and are more sensitive to changes in business cycles. The labor force participation rates, however, are not affected by this correction.

Using historical census and survey data, Long and Ferrie (forthcoming) found a significant decline in social mobility in the United States from 1880 to 1973. We present two critiques of the Long-Ferrie study. First, the data quality of the Long-Ferrie study is more limiting than the authors acknowledge. Second, and more critically, they applied a method ill-suited for measuring social mobility of farmers in a comparative study between 1880 and 1973, a period in which the proportion of farmers dramatically declined in the U.S. We show that Long and Ferrie's main conclusion is all driven by this misleading result for farmers.