Knowledge that Transforms

1. Ten (10) web appendix tables. 2. Eleven (11) web appendix figures. 3. Five page discussion of intentions problem. December 31, 2008Lies, Damn Lies, and Pre-Election Polling By Elias Walsh, Sarah Dolfin and John DiNardo ∗ In this paper we ask the question: how well do pre–election polls forecast the actual results of elections in the U.S.? The question is interesting for a number of reasons. First, even polling data suggests about 1/3 of polling respondents do not believe that polls work in “the best interests of the general public ” 1 The situation is such that even many national governments have undertaken to restrict some aspect of pre–election polling. A 1997 international survey of governments, for example, found 30 of 78 surveyed nations had some kind of ban on publication of poll results (Røhme, 1992). Second, there is a a strong presumption in the literature on professional forecasting in other contexts which do not rely on sampling per se, (such as interest rate forecasting) that forecasts will be biased. 2 There are a variety of explanations for why forecasts will be biased; one “honest ” motivation is that pollsters may avoid reporting results from the unavoidable “atypical ” polls. Third, in the literature in economics it is sometimes assumed that polls are unbiased forecasts (of potentially time– varying) underlying preferences for candidates. For a recent example, see Keppo et al. (2008) who characterize pre–election polling as a “noisy observation of the actual election outcome that

Explanations for Africa's poor long-run growth performance have varied over time. The theories examined include geography (Jeffrey D. Sachs and Andrew Warner 1997); institu tions (William Easterly and Ross Levine 1997;

Consumers may overestimate the precision of their demand forecasts. This overconfidence creates an incentive for both monopolists and competitive firms to offer tariffs with included quantities at zero marginal cost, followed by steep marginal charges. This matches observed cellular phone service pricing plans in the United States and elsewhere. An alternative explanation with common priors can be ruled out in favor of overconfidence based on observed customer usage patterns for a major US cellular phone service provider. The model can be reinterpreted to explain the use of flat rates and late fees in rental markets, and teaser rates on loans. Nevertheless, firms may benefit from consumers losing their overconfidence.

To what extent do tropical diseases contribute to the poverty characteristic of tropical countries? Estimates of the impact of health on income are difficult to obtain because health is a normal good-countries with higher income will buy more of it-and third factors such as remoteness and bad government might impede both productivity and public health. In the Abuja Declaration of 2005, African heads of states claim that malaria has depressed income growth in Subsaharan Africa since the 1960s, so much so that GDP in the region today is 40% lower because of malaria. Estimates of this magnitude have been mocked at cocktail parties and clambakes. But how ridiculous is this number?

Recent articles have reported a large and growing financial crisis associated with retiree health plans offered by state and local governments, and have expressed alarm over their impact on the financial status of these governmental units (Goldman Sachs 2007; David Zion and Amit Varshney 2007). The concern about the unfunded liabilities of retiree health plans follows from a change in the public accounting rules issued by the Governmental Accounting Standards Board (GASB). GASB Statement No. 45 requires state and local governments to report unfunded accrued liabilities and annual required contributions needed to fully fund the retiree health promises. The GASB 45 statements produced by state governments indicate that unfunded liabilities for state employees and retirees total approximately $500 billion. This does not include additional liabilities associated with retiree health plans for local governments and public school teachers with plans that are not managed at the state level. The explicit acknowledgement of these liabilities and their absolute and relative size has created considerable concern and debate among economists, policymakers, and voters. This article presents data from state actuarial reports on the size of retiree health liabilities, examines the key assumptions used to determine the unfunded liabilities, and then assesses the potential future of retiree health plans in the public sector.

Between 1960 and 2004, the proportion of Americans meeting standard criteria for obesity increased from 13 percent to 31 percent (Katherine M. Flegal et al. 2002), and it has been proposed that, if this trend is not reversed, obesity may soon overtake smoking as the leading preventable cause of death (Ali H. Mokdad et al. 2004). Consequently, obesity is now one of the major causes of rising health care costs (Eric A. Finkelstein, Christopher J. Ruhm, and Katherine M. Kosa 2005). Empirical analyses suggest that an increase in caloric intake, rather than a change in calorie expenditure, is responsible for much of the trend (David M. Cutler, Edward L. Glaeser, and Jesse M. Shapiro 2003). The main policy response to what is often referred to as the “obesity epidemic” has been to enhance access to information. The most prominent example of such a policy is the Nutrition Labeling and Education Act (United States Food and Drug Administration 1994), but, recently, the tactic has been receiving more attention after New York City required restaurants with 15 or more outlets to post the caloric content of each food item next to its price on menu boards. Lawmakers and independent companies alike are now following New York City’s lead (Kim Severson 2008). However, there is little evidence that information alone does much to improve diet (Jayachandran N. Variyam and AQ 1 The Psychology of food consumPTion †

Recent work emphasizes the primacy of differences in countries’ colonially-bequeathed property rights and legal systems for explaining differences in their subsequent economic development. Barbados and Jamaica provide a striking counter example to this long-run view of income determination. Both countries inherited property rights and legal institutions from their English colonial masters yet experienced starkly different growth trajectories in the aftermath of independence. From 1960 to 2002, Barbados’ GDP per capita grew roughly three times as fast as Jamaica’s. Consequently, the income gap between Barbados and Jamaica is now almost five times larger than at the time of independence. Since their property rights and legal systems are virtually identical, recent theories of development cannot explain the divergence between Barbados and Jamaica. Differences in macroeconomic policy choices, not differences in institutions, account for the heterogeneous growth experiences of these two Caribbean nations.

In an effort to bolster economic performance in light of a looming downturn in economic activity, on February 13, 2008, President George W. Bush signed the Economic Stimulus Act of 2008. More than two-thirds of the $152 billion bill consisted of economic stimulus payments to be sent beginning in May to approximately 130 million households. To qualify, recipients had to have a valid Social Security number, an income tax liability, or at least $3,000 of “qualifying income” that included earned income and some benefits from Social Security, Veterans Affairs, or Railroad Retirement, and have filed a 2007 federal tax return. For the most part those who filed as single individuals received between $300 and $600, while those who filed jointly received between $600 and $1,200. Additionally, parents with children under 17 who were eligible for a Child Tax Credit and had a Social Security number received an extra $300 per child. The tax rebate phased out at higher levels of income, as the payment was reduced by 5 percent of the amount of adjusted gross income over $75,000 for singles, or over $150,000 for married couples. The Treasury remitted payments either by direct deposit, mainly in the first half of May, or by mail, mainly from mid-May through mid-July. The effect of these stimulus payments depends on how much was spent. This paper reports new survey evidence on the propensity of consumers to spend the 2008 rebate. It also relates the survey evidence to aggregate data and to evidence about spending from the 2001 tax rebate.

We compare the most common methods for selling a company or other asset when participation is costly: a simple simultaneous auction, and a sequential process in which potential buyers decide in turn whether to enter the bidding. The sequential process is always more efficient. But preemptive bids transfer surplus from the seller to buyers. Because the auction is more conducive to entry—precisely because of its inefficiency—it usually generates higher expected revenue. We also discuss the effects of lock-ups, matching rights, break-up fees (as in takeover battles), entry subsidies, etc.

The credit crisis was sparked by a shock to fundamentals, housing prices failed to rise, which led to a collapse of trust in credit markets. In particular, the repurchase agreement market in the U.S., estimated to be about $12 trillion, larger than the total assets in the U.S. banking system ($10 trillion), became very illiquid during the crisis due to the fear of counterparty default, leaving lenders with illiquid bonds that they did not want, believing that they could not be sold. As a result, there was an increase in repo haircuts (the initial margin), causing massive deleveraging. I investigate this indirectly, by looking at the breakdown in the arbitrage foundation of the ABX.HE indices during the panic. The ABX.HE indices of subprime mortgage-backed securities are derivatives linked to the underlying subprime bonds. Introduced in 2006, the indices aggregated and revealed information about the value of the subprime mortgage-backed securities and allowed parties to buy protection against declines in subprime value via credit derivatives written on the index or tranches of the index. When the ABX prices plummeted, the arbitrage relationships linking the credit derivatives linked to the index and the underlying bonds broke down because liquidity evaporated in the repo market. This breakdown allows a glimpse of the information problems that led to illiquidity in the repo markets, and the extent of the demand for protection against subprime risk.