Knowledge that Transforms

This paper shows that plants located in areas where an industry concentrates are larger, on average, than plants in the same industry outside such areas. In some sectors, such as manufacturing, the differences are substantial. The connection between size and concentration is stronger than what we would expect to find if plants were randomly distributed like darts on a dartboard.

Many companies on China's stock markets have traditionally had separate, restricted classes of shares for domestic residents and foreigners. These shares are identical other than for who can own them, but foreigners have generally paid only about one-quarter the price paid by domestic residents. We argue that the generally higher level (and volatility) of domestic share prices is consistent with the simplest asset pricing model, assuming plausible differences-about four percentage points-in expected rates of return by foreign and domestic investors. We attribute low Chinese expected returns to the limited alternative investments available in China. We then estimate how various company characteristics (including capital asset pricing model (CAPM) betas, company size, market liquidity, and other characteristics) affect the relative price paid by foreigners in a panel of companies. We find, for example, that foreigners pay a lower relative price for companies with a higher proportion owned by the state-reflecting, surprisingly, a higher absolute price paid by both foreigners and domestic residents.

The Hebrew University of Jerusalem and NBER.Using a unique data set on store-level monthly prices of four homogenous products sold in Israel, I study the existence and characteristics of the dispersion of prices across stores, as well as its persistence over time. I find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity. Moreover, intra-distribution mobility is significant: stores move up and down the cross-sectional price distribution. Thus, consumers cannot learn about stores that consistently post low prices. As a consequence, price dispersion does not disappear and persists over time as predicted by Varian's (1980) model of sales.

Most discussion of special education has centered on the costs of providing mandated programs for children with disabilities and not on their effectiveness. As in many other policy areas, inferring program effectiveness is difficult because students not in special education do not provide a good comparison group. By following students who move in and out of targeted programs, however, we are able to identify program effectiveness from changes over time in individual performance. We find that the average special education program significantly boosts mathematics achievement of special-education students, particularly those classified as learning-disabled or emotionally disturbed, while not detracting from regular-education students. These results are estimated quite precisely from models of students and school-by-grade-by-year fixed effects in achievement gains, and they are robust to a series of specification tests.

Microcredit programs provide a two-tiered approach to poverty alleviation: credit for the purchase of capital inputs in order to promote self-employment and noncredit services and incentives. These noncredit aspects may be an important component of the success of microcredit programs. However, because they are costly to deliver and their contribution to the success of the programs is difficult to measure, they may not be properly valued. This paper uses primary data on household participants and nonparticipants in Grameen Bank and two similar microcredit programs to measure the total and noncredit effects of microcredit program participation on productivity. The total effect is measured by estimating a profit equation and the noncredit effect by estimating the profit equation conditional on productive capital. Productive capital and program participation are treated as endogenous variables in the analysis. I find large positive effects of participation and the noncredit aspects of participation on self-employment profits.

Although the double-bound (DB) format for the discrete choice contingent valuation method (CVM) has the benefit of higher efficiency in welfare benefit estimates than the single-bound (SB) discrete choice CVM, it has been subject to criticism due to evidence that some of the responses to the second bid may be inconsistent with the responses to the first bid. As a means to reduce the potential for response bias on the follow-up bid in multiple-bound discrete choice formats such as the DB model while maintaining much of the efficiency gains of the multiple-bound approach, we introduce the one-and-one-half-bound (OOHB) approach and present a real-world application. In a laboratory setting, despite the fact that the OOHB model uses less information than the DB approach, the efficiency gains in moving from SB to OOHB capture a large portion of the gain associated with moving from SB to DB. Utilizing distribution-free seminonparametric estimation techniques on a split-survey data set, our OOHB estimates demonstrated higher consistency with respect to the follow-up data than the DB estimates and were more efficient as well. Hence, OOHB may serve as a viable alternative to the DB format in situations where follow-up response bias may be a concern.

This paper analyzes differences in the likelihood that black and white families become homeowners. By following a sample of black and white renters over time, we are able to separately study racial differences in the likelihood of applying for a mortgage and in the likelihood that a mortgage application is accepted. Although its effect on the race gap in housing transitions is small, we find strong evidence that black applicants are almost twice as likely as comparable white households to be rejected, even when credit history proxies and measures of household wealth are accounted for. We show that the housing transition gap exists primarily because blacks are less likely to apply for mortgages in the first place. The analysis suggests that differences in income, family structure, and in the ability and willingness of parents to provide down-payment assistance are the primary reasons for this applications gap. We speculate that the portion of the gap that remains unexplained after controlling for income, demographics, and wealth may be the result of blacks anticipating a greater chance of rejection when they apply for mortgages.

This paper investigates the multifractal model of asset returns (MMAR), a class of continuous-time processes that incorporate the thick tails and volatility persistence exhibited by many financial time series. The simplest version of the MMAR compounds a Brownian motion with a multifractal time-deformation. Prices follow a semi-martingale, which precludes arbitrage in a standard two-asset economy. Volatility has long memory, and the highest finite moments of returns can take any value greater than 2. The local variability of a sample path is highly heterogeneous and is usefully characterized by the local Hölder exponent at every instant. In contrast with earlier processes, this exponent takes a continuum of values in any time interval. The MMAR predicts that the moments of returns vary as a power law of the time horizon. We confirm this property for Deutsche mark/U.S. dollar exchange rates and several equity series. We develop an estimation procedure and infer a parsimonious generating mechanism for the exchange rate. In Monte Carlo simulations, the estimated multifractal process replicates the scaling properties of the data and compares favorably with some alternative specifications.

In this paper, we estimate the effects of children and the differential effects of sons and daughters on men's labor supply and hourly wage rates. The responses to fatherhood of two cohorts of men from the PSID sample are examined separately, and we use fixed-effects estimation to control for unobserved heterogeneity. We find that fatherhood significantly increases the hourly wage rates and annual hours of work for men from both cohorts. Most notably, men's labor supply and wage rates increase more in response to the births of sons than to the births of daughters.

This paper investigates purchasing-power parity (PPP) since the late nineteenth century. I collected data for a group of twenty countries over 100 years, a larger historical panel of annual data than has ever been studied. The evidence for long-run PPP is favorable using recent multivariate and univariate tests of higher power. Residual variance analysis shows that episodes of floating exchange rates have generally been associated with larger deviations from PPP, as expected; this result is not attributable to significantly greater persistence (longer half-lives) of deviations in such regimes, but is due to the larger shocks to the real exchange rate process in such episodes. In the course of the twentieth century, there was relatively little change in the capacity of international market integration to smooth out real exchange rate shocks. Instead, changes in the size of shocks depended on the political economy of monetary and exchange rate regime choice under the constraints imposed by the trilemma.