Knowledge that Transforms

To the extent that students benefit from high-achieving peers, tracking will help strong students and hurt weak ones. However, all students may benefit if tracking allows teachers to better tailor their instruction level. Lower-achieving pupils are particularly likely to benefit from tracking when teachers have incentives to teach to the top of the distribution. We propose a simple model nesting these effects and test its implications in a randomized tracking experiment conducted with 121 primary schools in Kenya. While the direct effect of high-achieving peers is positive, tracking benefited lower-achieving pupils indirectly by allowing teachers to teach to their level.

One of the most commonly cited studies on the effect of child subsidies on fertility, Whittington, Alm, and Peters (1990), claimed a large positive effect of child tax benefits on fertility using time series methods. We revisit this question in light of recent increases in child tax benefits by replicating this earlier study and extending the analysis. We do not find strong evidence to justify the model specification from the original paper. Moreover, even if the original specification is appropriate, we show that the results are not robust to more general measures of child tax benefits.

We document that trust in public institutions—and particularly trust in banks, business and government—has declined over recent years. US time series evidence suggests that this partly reflects the pro-cyclical nature of trust in institutions. Cross-country comparisons reveal a clear legacy of the Great Recession, and those countries whose unemployment grew the most suffered the biggest loss in confidence in institutions, particularly in trust in government and the financial sector. Finally, analysis of several repeated cross-sections of confidence within US states yields similar qualitative patterns, but much smaller magnitudes in response to state-specific shocks.

This paper considers how international migration of the head of household affects the allocation of resources toward boys relative to girls within households remaining in the home country. I address the endogeneity of migration with a differences-in-differences style regression model that compares those households in which migrants have already returned home with those in which migrants are still away. The evidence suggests that while the head of household is away a greater fraction of resources are spent on girls relative to boys, but upon his return, this pattern is reversed.

This paper examines optimal monetary policy in an open-economy two-country world with sticky prices under pricing to market. We show that currency misalignments are inefficient and lower world welfare. We find that optimal policy must target consumer price inflation, the output gap, and the currency misalignment. The paper derives the loss function of a cooperative monetary policymaker and the optimal targeting rules. The model is a modified version of Clarida, Galí, and Gertler (JME, 2002). The key change is that we allow pricing to market or local-currency pricing and consider the policy implications of currency misalignments. JEL: E52, F31, F41

People pay attention to the appearance of others, and personal characteristics can affect many types of decisions. We ask, is there informational value in a face in a situation where trust and reciprocity can increase earnings? We use a laboratory trust game experiment where subjects are unable to observe a counterpart, must observe a counterpart, or can pay to reveal a counterpart's photograph. Both senders and responders are willing to pay to observe the photos, and we show that behavior, earnings, and efficiency are affected. When subjects are “face to face,” efficiency is enhanced, and senders have higher earnings.

Despite its widespread use, the Boston mechanism has been criticized for its poor incentive and welfare performances compared to the Gale-Shapley deferred acceptance algorithm (DA). By contrast, when students have the same ordinal preferences and schools have no priorities, we find that the Boston mechanism Pareto dominates the DA in ex ante welfare, that it may not harm but rather benefit participants who may not strategize well, and that, in the presence of school priorities, the Boston mechanism also tends to facilitate greater access than the DA to good schools for those lacking priorities at those schools.

This paper examines moral hazard in teams over time. Agents are collectively engaged in a project whose duration and outcome are uncertain, and their individual efforts are unobserved. Free-riding leads not only to a reduction in effort, but also to procrastination. Collaboration among agents dwindles over time, but does not cease as long as the project has not succeeded. In addition, the delay until the project succeeds, if it ever does, increases with the number of agents. We show why deadlines, but not necessarily better monitoring, help to mitigate moral hazard.

This paper expands the empirical implementation of hierarchical segregation models to allow for the use of panel methods. We use firm level data collected between 1977 and 1985 from a regional grocery store that faced a title VII class-action lawsuit over gender discrimination much the same as Wal-Mart and Costco. Special problems arise in implementing decompositions in a fixed effects and random effects setting, especially when analyzing wage-level differences. We develop a variation of wage decompositions that takes into consideration an unbalanced design and extends the literature by explicitly formalizing the inclusion of the unobserved heterogeneous effects.

We provide a new compilation of data on ethnic, linguistic, and religious composition at the subnational level for a large number of countries. Using these data, we measure segregation of groups within the country. To overcome the endogeneity problem that arises because of mobility and endogenous internal borders, we construct an instrument for segregation. We find that more ethnically and linguistically segregated countries, i.e., those where groups live more spatially separately, have a lower quality of government; there is no relationship between religious segregation and governance. Trust is an important channel of influence; it is lower in more segregated countries.