Knowledge that Transforms

We use new data on entries and exits of US daily newspapers from 1869 to 2004 to estimate effects on political participation, party vote shares, and electoral competitiveness. Our identification strategy exploits the precise timing of these events and allows for the possibility of confounding trends. We focus our analysis on the years 1869– 1928, and we use the remaining years of data to look at changes over time. We find that newspapers have a robust positive effect on political participation, with one additional newspaper increasing both presidential and congressional turnout by approximately 0.3 percentage points. Newspaper competition is not a key driver of turnout: our effect is driven mainly by the first newspaper in a market, and the effect of a second or third paper is significantly smaller. The effect on presidential turnout diminishes after the introduction of radio and television, while the estimated effect on congressional turnout remains similar up to recent years. We find no evidence that partisan newspapers affect party vote shares, with confidence intervals that rule out even moderate-sized effects. We find no clear evidence that newspapers systematically help or hurt incumbents.

Longitudinal administrative data show that rejected male applicants to the Disability Insurance (DI) program who are younger or have low-mortality impairments such as back pain and mental health problems exhibit substantial labor force attachment. While we confirm that employment rates of older rejected applicants are low, continued high numbers of younger and low-mortality beneficiaries have raised the potential employment of DI beneficiaries. Three findings support economic inducement to apply. Mean preapplication earnings have fallen, rejected applicants experience preapplication declines in earnings, and beneficiaries whose first applications were rejected at the DDS level but who ultimately received benefits exhibit substantial employment. JEL: H55, J14, J28, J31

We employ a novel approach to identify overbidding in auctions. We compare online auction prices to fixed prices for the same item on the same webpage. In detailed data on auctions of a board game, 42 percent of auctions exceed the simultaneous fixed price. The result replicates in a broad cross-section of auctions (48 percent overbidding). A small fraction of overbidders, 17 percent of bidders, suf fices to generate the large fraction of auctions with overbidding. We show that the observed behavior is inconsistent with rational behavior, even allowing for uncertainty about prices and switching costs, since the expected auction price also exceeds the fixed price. Limited attention best explains our results.

We evaluate whether state-of-the-art macro models featuring indivisible labor are consistent with modern quasi-experimental micro evidence by synthesizing evidence on both the intensive and extensive margins. We find that micro estimates are consistent with macro estimates of the steady-state (Hicksian) elasticities relevant for cross-country comparisons on both the extensive and intensive margins. However, micro estimates of intertemporal substitution (Frisch) elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours by preferences. The key puzzle to be resolved is why micro and macro estimates of the Frisch extensive margin elasticity are so different.

In this paper we study a behavioral model of conflict that provides a basis for choosing certain indices of dispersion as indicators for conflict. We show that a suitable monotone transform of the equilibrium level of conflict can be proxied by a linear function of the Gini coefficient, the Herfindahl-Hirschman fractionalization index, and a specific measure of polarization due to Esteban and Ray.

Most indexes in the Consumer Price Index (CPI) use a form of the “matched-model” approach. It is frequently assumed that this approach accurately reflects inflation for items that have no major trend in quality. In this paper we investigate that hypothesis using CPI data for retail food items. We find that CPI analysts may be correct on average when they decide that new and replacement items are similar in quality. We also find, however, that when sample items are replaced by items of significantly different quality the CPI imputation procedures may underestimate price change and overstate quality change.

US health care expenditures reached $2.5 trillion in 2009, representing 17.6 percent of gross domestic product (GDP) and $8,086 per person (US Department of Health and Human Services Centers for Medicare and Medicaid Services 2011). Since health care represents a large and growing share of the economy, and factors such as population aging imply that chronic disease treatment will continue to expand as a share of health expenditures, developing methods for assessing the value of quality improvement for chronic disease spending is of increasing importance for accurately measuring real economic activity. This paper develops a method for assessing the value of quality changes associated with health care for patients living with one important chronic disease, diabetes mellitus, using 11 years of detailed data on spending and quality of care for over 800 patients. We first provide an overview of measurement issues for health care quality, and then present our data, methods, results, and a brief discussion.

The paper constructs a model of optimal portfolio allocation incorporating the role of housing as collateral. Current house value is a state variable in the portfolio decision due to a nonconvex adjustment cost. Holding risk aversion constant, the percentage of the portfolio held in stocks is decreasing in the ratio of house value to net wealth; thus an older household with a lower ratio of house value to net wealth will generally hold more its portfolio in stocks than younger households. Empirical results using the Survey of Consumer Finances confirm the quantitative and statistical significance of the housing state variable.

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction web page. This defines a precise contract -- to deliver the car shown for the closing price -- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants, and that disclosure costs impact both the level of disclosure and prices.

We examine Popper's falsifiability within an economic model in which a tester hires a potential expert to produce a theory. Payments are contingent on the performance of the theory vis-à-vis data. We show that if experts are strategic, falsifiability has no power to distinguish scientific theories from worthless theories. The failure of falsification in screening informed and uninformed experts motivates questions on the broader concepts of refutation and verification. We demonstrate an asymmetry between the two concepts. Like falsification, verification contracts have no power to distinguish between informed and uninformed experts, but some refutation contracts are capable of screening experts.