Knowledge that Transforms

The history of natural gas wellhead and pipeline regulation, deregulation and regulatory reforms are discussed. These reforms brought natural gas shortages and pipeline inefficiencies to an end. They also created an economic platform that could support unanticipated developments in the supply and costs of domestic natural gas. Such unanticipated developments emerged in the last few years as several technological innovations came together to make it commercially attractive to development US shale gas deposits located deep in the earth. How and why shale gas supplies will lead to dramatic changes in the United States' energy future with appropriate environmental regulatory reforms are discussed.

Emissions restrictions in one region may decrease emissions elsewhere (negative leakage), as increased demand for capital and labor to abate emissions in constrained regions may reduce output in unconstrained regions. We investigate leakage in computable general equilibrium (CGE) models under alternative fossil fuel supply elasticity values and factor mobility assumptions. We find that fossil fuel supply elasticities must be equal or close to infinity to generate net negative leakage. As empirical estimates for fossil fuel supply elasticities are less than 1, we conclude that leakage estimates from CGE models are unlikely to be negative.

Do men and women have different social preferences? Previous findings are contradictory. We provide a potential explanation using evidence from a field experiment. In a door-to-door solicitation, men and women are equally generous, but women become less generous when it becomes easy to avoid the solicitor. Our structural estimates of the social preference parameters suggest an explanation: women are more likely to be on the margin of giving, partly because of a less dispersed distribution of altruism. We find similar results for the willingness to complete an unpaid survey; women are more likely to be on the margin of participation.

We find that greater institutional ownership is associated with more innovation. To explore the mechanism, we contrast the “lazy manager” hypothesis with a model where institutional owners increase innovation incentives through reducing career risks. The evidence favors career concerns. First, we find complementarity between institutional ownership and product market competition, whereas the lazy manager hypothesis predicts substitution. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes, and disaggregating by type of institutional owner, we argue that the effect of institutions on innovation is causal.

Consider an investor who fears ruin when facing investments that satisfy no-arbitrage. Before investing he can purchase information about the state of nature as an information structure. Given his prior, information structure α investment dominates information structure β if, whenever he is willing to buy β at some price, he is also willing to buy α at that price. We show that this informativeness ordering is complete and is represented by the decrease in entropy of his beliefs, regardless of his preferences, initial wealth, or investment problem. We also show that no prior-independent informativeness ordering based on similar premises exists.

There is a strong, positive, and well-documented correlation between education and health outcomes. In this paper, we attempt to understand to what extent this relationship is causal. Our approach exploits two changes to British compulsory schooling laws that generated sharp across-cohort differences in educational attainment. Using regression discontinuity methods, we find the reforms did not affect health although the reforms impacted educational attainment and wages. Our results suggest caution as to the likely health returns to educational interventions focused on increasing educational attainment among those at risk of dropping out of high school, a target of recent health policy efforts.

We estimate a spatial model of liquor demand to analyze the impact of government-controlled retailing on entry patterns. In the absence of the Pennsylvania Liquor Control Board, the state would have roughly 2.5 times the current number of stores, higher consumer surplus, and lower payments to liquor store employees. With just over half the number of stores that would maximize welfare, the government system is instead best rationalized as profit maximization with profit sharing. Government operation mitigates, but does not eliminate, free entry's bias against rural consumers. We find only limited evidence of political influence on entry.

The effects of courses on student achievement are studied using 2006 data from the National Assessment of Educational Progress (NAEP) in economics. A regression analysis showed expected and significant achievement differences by course, with the highest scores in advanced economics, followed by general economics. Courses in business and personal finance were not substitutes for advanced or general economics courses. A probit analysis showed that students taking economics courses relative to personal finance courses are significantly more likely to think their courses helped them understand the US economy, the international economy, and current events--but not how to manage personal finances.

We assess the empirical importance of changes in income and relative prices for structural transformation in the postwar United States. We explain two natural approaches to the data: sectors may be categories of final expenditure or value added; e.g., the service sector may be the final expenditure on services or the value added from service industries. We estimate preferences for each approach and find that with final expenditure income effects are the dominant force behind structural transformation, whereas with value-added categories price effects are more important. We show how the input-output structure of the United States can reconcile these findings.

Has government spending raised income and employment since 2008? I use new data on state pension returns during the Great Recession to recover exogenous changes in spending. Instrumenting with these return shocks, I estimate that each dollar of windfall-financed spending raised local incomes by $1.43 and every additional $22,011 of spending created one contemporaneous job. These estimates are similar to those found in Shoag (2010) despite the non-overlapping datasets. Unlike Shoag (2010), however, the bulk of the employment increase post-2008 stems from decreases in unemployment rather than increased labor force participation.