Knowledge that Transforms

This paper empirically examines belief updating of the perceived probability of arrest and its criminal deterrence effects using two longitudinal data sources. While beliefs about the probability of arrest are positively correlated with local official arrest rates, they are unresponsive to information acquired from random individuals and local neighborhood conditions. Importantly, perceptions respond to changes in an individual's criminal and arrest history. Young males who engage in crime without getting arrested revise their perceived probability of arrest downward, while those who are arrested revise their probability upward. Estimates suggest that beliefs about the probability of arrest significantly deter crime. (JEL K42)

We examine the effect of the Worker Profiling and Reemployment Services system. This program “profiles” Unemployment Insurance (UI) claimants to determine their probability of benefit exhaustion and then provides mandatory employment and training services to claimants with high predicted probabilities. Using a unique experimental design, we estimate that the program reduces mean weeks of UI benefit receipt by about 2.2 weeks, reduces mean UI benefits received by about $143, and increases subsequent earnings by over $1,050. Most of the effect results from a sharp increase in early UI exits in the treatment group relative to the control group.

Estimating Regulation-Induced Substitution: The Effect of the Clean Air Act on Water and Ground Pollution by Michael Greenstone. Published in volume 93, issue 2, pages 442-448 of American Economic Review, May 2003

How Welfare Policies Affect Child and Adolescent Achievement by Elizabeth Clark-Kauffman, Greg J. Duncan and Pamela Morris. Published in volume 93, issue 2, pages 299-303 of American Economic Review, May 2003

Payoffs from Panels in Low-Income Countries: Economic Development and Economic Mobility by Mark R. Rosenzweig. Published in volume 93, issue 2, pages 112-117 of American Economic Review, May 2003

Abstract: This paper investigates the role of seasonal affective disorder (SAD) in the seasonal time-variation of stock market returns. SAD is an extensively documented medical condition whereby the shortness of the days in fall and winter leads to depression for many people. Experimental research in psychology and economics indicates that depression, in turn, causes heightened risk aversion. Building on these links between the length of day, depression, and risk aversion, we provide international evidence that stock market returns vary seasonally with the length of the day, a result we call the SAD effect. Using data from numerous stock exchanges and controlling for well-known market seasonals as well as other environmental factors, stock returns are shown to be significantly related to the amount of daylight through the fall and winter. Patterns at different latitudes and in both hemispheres provide compelling evidence of a link between seasonal depression and seasonal variation in stock returns: Higher latitude markets show more pronounced SAD effects and results in the Southern Hemisphere are six months out of phase, as are the seasons. Overall, the economic magnitude of the SAD effect is large. JEL classification: G1

Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund by Chang-Tai Hsieh. Published in volume 93, issue 1, pages 397-405 of American Economic Review, March 2003

We examine two factors that explain air traffic congestion: network benefits due to hubbing and congestion externalities. While both factors impact congestion, we find that the hubbing effect dominates empirically. Hub carriers incur most of the additional travel time from hubbing, primarily because they cluster their flights in short time spans to provide passengers as many potential connections as possible with a minimum of waiting time. Non-hub flights at the same hub airports operate with minimal additional travel time. These results suggest that an optimal congestion tax might have a relatively small impact on flight patterns at hub airports.

Regional Workshops to Improve the Teaching Skills of Economics Faculty by Rae Jean B. Goodman, Mark Maier and Robert L. Moore. Published in volume 93, issue 2, pages 460-462 of American Economic Review, May 2003

January 2003