Knowledge that Transforms

Heavy Alcohol Use and the Commission of Nuisance Crime: Evidence from Underage Drunk Driving Laws by Christopher S. Carpenter. Published in volume 95, issue 2, pages 267-272 of American Economic Review, May 2005

Public policy towards low-income families with children in the United States has changed dramatically in the last two decades. The Aid to Families with Dependent Children (AFDC) program, in existence since 1935, was replaced with Temporary Assistance to Needy Families (TANF) as part of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). PRWORA eliminated the entitlement feature of cash assistance to poor families. Alongside this dismantling of the traditional welfare system has been the increasing reliance on the tax system as a means of providing cash support for needy families. A series of tax acts starting with the 1986 Tax Reform Act have increased assistance to the working poor through expansions of the Earned Income Tax Credit (EITC). In 2003, more than 21 million families are estimated to have benefited from the tax credit, at a total cost to the federal government of more than 37 billion dollars (U.S. Treasury 2004).1 It is widely accepted that the Earned Income Tax Credit (EITC) raised the employment of eligible women with children. Empirical evidence consistent with economic theory suggests that the EITC has been especially successful at promoting employment among eligible unmarried women with children (Eissa and Liebman 1996, Meyer and Rosenbaum 2000). In fact, the labor force participation rate of single mothers increased by an astounding 14 percentage points between 1989 and 2002, a period of substantial

Infertility is considered by the medical community to be a disease of the reproductive system. It currently affects over 6 million individuals, and one in ten couples cannot conceive without medical assistance. The psychological effects of infertility have been compared to the effects of other diseases such as cancer and heart disease (e.g., Anne T. Fidler and Judith Bernstein, 1999), and the financial costs of treatment can be quite large. However, only 25 percent of all health-plan sponsors provide coverage for infertility services. In response to a perceived need for coverage, legislation was introduced at the federal level in 2003 that would require health plans to provide infertility benefits. As the fraction of the population affected by infertility continues to rise, there are likely to be continued efforts to mandate coverage. Understanding the costs and benefits of these policies thus becomes increasingly important. The first component of a full analysis is to determine whether these mandates will actually have an effect on fertility. By reducing the price of infertility treatment, one might expect to see an increase in utilization of treatments. This could be true if the mandate expands access to individuals who previously could not afford treatment, or if individuals who were previously receiving treatment now choose to consume higher quantities (or a higher quality) of treatment. However, it is also possible that these mandates have no effect on access or on treatment consumed but simply provide windfall gains to those individuals who would have purchased treatment in the absence of insurance coverage. Finally, mandates may also have dynamic effects on the timing of births. Individuals could seek treatment earlier, which is beneficial from a medical perspective. Alternatively, individuals could further delay childbearing, with the knowledge that they will ultimately be covered. In this paper, I ask the first-order question of whether the mandated insurance coverage of infertility treatment has affected birth rates. As of 2003, 15 states have enacted some form of infertility insurance mandate. Using a differencein-differences approach, I exploit variation in the enactment of mandates both across states and over time and identify control groups that should not have been affected by infertility coverage. My results suggest that the mandates increase firstbirth rates for women over age 35 by 32 percent.

This paper considers racial profiling in traffic stops as a public policy problem. Efficiency and equity considerations are characterized. I argue that while there is a strong argument that racial profiling produces a violation of fairness, specifically in the treatment of innocent black motorists, the efficiency effects of profiling are not known. One cannot assign probabilities to the possible magnitudes of either deterrent effects or the harms of profiling to individuals. This makes the assessment of profiling an example of decisionmaking under ambiguity. I defend a notion of a “Fairness Presumption” that requires a policymaker to be able to make an affirmative case if a policy is to be implemented that induces unfairness. On this basis, I reject racial profiling as a policy. Steven N. Durlauf Department of Economics University of Wisconsin 1180 Observatory Drive Madison, WI 53706-1393 [email protected]

Parental Child Care in Single-Parent, Cohabiting, and Married-Couple Families: Time-Diary Evidence from the United Kingdom by Charlene M. Kalenkoski, David C. Ribar and Leslie S. Stratton. Published in volume 95, issue 2, pages 194-198 of American Economic Review, May 2005

What accounts for the worldwide advance of financial reforms in the last quarter century? Using a new index of financial liberalization, we find that influential events shook the policy status quo. Balance-of-payments crises spurred reforms, but banking crises set liberalization back. Falling global interest rates strengthened reformers, while new governments went both ways. The overall trend toward liberalization, however, reflected pressures and incentives generated by initial reforms that raised the likelihood of additional reforms, stimulated further by the need to catch up with regional reform leaders. In contrast, ideology and country structure had limited influence.

In a recent paper Osborne, Rosenthal and Turner (2000) investigate a model of meetings with costly participation. Their main result is that the equilibrium number of participants is small and their positions are extreme. In particular, when the policy space is one-dimensional and the policy outcome is the median of participants' positions, they conclude that the number of attendees is even. The proof is flawed. We construct an example with an odd number of attendees. Oddness of the number of participants has a dramatic consequence on how equilibria look like.

In recent years, economists have increasingly debated whether multilateral development banks, such as the World Bank, should switch from making subsidized loans to giving outright grants. It is no small question. The combined loans of the World Bank Group and brethren regional entities such as the Asian and Inter-American Development Banks, approach $300 billion. Their funds constitute a main channel through which rich country governments provide assistance to developing country governments. In Bulow and Rogoff (1990), we first developed the case for a shift to outright grants. We argued that under the status quo, a vastly disproportionate share of aid goes to middle income countries via disguised interest subsidies, rather than to the poorest countries. We also argued that a shift to grants would protect donor banks from sometimes having to play a “bad cop” role when trying to collect net repayments rather than fully rolling over loans. The “Meltzer Commission” (International Financial Institution Advisory Commission, 2000) report on government sponsored international lending institutions famously took a similar view. Supporters of the status quo often argue that development bank loans to middle income countries are in fact highly profitable, and are essential for allowing institutions like the World Bank to subsidize aid to poor countries. We shall argue that the Bank’s profitability is an accounting artifice that greatly underestimates the risks of the Bank’s portfolio. Another argument for loans is that multilateral development banks have a superior enforcement technology that helps international debt markets to function more efficiently. Thus loans allow financially strapped governments, including in middle-income countries, to borrow more than they could otherwise. We will argue that this benefit, too, is an illusion. In those cases when official lending does expand a developing country government’s borrowing capacity, it effectively enables the government to commit the country to repayment levels beyond that supported by domestic political consensus, creating moral hazard for shortsighted rulers. In theory, better credit access to finance, say, public infrastructure projects can be highly beneficial. In practice, however, the increased risk of debt crisis all too often outweighs any gain ordinary citizens might enjoy from the loans. Furthermore, moral hazard on the part of lenders, who may be able to induce rich countries into subsidizing the bailout of troubled middle-income borrowers, may mean that aggregate lending is excessive even if multilaterals merely displace equivalent private debt. We do not argue for eliminating assistance to middle-income countries. On the contrary, we would favor expanding aid in general, albeit in far greater proportion to the world’s poorest countries. Note that in principle, any country with market access could use grant flows to help defray interest rate costs on loans if it so chose, but development banks would never need to assume a “bad cop” role in enforcing debt.

This paper analyzes the effect of regulations governing land use and residential construction upon the course of housing prices in California. We explore the linkage between regulation and housing prices using measures of housing prices estimated from the Public Use Microdata Samples (PUMS) of the 1990 and 2000 Census of Population and Housing, together with a detailed cross-sectional land use regulation and growth controls in California cities. We explore mechanisms by which regulatory stringency may affect housing outcomes for consumers. First, we assess whether housing is more expensive in more regulated cities. Second, we assess whether growth in the city-level housing stock over the period of a decade depends on the degree of land-use regulation at the start of the decade. Finally, we estimate the price elasticity of housing supply for regulated and relatively unregulated cities. Our results suggest that current regulations have powerful effects on housing outcomes.

Advancing annuity demand theory, we present sufficient conditions for the optimality of full annuitization under market completeness which are substantially less restrictive than those used by Menahem E. Yaari (1965). We examine demand with market incompleteness, finding that positive annuitization remains optimal widely, but complete annuitization does not. How uninsured medical expenses affect demand for illiquid annuities depends critically on the timing of the risk. A new set of calculations with optimal consumption trajectories very different from available annuity income streams still shows a preference for considerable annuitization, suggesting that limited annuity purchases are plausibly due to psychological or behavioral biases.