Knowledge that Transforms

This note shows that the local average treatment effect (LATE) assumptions of Angrist and Imbens are weaker than imposing an ordered, discrete-choice selection model if one imposes the standard assumption of constant thresholds in the latter. However, the note extends results of Vytlacil to show that the LATE assumptions are equivalent to an ordered, discrete-choice selection model if one allows for random thresholds in the latter. A nonparametric representation result for ordered, discrete-choice models is produced as a by-product of these results.

Foreclosure laws govern the rights of borrowers and lenders when borrowers default on mortgages.Many states protect borrowers by imposing restrictions on the foreclosure process; these restrictions, in turn, impose large costs on lenders.Lenders may respond to these higher costs by reducing loan supply; borrowers may respond to the protections imbedded in these laws by demanding larger mortgages.I examine empirically the effect of the laws on equilibrium loan size.I exploit the rich geographic information available in the 1994 and 1995 Home Mortgage Disclosure Act data to compare mortgage applications for properties located in census tracts that border each other, yet are located in different states.Using semiparametric estimation methods, I find that defaulter-friendly foreclosure laws are correlated with a four percent to six percent decrease in loan size.This result suggests that defaulter-friendly foreclosure laws impose costs on borrowers at the time of loan origination.

Recent research documents a significant increase in U.S. transitory income variance over the past 25 years. An emerging literature explores the role of durables in the household's attempt to smooth consumption over these movements in transitory income. This paper examines the degree to which homeowners adjust their home maintenance decisions in order to offset transitory income fluctuations. American Housing Survey data show that home maintenance expenditures are economically significant, amounting to nearly $2,100 per year. We find a statistically significant positive elasticity of maintenance expenditures to estimated transitory income changes. However, the results suggest that adjusting home maintenance expenditures plays a relatively minor role in the household's overall consumption smoothing strategy. In terms of actual dollars, deferred home maintenance offsets on average from 1 to 7 cents of each dollar of transitory income loss.

Using a large, individual-level wage data set, we examine the impact of a major technological innovation—the steam engine—on the demand for skills in the merchant shipping industry. We find that the technical change created a new demand for engineers, a skilled occupation. It had a deskilling effect on production work—moderately skilled able-bodied seamen were replaced by unskilled engine room operatives. On the other hand, able-bodied seamen, carpenters, and mates employed on steam vessels earned a premium relative to their counterparts on sail vessels, and this appears partly related to skill.

We examine the relationship between casinos and crime using county-level data for the US between 1977 and 1996. Casinos were non-existent outside Nevada before 1978, and expanded to many other states during our sample period. Most factors that reduce crime occur before or shortly after a casino opens, while those that increase crime, including problem and pathological gambling, occur over time. The results suggest that the effect on crime is low shortly after a casino opens, and grows over time. Roughly 8 percent of crime in casino counties in 1996 was attributable to casinos, costing the average adult $75 per adult per year.

The roughly 9.5 percent of all U.S. families that are without some type of transaction account (unbanked) are disproportionately represented by minorities.The unbanked often must rely on alternative ways to carry out basic financial transactions such as cashing payroll checks and paying bills.This study analyzes unique survey data and finds that a consumer's decision to patronize check-cashing businesses is jointly made with the decision to be unbanked.For the unbanked, these businesses are an important source for financial services.Attributes that contribute to these decisions, however, vary for each racial/ethnic group.Latent preference effects are also observed to influence this joint decision for Blacks and Hispanics.These findings may explain in part why the provisions of the Debt Collection Improvement Act (DCIA) of 1996 have not been more successful in bringing unbanked federal benefits recipients into the financial mainstream.Consumer participation in mainstream financial markets can improve their ability to build assets and create wealth, protect them from theft and discriminatory, predatory or unsavory lending practices, and may promote economic stability and vitality in the communities where they reside.By more fully understanding a consumer's financial decisions, policies can be better directed to improve the effectiveness of legislation such as the DCIA of 1996 in encouraging mainstream financial market participation. The Importance of Check-Cashing Businesses to the Unbanked:Racial/Ethnic Differences

Many consider improved dispute settlement one of the leading achievements of the WTO. This paper tests the implication of a game-theoretic approach that predicts that more efficient litigation devices increase the frequency and number of trade disputes. We propose an empirical event history analysis of GATT, WTO, and USTR Section 301 cases, identify the demographic patterns for births and lifespans of U.S. disputes, and test the hypothesis of a WTO structural break. The evidence supports the view that the WTO increased the incidence of U.S. trade disputes, while shortening their lifespan.

We link farmland values to climatic, soil, and socioeconomic variables for counties east of the 100th meridian, the historic boundary of agriculture not primarily dependent on irrigation. Degree days, a non-linear transformation of the climatic variables suggested by agronomic experiments as more relevant to crop yield gives an improved fit and increased robustness. Estimated coefficients are consistent with the experimental results. The model is employed to estimate the potential impacts on farmland values for a range of recent warming scenarios. The predictions are very robust and more than 75% of the counties in our sample show a statistically significant effect, ranging from moderate gains to large losses, with losses in the aggregate that can become quite large under scenarios involving sustained heavy use of fossil fuels.

We show how, in general equilibrium models featuring increasing returns, imperfect competition, and endogenous markups, changes in the scale of economic activity affect the income distribution across factors. Whenever final goods are gross substitutes (gross complements), a scale expansion raises (lowers) the relative reward of the scarce factor or the factor used intensively in the sector characterized by a higher degree of product differentiation and higher fixed costs. Under very reasonable hypotheses, our theory suggests that scale is skill-biased. This result provides a micro foundation for the secular increase in the relative demand for skilled labor. Moreover, it constitutes an important link among major explanations for the rise in wage inequality: skill-biased technical change, capital-skill complementarities, and international trade. We provide new evidence on the mechanism underlying the skill bias of scale.