The Impact of Labor Strikes on Consumer Demand: An Application to Professional Sports by Martin B. Schmidt and David J. Berri. Published in volume 94, issue 1, pages 344-357 of American Economic Review, March 2004
This paper explains the size and value “anomalies” in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market's future cash flows and one reflecting news about the market's discount rates. Intertemporal asset pricing theory suggests that the former should have a higher price of risk; thus beta, like cholesterol, comes in “bad” and “good” varieties. Empirically, we find that value stocks and small stocks have considerably higher cash-flow betas than growth stocks and large stocks, and this can explain their higher average returns. The poor performance of the capital asset pricing model (CAPM) since 1963 is explained by the fact that growth stocks and high-past-beta stocks have predominantly good betas with low risk prices.
This paper measures the impact of an outbreak of pediatric leukemia on local housing values. A model of location choice is used to describe conditions under which the gradient of the hedonic price function with respect to pediatric leukemia risk is equal to household marginal willingness to pay to avoid risk. This equalizing differential is estimated using property-level sales records from a county in Nevada where residents recently experienced a severe increase in pediatric leukemia. Housing prices are compared before and after the increase with a nearby county acting as a control group. The variation in health risk over time makes it possible to control for unobserved differences across locations. In addition, because many houses were sold repeatedly during the sample period it is possible to control for property-specific heterogeneity. The results indicate that housing values decreased 15.6 percent during the period of maximum risk. Results are similar for different measures of risk and across houses of different sizes. Using lifetime estimates of risk derived from a Bayesian learning process the results imply that the statistical value of pediatric leukemia is $5.6 million. These estimates provide some of the first market-based estimates of the value of health for children.
Saving decisions are made jointly by household members who generally earn risky incomes. Consequently, to interpret saving patterns it is crucial to analyze the relationship between intra-household risk sharing and intertemporal choices. To that end in this paper the household is characterized as a group of agents with possibly heterogeneous preferences making efficient decisions. Two results are obtained. First, it is shown that risk sharing can increase the amount saved by the household. Second, I find that an increase in risk aversion and prudence of an individual member can reduce household risk aversion and prudence. These results are consistent with the empirical evidence collected using the HRS. 1
Improving Social Security's Progressivity and Solvency with Hybrid Indexing by Robert Pozen, Sylvester J. Schieber and John B. Shoven. Published in volume 94, issue 2, pages 187-191 of American Economic Review, May 2004
Antidumping (AD) trade protection policies allow government agencies to recalculate AD duties based on foreign firms' most recent pricing behavior. We examine the resulting dynamic pricing problem of a foreign firm facing such policy. We show that the expected pattern of AD duty recalculations over time crucially depends on the foreign firm's ex ante expectations of possible outcomes of AD policy enforcement. Our empirical analysis then confirms the role of ex ante expectations in explaining observed patterns of AD recalculations. Many of our model's results are applicable to other situations where enforcement of policy is tied to the subject's behavior.
Scale economy in the construction and operation of public facilities, such as landfills, calls for cooperation among communities to build a common facility (Arthur O’Sullivan, 1993). Such a facility is a mixture of a public good and a private bad and, hence, leads to strong opposition by communities to locate it in their vicinity (Bruno S. Frey et al., 1996). This is one of the most serious environmental concerns of recent years, and is known as NIMBY: “not in my backyard.” In this paper we study the hypothesis that a democratic political process creates an adequate mechanism for the resolution of the NIMBY conflict. The intuitive explanation is simple. A NIMBY conflict is likely to induce lobbying and symmetric pressures by all threatened communities in the relevant region. As is well known (Gene M. Grossman and Elhanan Helpman, 1994), when subject to symmetric pressures, politicians stick firmly to principles and function most efficiently. The existing literature on the siting of noxious facilities focuses mainly on normative issues, such as welfare-maximizing siting via decentralized community-based mechanisms (e.g., Howard Kunreuther and Paul R. Kleindorfer, 1986; Robert C. Mitchell and Richard T. Carson, 1986; and Deborah Minehart and Zvika Neeman, 2002). Evidently, however, such mechanisms have seldom been practiced (e.g., Stephen K. Swallow et al., 1992). The current study adopts a positive approach, integrating a political-economic framework with a model of a competitive real estate market. In the theoretical section, a government of a linear two-city economy determines the location of a noxious facility, which affects the equilibrium in the real estate market and induces the spatial distributions of price and population. The government is subject to political pressures by city-level lobbies of landowners (both landlords and home owners). In general, the political equilibrium and the socially optimal siting differ. However, the more equitable the distribution of landownership in the region, the smaller the difference. At the limit, when property distribution is perfectly equitable and all cities participate in the political arena, the government locates the facility at the socially optimal site. The analysis proceeds by identifying additional conditions under which the political equilibrium siting coincides with the socially optimal location and, with an empirical analysis. In the empirical section, the theoretical framework is extended to account for a multiple-city region, and is calibrated to assess the prospects of the political system for resolving the NIMBY conflict in the context of landfill-siting in Israel. It is shown that if all cities in the region form political lobbies and the politicians are not extremely corrupt, the political siting is close geographically to the socially optimal location, and the difference entails a less than 0.1 percent reduction in social welfare. Moreover, even if the formation of lobbying in the region is incomplete, as long as the weight the politicians assign to social welfare is larger than 0.7, the proximity of the politically and socially optimal locations is preserved. We interpret the above results as supportive of the hypothesis of an effective political solution to the NIMBY conflict.
Entrepreneurs are generalists who put together teams of people and assemble resources and capital. To do this effectively, they must have a general set of skills. Individuals may be endowed with a general set of skills, but endowments can be augmented by investment in human capital. It is shown that formal schooling is used to supplement the skill set of those who choose to become entrepreneurs.
This paper examines the impact of parental schooling on the child¿s schooling and uses adoptees to get rid of persistency effects caused by the parents¿ genes. The results indicate that, especially for mothers, inherited abilities and assortative mating play an important role in the intergenerational transmission of schooling. In fact, for adoptees I found no treatment effect for the mother¿s schooling, conditional on her husband¿s schooling. It should be noted, however, that the WLS data on adoptees and their parents do not possess the properties of a clean and well-de¿ ned experiment, and that obtained results require a careful interpretation. There are two potential dangers to an adoption experiment. First, adoptees and adoptive parents are different from other children and their parents. This argument suggests that my maternal schooling estimates may be biased and suffer from omitted variables, but I have little indication of what these might be. The sensitivity analysis ruled out a number of plausible candidates. Second, adoptees are not always randomly assigned to their adoptive parents. This argument suggests that a portion of what is interpreted as the impact of the parent¿s schooling may in fact be genetic. With respect to paternal schooling estimates there is some merit to this view. However, with respect to the estimated maternal effect it is not. Nonrandom assignment and corresponding upward bias form no danger when interpreting the absence of maternal schooling effects. In all, these results, in combination with the parallel finndings of Behrman and Rosenzweig (2002) using twins, support the idea that the positive influence of mother¿s schooling on that of her child disappears when heritable abilities and assortative mating are taken into account.