This paper studies the effect of additional government revenues on political corruption and on the quality of politicians, both with theory and data. The theory is based on a political agency model with career concerns and endogenous entry of candidates. The data refer to Brazil, where federal transfers to municipal governments change exogenously at given population thresholds, allowing us to implement a regression discontinuity design. The empirical evidence shows that larger transfers increase observed corruption and reduce the average education of candidates for mayor. These and other more specific empirical results are in line with the predictions of the theory.
We compare nonparametric instrumental variables (IV) models with linear models and 2SLS methods when dependent variables are discrete. A 2SLS method can deliver a consistent estimator of a Local Average Treatment Effect but is not informative about other treatment effect parameters. The IV models set identify a range of interesting structural and treatment effect parameters. We give set identification results for a counterfactual probability and an Average Treatment Effect in a IV binary threshold crossing model. We illustrate using data on female employment and family size (employed by Joshua Angrist and William Evans (1998)) and compare with their LATE estimates.
The strong dislike evidenced by the American public towards the estate tax suggests that the wealthy wish to transfer resources to their heirs tax-free and would thus exploit mechanisms allowing them to reduce the tax burden whenever possible. However, I find strong evidence that the wealthy fail to utilize what is perhaps the simplest method of tax avoidance--that of making transfers to eventual heirs up to the annual exclusion. Instead they transfer far less than the amount permitted by the tax code, whether measured in cross-section or over time. In failing to give more, they forgo significant tax savings.
A bidding process can be organized so that offers are submitted simultaneously or sequentially. In the latter case, potential buyers can condition their behavior on previous entrants' decisions. The relative performance of these mechanisms is investigated when entry is costly and selective, meaning that potential buyers with higher values are more likely to participate. A simple sequential mechanism can give both buyers and sellers significantly higher payoffs than the commonly used simultaneous bid auction. The findings are illustrated with parameters estimated from simultaneous entry USFS timber auctions where our estimates predict that the sequential mechanism would increase revenue and efficiency.
We consider a model with on-the-job search where current wages depend only on current aggregate labor market conditions and idiosyncratic match-specific productivities. We show theoretically that the model replicates the findings in Bils (1985) and Beaudry and DiNardo (1991) on the history dependence in wages. We develop a method to measure match qualities in the data and show empirically that various variables summarizing past aggregate labor market conditions have explanatory power for current wages only because they are correlated with match qualities. They lose any predictive power once match qualities are accounted for.
This study is the first in the economics literature to explore the labor market consequences of sexual violence toward women. Using data from the Add Health, we find that sexual violence against women is associated with a 6.6 percent lower probability of labor force participation and 5.1 percent lower average wages. These estimates are robust to controls for unobserved heterogeneity at the school- and family-levels, as well as detailed controls for personality, personal discount rates, and risk preferences. We find that the adverse labor market effects of sexual violence are partially explained by its adverse psychological and physical consequences.
Using historical census and survey data, Long and Ferrie (forthcoming) found a significant decline in social mobility in the United States from 1880 to 1973. We present two critiques of the Long-Ferrie study. First, the data quality of the Long-Ferrie study is more limiting than the authors acknowledge. Second, and more critically, they applied a method ill-suited for measuring social mobility of farmers in a comparative study between 1880 and 1973, a period in which the proportion of farmers dramatically declined in the U.S. We show that Long and Ferrie's main conclusion is all driven by this misleading result for farmers.
The concept of the Good Society--grounded in principles of reciprocity and the Golden Rule--is as ancient as human civilization. To many the concept may appear in conflict with the goings-on of financial markets. This may be especially true after the financial crisis. Financial theory and financial legislation cannot ignore this apparent conflict, but must instead find ways to reduce it. When teaching economics it is important to convey how individuals and organizations impose rules and standards which help reconcile their deeply-held beliefs with their business practices.
Crainich, Eeckhoudt, and Trannoy (2013) show that mixed risk lovers are prudent. I show that common risk loving utility functions may not exhibit mixed risk loving—as is typical for risk aversion and mixed risk aversion—and thus these traits should be carefully distinguished. In particular, risk lovers may be imprudent.
Immigrants residing among many coethnics are especially likely to receive SSI for a disability when they belong to high SSI take-up immigrant groups. After showing that this relationship cannot be fully explained by differences in health, we consider the likely sources of these network effects by separately examining their role in the decision to apply for SSI and, conditional on applying, their role in determining who ultimately receives benefits. Our results suggest that networks may increase the probability of applying for SSI despite minor disabilities, but it is unlikely that network effects are driven by egregious lies on applications.