Knowledge that Transforms

In parametric, nonlinear structural models, a classical sufficient condition for local identification, like Fisher (1966) and Rothenberg (1971), is that the vector of moment conditions is differentiable at the true parameter with full rank derivative matrix. We derive an analogous result for the nonparametric, nonlinear structural models, establishing conditions under which an infinite dimensional analog of the full rank condition is sufficient for local identification. Importantly, we show that additional conditions are often needed in nonlinear, nonparametric models to avoid nonlinearities overwhelming linear effects. We give restrictions on a neighborhood of the true value that are sufficient for local identification. We apply these results to obtain new, primitive identification conditions in several important models, including nonseparable quantile instrumental variable (IV) models and semiparametric consumption-based asset pricing models.

This paper provides among the first rigorous estimates of the labor-market returns to community college certificates and diplomas, as well as estimating the returns to the more commonly-studied associate's degrees. Using administrative data from Kentucky, we estimate panel-data models that control for differences among students in pre-college earnings and educational aspirations. Associate's degrees and diplomas have quarterly earnings returns of nearly $2,400 for women and $1,500 for men, compared with much smaller returns for certificates. There is substantial heterogeneity in returns across fields of study. Degrees, diplomas, and - for women - certificates correspond with higher levels of employment.

We study the effectiveness of magnet programs in an urban district that ration excess demand by admission lotteries. Differential attrition arises since students who lose the lottery are more likely to pursue options outside the school district than students who win the lottery. When students leave the district, important outcome variables are often not observed. The treatment effects are not point-identified. We exploit known quantiles of the outcome distribution to construct informative bounds on treatment effects. We find that magnet programs improve behavioral outcomes but have no significant effect on achievement.

This article investigates the pricing distortions that arise from the use of a common nonlinear incentive scheme at a leading enterprise software vendor. The empirical results demonstrate that salespeople are adept at gaming the timing of deal closure to take advantage of the vendor’s accelerating commission scheme. Specifically, salespeople agree to significantly lower pricing in quarters in which they have a financial incentive to close a deal, resulting in mispricing that costs the vendor 6%–8% of revenue. Robustness checks demonstrate that price discrimination by the vendor does not explain the identified effects.

This article examines whether gay and lesbian workers sort into tolerant occupations. With information on sexual orientation, prejudice, and occupational choice taken from Australian Twin Registers, we find that gays and lesbians shy away from prejudiced occupations. We show that our segregation results are largely driven by those gay and lesbian workers with disclosed identities and are robust to the inclusion of unobserved factors that are inherited and observed factors that strongly correlate with productive skills and vocational preferences. Our segregation estimates are consistent with prejudice-based theories of employer and employee discrimination against gay and lesbian workers.

This article analyzes the impact of five major expansions in maternity leave coverage in Germany on mothers’ labor market outcomes after childbirth. To identify the causal impact of the reforms, we use a difference-in-difference design that compares labor market outcomes of mothers who give birth shortly before and shortly after a change in maternity leave legislation in years of policy changes and years when no changes have taken place. Each expansion in leave coverage reduced mothers’ postbirth employment rates in the short run. The longer-run effects of the expansions on mothers’ postbirth labor market outcomes are, however, small.

The allocation of children’s time among different activities may be important for cognitive and noncognitive development. Here, we exploit time use diaries from the Longitudinal Study of Australian Children to study the effects of time allocation. By doing so, we characterize the trade-off between different activities to which a child is exposed. On the one hand, our results suggest that time spent in educational activities, particularly with parents, is the most productive input for cognitive skill development. On the other hand, noncognitive skills appear insensitive to alternative time allocations. Instead, they are greatly affected by the mother’s parenting style.

Cities are the cradle of a wide range of cultural, social, and technological innovations that are at the heart of modern economic growth and development. Half of humanity today lives in cities but, until the last two decades, economists have paid much less attention to cities than have other social scientists. By contrast, geographers have long studied the role of cities in human affairs. Michael Batty, a distinguished scholar in the field of human geography, has recently written The New Science of Cities, a synthesis of his work and of some other prominent urban geographers. A review of his book is the first objective of this essay. The second is to discuss and compare the tools and concepts developed by urban economists with those of urban geographers in the hope of triggering a fruitful debate between those two groups of social scientists. (JEL R10, R23, R30, R40, R58)