Knowledge that Transforms

We estimate the impacts of the Earned Income Tax Credit on labor supply using local variation in knowledge about the EITC schedule. We proxy for EITC knowledge in a Zip code with the fraction of individuals who manipulate reported self-employment income to maximize their EITC refund. This measure varies significantly across areas. We exploit changes in EITC eligibility at the birth of a child to estimate labor supply effects. Individuals in high-knowledge areas change wage earnings sharply to obtain larger EITC refunds relative to those in low-knowledge areas. These responses come primarily from intensive-margin earnings increases in the phase-in region.

We conduct an experiment assessing the extent to which people trade off the economic costs of truthfulness against the intrinsic costs of lying. The results allow us to reject a type-based model. People's preferences for truthfulness do not identify them as only either “economic types” (who care only about consequences) or “ethical types” (who care only about process). Instead, we find that preferences for truthfulness are heterogeneous among individuals. Moreover, when examining possible sources of intrinsic costs of lying and their interplay with economic costs of truthfulness, we find that preferences for truthfulness are also heterogeneous within individuals.

A growing literature explores differences in subjective well-being across demographic groups, often relying on surveys with high nonresponse rates. By using the reported number of call attempts made to participants in the University of Michigan's Surveys of Consumers, we show that comparisons among easy-to-reach respondents differ from comparisons among hard-to-reach ones. Notably, easy-to-reach women are happier than easy-to-reach men, but hard-to-reach men are happier than hard-to-reach women, and conclusions of a survey could reverse with more attempted calls. Better alternatives to comparing group sample averages might include putting greater weight on hard-to-reach respondents or even extrapolating trends in responses.

We consider two life cycle models of labor supply that use nonconvexities to generate retirement. In each case we derive a link between hours worked prior to retirement, the intertemporal elasticity of substitution for labor (IES), and the size of the nonconvexities. This link is robust to allowing for credit constraints and human capital accumulation by younger workers and suggests values for the IES that are .75 or higher.

The payoff of actions is estimated and the resulting empirical payoff is controlled for in regression analyses to formulate a test of rational expectations in information cascade experiments. We show that the empirical payoff of actions is a function of estimates of choice probabilities and estimates of the information parameters of the game. We introduce an alternative empirical payoff of actions with true values of the information parameters. Our improved measure of the success of social learning confirms that rational expectations are violated, but deviations from rational expectations are statistically significantly smaller than in Weizsacher (2010).

Many important issues in business-to-business markets involve price discrimination and negotiated prices, situations where theoretical predictions are ambiguous. This paper uses new panel data on buyer-supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market. While many phenomena that restrict different prices to different buyers are suggested as ways to decrease hospital costs (e.g., mergers, group purchasing organizations, and transparency), I find that: (i) more uniform pricing works against hospitals by softening competition; and (ii) results depend ultimately on a previously unexplored bargaining effect.

Over the business cycle young workers experience much greater volatility of hours worked than prime-aged workers. This can arise from age differences in labor supply or labor demand characteristics. To distinguish between these, we document that, for young workers, both the cyclical volatilities of hours and wages are greater than those of the prime-aged. We argue that a general class of models featuring only age-specific labor supply differences cannot reconcile these facts. We then show that a simple model featuring labor demand differences can.

This paper analyzes a dynamic lending relationship where the borrower cannot be forced to make repayments, and the lender offers long-term contracts that are imperfectly enforced and repeatedly renegotiated. No commitment and full commitment by the lender are special cases of this model where the probability of enforcement equals zero and one, respectively. I show that an increase in the degree of enforcement can lower social welfare. Furthermore, properties of equilibrium investment dynamics with partial commitment drastically differ from those with full and no commitment. In particular, investment is positively related to cash flow, consistent with empirical findings.

This paper applies a regression discontinuity design to the Romanian secondary school system, generating two findings. First, students who have access to higher achievement schools perform better in a (high stakes) graduation test. Second, the stratification of schools by quality in general, and the opportunity to attend a better school in particular, result in significant behavioral responses: (i) teachers sort in a manner consistent with a preference for higher achieving students; (ii) children who make it into more selective schools realize they are relatively weaker and feel marginalized; (iii) parents reduce effort when their children attend a better school.

This paper shows that smoking intensity, i.e. the amount of nicotine extracted per cigarette smoked, responds to changes in excise taxes and tobacco prices. We exploit NHANES data covering the period 1988 to 2006 across many US states. Moreover, using panel data from the Coronary Artery Risk Development in Young Adults (CARDIA) study, we provide new evidence on the importance of cotinine measures in explaining long-run smoking behavior. We show the importance of smoking intensity as a long-run determinant of smoking cessation. We also investigate the sensitivity of smoking cessation to changes in excise taxes and their interaction with smoking intensity.