We examine whether performance-sensitive debt (PSD) is used to reduce hold-up problems in long-term lending relationships. We find that the use of PSD is more common in the presence of a long-term lending relationship and if the borrower has fewer financing alternatives available. In syndicated deals, however, the presence of a relationship lead arranger reduces the use of PSD because a lead arranger has little incentive to hold-up a client. Further supporting the hypothesis that hold-up concerns motivate the use of PSD, we find a substitution effect between the use of PSD and the tightness of financial covenants.

We use admissions lotteries to estimate the effects of attendance at Boston's charter high schools on college preparation, college attendance, and college choice. Charter attendance increases pass rates on the high-stakes exam required for high school graduation in Massachusetts, with especially large effects on the likelihood of qualifying for a state-sponsored college scholarship. Charter attendance has little effect on the likelihood of taking the SAT, but shifts the distribution of scores rightward, moving students into higher quartiles of the state SAT score distribution. Boston's charter high schools also increase the likelihood of taking an Advanced Placement (AP) exam, the number of AP exams taken, and scores on AP Calculus tests. Finally, charter attendance induces a substantial shift from two-to four-year institutions, though the effect on overall college enrollment is modest. The increase in four-year enrollment is concentrated among four-year public institutions in Massachusetts. The large gains generated by Boston's charter high schools are unlikely to be generated by changes in peer composition or other peer effects.

We investigate households’ bank switching exploiting a unique representative dataset from Bank of Italy Survey on Household Income and Wealth that follows the households and their bank(s) over time. First, we document that bank switching is quite prevalent in our sample, with almost a quarter of households changing their main bank in a biannual horizon. Next, we relate the decision to switch to the features and dynamics of household bank relationship, and to the characteristics of both households and banks. In line with the switching cost theory, we find that using more than a single bank, as well as the intensity (number of services used), and the scope (bank services used) of the relationship with the main bank play a role in shaping the households’ decision to switch. Moreover, bank switching is strongly and positively correlated with both taking out and having paid off a mortgage.

We use data from the Head Start Impact Study (HSIS) to evaluate the cost-effectiveness of Head Start, the largest early childhood education program in the United States. Head Start draws roughly a third of its participants from competing preschool programs, many of which receive public funds. We show that accounting for the fiscal impacts of such program substitution pushes estimates of Head Start’s benefit-cost ratio well above one under a wide range of assumptions on the structure of the market for preschool services and the dollar value of test score gains. To parse the program’s test score impacts relative to home care and competing preschools, we selection-correct test scores in each care environment using excluded interactions between experimental assignments and household characteristics. We find that Head Start generates larger test score gains for children who would not otherwise attend preschool and for children who are less likely to participate in the program.

This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models to provide inconsistent outcomes, is shown to be increasing with market uncertainty. During calm periods, the underlying risk forecast models produce similar risk readings; hence, model risk is typically negligible. However, the disagreement between the various candidate models increases significantly during market distress, further frustrating the reliability of risk readings. Finally, particular conclusions on the underlying reasons for the high model risk and the implications for practitioners and policy makers are discussed.

Chile is unusual in having long-term experience with nationwide school vouchers. A key criticism of school voucher systems is that they make it easier for private schools to attract better teachers to the detriment of public schools. This paper uses longitudinal data from Chile to estimate a discrete choice dynamic programming (DCDP) model of teacher and nonteacher labor supply decisions and to explore how wage policies affect the composition of the teacher labor force in public and private schools. In the model, individuals first decide whether to get a teaching degree and then choose annually from among five work/home sector alternatives. Empirical results show that private voucher schools attract better teachers than public schools. However, the existence of the private voucher sector also draws higher-productivity individuals into the teaching profession.

Building on recent theory, we find strong and robust evidence that external labor market incentives motivate CEOs to adopt more aggressive tax policies in order to improve firm performance and their own labor market value. In addition, we find that the tax aggressiveness-labor market incentives relation varies in the cross-section consistently with theory. We find that the relation is attenuated in industries for which the CEO has fewer outside employment options, and we find it to be amplified in industries for which competition for CEO talent is likely greatest, and also among CEOs estimated to have greater ability. Overall, our results suggest that the market for CEOs – an incentive device external to the firm – has a meaningful impact on corporate tax policy.

We test for the presence of a systematic tail risk premium in the cross section of expected returns by applying a measure of the sensitivity of assets to extreme market downturns, the tail beta. Empirically, historical tail betas help predict the future performance of stocks in extreme market downturns. During a market crash, stocks with historically high tail betas suffer losses that are approximately 2 to 3 times larger than their low-tail-beta counterparts. However, we find no evidence of a premium associated with tail betas. The theoretically additive and empirically persistent tail betas can help assess portfolio tail risks.

Poor heath, large acute and long-term care medical expenses and spousal death are significant drivers of impoverishment among retirees. We document these facts and build a rich overlapping generations model that reproduces them. We use the model to assess the incentive and welfare effects of U.S. Social Security and means-tested social insurance programs, such as Medicaid and food stamp programs, for the aged. We find that U.S. means-tested social insurance programs for retirees provide significant welfare benefits for all newborn. Moreover, when means-tested social insurance benefits are of the scale in the U.S., all newborn prefer that Social Security be removed. Finally, we find that the current scale of means-tested social insurance in the U.S. is about right in the following sense. If we condition on the current Social Security program, the benefits of increasing means-tested social insurance are small or negative.