Knowledge that Transforms

Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment by John A. List and David Lucking-Reiley. Published in volume 90, issue 4, pages 961-972 of American Economic Review, September 2000

Our one-page reply to Whinston and Siegal's forthcoming AER article correcting and elaborating our 1991 AER article.

In early 1999, the mayor of New York City announced a plan for exporting most of his city’s waste (about 13,000 tons per day) to other states. The responses escalated an already growing war of words about interstate waste shipments. A Pennsylvania state legislator bluntly called the mayor’s plan “irresponsible,” and the governor of New Jersey labeled it “a direct assault” on her state. A spokesperson for New York City’s Department of Sanitation coolly staked out the City’s position: “You can’t stop interstate commerce. ... If Virginia is the least expensive place to deliver this solid waste, then that is where it is going to go.” The response was swift: various legislators joined environmental activists to send 50 pounds of trash to the mayor’s office. Led by the governor’s efforts, the Virginia General Assembly subsequently responded with proposed legislation to restrict significantly imports of waste (see R. H. Melton, 1998). Virginia’s legislative proposal came on the heels of numerous similar proposals by other states to which large shipments of waste are transported. Interstate shipments of waste involve almost the entire nation (47 states export waste, and 44 states import waste) and represent nearly $1 billion annually in disposal and transportation fees. Since the early 1990’s, these shipments have increased by more than 30 percent. As officials in importing states have sought to curb these flows, the U.S. Supreme Court has repeatedly struck down their proposed restrictions as violations of the Interstate Commerce Clause. In response, the Congress has advanced proposals to exempt waste from jurisdiction of that clause. To date, however, very little is known about the positive and normative effects of the various proposals to restrict municipal solid-waste transshipments. How are the effects of restrictions likely to be distributed among the owners of waste-disposal facilities and the users of these services? Given that the Northeast is a net exporter and the Midwest is a net importer of waste, are the effects likely to differ among regions of the country? In this paper we model the interstate market for municipal solid waste and evaluate the potential economic effects of public policies proposed to restrict waste flows. These restrictions include local and state requirements stipulating where waste must be landfilled, prohibitions on the import or export of waste across state boundaries, quantitative limits on these flows, and extra fees levied on imported waste. To our knowledge, this research is the first to evaluate these proposals quantitatively. We develop both a conceptual and a computable economic model of the use over time of spatially differentiated resources, characteristics which well describe the nation’s landfill facilities (landfills, rather than recycling or other disposal options, are the dominant destination of most interstate shipments). The model characterizes the efficient intertemporal allocation of spatially distributed waste-disposal capacity among users who are also spatially distributed. In addition,

We develop a model where the allocation of human resources, intergenerational social mobility, and technological growth are jointly determined. High growth endogenously increases the equilibrium return to innate cognitive ability and makes the allocation of individuals depend more on innate ability and less on social background. Individuals with a higher level of innate cognitive ability can deal better with less known, but more productive, technologies and thus choose a higher rate of technological growth. A social allocation based on innate ability and high growth will thus reinforce each other, implying the possibility of multiple endogenous growth equilibria.

* Department of Economics, University of British Columbia, Vancouver BC, V6T 1Z1, and Department of Economics, CRDE, CIRANO, Universite de Montreal, Montreal, PQ H3C 3J7; Lemieux is also affiliated with the NBER. We thank Paul Beaudry, Richard Blundell, Richard Freeman, and Robert Haveman for helpful comments and discussions. We gratefully acknowledge financial support from the Social Sciences and Humanities Council of Canada and from FCAR, Quebec. 1 The gender wage ratio and the 90/50 wage ratio for men are calculated from the Current Population Survey (CPS) data provided by EPI ^http://www.epinet.org/&. The 1980’s trends in the gender gap emerged from average real increases of 0.5 percent per year in women’s median wages and average real declines of 1 percent per year in men’s median wages.

This paper outlines what inflation targeting involves for emerging market/transition countries and discusses the advantages and disadvantages of this monetary policy strategy. The discussion suggests that although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them.

We welcome Bradley J. Ruffle and Orit Tykocinski’s (1999) attempt to reconcile the difference in findings between our paper (Solnick and Hemenway, 1996) and Joel Waldfogel’s (1993). In both studies, subjects were asked to estimate the cost and the value to them of gifts they had received. Waldfogel found that gift recipients typically valued their gifts at only 87 percent of their estimated cost to the givers. By contrast, our sample of adults—from train stations and airports and from faculty, staff, and graduate students at Harvard—reported valuing their gifts at more than twice the estimated cost. Ruffle and Tykocinski examine the wording of the question used to elicit the valuation of the gift. Waldfogel’s subjects were economics students; hence he could ask them directly what amount of cash would make them “indifferent” between the gift and a cash alternative. Since we wanted to question people without economics training, we asked respondents to name the amount of money that would make them “equally happy” as receiving the gift. Ruffle and Tykocinski find that the change from Waldfogel’s wording to ours results in a 15to 20-percent increase in estimated value while leaving accompanying cost estimates unchanged. The wording of the question clearly matters, but to pose a question that only those with training in economics can answer limits the scope of inquiry. In the study by Ruffle and Tykocinski, 10 percent of the psychology students raised their hands to ask for a definition of “indifferent.” We wonder how this concept was explained to them, what those who asked and those who did not ask made of the term, and what set of emotions might have been activated. Had Waldfogel used our question, rather than finding any deadweight loss (a yield of 87 percent), he would have reported gifts being valued very close to cost (100.0 or 104.4 percent). Thus Ruffle and Tykocinski take us partway towards an understanding of the difference in our findings and Waldfogel’s. Yet a wide gulf remains. Ruffle and Tykocinski reject our claim that sample selection may be largely responsible for the difference between our results and Waldfogel’s. It does appear that results do not vary a great deal with the type of undergraduate questioned—whether a student is enrolled in a psychology or an economics class, or in a more or less prestigious institution. But the real issue of sample selection has not been adequately addressed; ours remains the only study to use adults, living independently, as subjects. We note that Ruffle and Tykocinski’s subjects performed poorly in estimating costs. For example, psychology students estimated the cost of the mask at 603 shekels and economics students, at 375 shekels. Actual retail price was 800 shekels. This incidental finding supports our belief that college students may not be full-fledged participants in many market or gift-exchange processes. It is certainly possible that the average gain in gift exchange may be lower than the 214 percent measured in our survey, but we remain convinced that even examining solely the material value to the recipient, gift-giving can, and often does, result in a gain rather than a deadweight loss.

For 20 years following 1949, average total fertility per woman in China hovered just above six children. The year 1970 marked the beginning of persistent fertility declines. By 1980, the rate had dropped to 2.75, and since 1992 it has remained under 2. While some of this transition can be accounted for by broad socioeconomic developments, the extent to which it is attributable to China's unique population policies remains controversial. This paper analyzes household data from the 1992 Household Economy and Fertility Survey (HEFS) to provide the first direct microeconomic empirical evidence on the efficacy of these policies.

Many economic processes are influenced by externalities within groups. Educational outcomes depend on peer-group interactions between students, which may help explain the persistence of income inequality and the stability of subcultures and social classes.' Crime rates exhibit a geographic pattern that strongly suggests the presence of interactions between potential criminals. There is also substantial evidence that amenities are influenced by interactions between neighbors, and that interactions between firms influence labor productivity.2 This paper considers how social interactions affect the institutions of local government. Specifically, we show how social interactions encourage consumers to withdraw from the traditional public sector and join exclusive groups that regulate the activities of their members. Examples include familiar organizations like exclusive suburbs and private schools and new or newly popular institutions like private governments and charter schools. Each of these institutions mediates social interactions by excluding some agents and altering the actions of others. We view the formation of these institutions as a kind of secession, since members withdraw from the civic whole and limit their interactions to other group members. These new organizations are increasingly important, surprisingly powerful, and highly controversial. One of the most widespread innovations in local government in recent years has been the rise of residential private government, including common interest developments (CIDs) and homeowner associations (HOAs). Evan McKenzie (1996) reports that the number of CIDs in the United States grew from a few hundred in the 1960's to 150,000 in 1993, and that their populations now total at least 32 million people. CIDs and HOAs are generally formed by real estate developers, and are eventually governed by an elected board of members. CIDs limit interactions with the rest of the world in a number of ways, most notoriously by building walls (Edward J. Blakely and Mary Gail Snyder, 1997). They tax their members to pay for the local public services they provide (primarily street maintenance, trash collection, and policing), collectively own and manage shared facilities (recreation centers, parks, and sometimes streets), and regulate both property use and individual conduct through covenants, conditions, and restrictions (CCRs) established by the developer. The regulatory activities of CIDs are impressive. Activities that have been prohibited include flying the flag, delivering newspapers, parking pickup trucks in the driveway, kissing outside the front door, using one's own back door too much, building fences, painting the exterior certain colors, having pets, working from one's home, marrying people below a certain age, and even having children (McKenzie, 1996 p. 4). In spite of, or perhaps because of, these regulations, CIDs provide a higher level of amenities than is available in public developments. However, critics view them as undemocratic and discriminatory private governments operating outside the constitutional restrictions that public governments face. A primary goal of this paper is to provide a model that captures the common and general features of the new institutions of local government. To that end, we develop a model of local secession motivated by social interactions and supported by regulation. The model has three essential elements. First, heterogeneous agents belong to groups, and each takes an action that * Faculty of Commerce and Business Administration, 2053 Main Mall, University of British Columbia, Vancouver, BC, V6T 1Z2 Canada. We gratefully acknowledge the financial support of the Social Sciences and Humanities Research Council of Canada, the University of British Columbia Centre for Real Estate and Urban Land Economics, and the Real Estate Foundation of British Columbia. We also appreciate the comments of David Wildasin, two anonymous referees, and seminar participants at the 1996 University of British Columbia Summer Symposium on Urban Land Economics. 1See Anita A. Summers and Barbara L. Wolfe (1977), J. Vernon Henderson et al. (1978), Roland B6nabou (1993, 1996), Steven N. Durlauf (1996), and George A. Akerlof (1997). 2 See Joseph Gyourko and Joseph Tracy (1991), Raaj Sah (1991), William N. Evans et al. (1992), Charles F. Manski (1993), Edward L. Glaeser et al. (1996), and John M. Ouigley (1998).

While recent research has emphasized the desirability of studying effects of changes in marginal tax rates on taxable income, broadly defined, there has been comparatively little analysis of effects of marginal tax rate changes on entrepreneurial entry. This margin is likely to be important both because of the likely greater elasticity of entrepreneurial decisions with respect to tax changes (relative to decisions about hours worked) and because of recent research linking entrepreneurship, mobility, and household wealth accumulation. Previous work focuses on how marginal tax rates affect work incentives, incentives to take compensation in taxable forms, and reporting incentives. In addition, both the level and the progressivity of tax rates can affect decisions about risky activities. The tax system offers insurance for taking risk since taxes depend on outcomes; however, asymmetric taxes on different outcomes, such as progressive rates, may discourage risk taking. Using the Panel Study of Income Dynamics for 1978-1993, we incorporate both of these effects of the tax system in empirical estimations of the probability that people enter self employment. While the level of the marginal tax rate does not affect entry into self employment in a consistent manner across specifications, we find robust results that