Knowledge that Transforms

This paper assesses the role of heating entitlements in generating stark air quality differences across China. During the 1950-1980 central planning period, the Chinese government established free winter heating of homes and offices as a basic right via the provision of free coal fuel for boilers. The combustion of coal in boilers is associated with the release of air pollutants, especially total suspended particulates (TSP). Due to budgetary limitations, however, this heating entitlement was only extended to areas to the north of the line formed by the Huai River and Qinling Mountains in central China. We find this procrustean policy led to dramatically higher TSP levels in the north; the difference is roughly 5-8 times current TSP concentrations in the US. This result holds both in a cross-sectional regression discontinuity-style estimation approach and in a panel data setting that compares the marginal effect of winter temperature on TSP in northern and southern China. In contrast, we fail to find evidence that the heating policy has a meaningful impact on sulfur dioxide (SO2) and nitrogen oxide (NOx) concentrations.

A year ago, we presented a historical analysis comparing the run-up to the 2007 US subprime financial crisis with the antecedents of other banking crises in advanced economies since World War II (Reinhart and Rogoff 2008a ). We showed that standard indicators for the United States, such as asset price inflation, rising lever age, large sustained current account deficits, and a slowing trajectory of economic growth, exhibited virtually all the signs of a country on the verge of a financial crisis—indeed, a severe one. In this paper, we engage in a similar com

We investigate the size of the consumption drop at retirement in Italy by exploiting pension eligibility information to correct for endogenous retirement. We take a regression discontinuity approach and assume that spending would be smooth around pension eligibility if individuals did not retire. We estimate a 9.8 percent drop associated to retirement. This fall is not driven by liquidity problems for the less well off and can be accounted for by drops in work-related expenses. Retirement also induces a significant drop in the number of grown children living with their parents and this explains most of the retirement consumption drop. (JEL D91, E21, J26, J31)

We revisit the impact of remittances on educational attainment of school-age children in Nepal, paying particular attention to differences between girls and boys. A heightened interest in understanding the impact of remitting practices on a variety of economic variables has emerged as remittances to developing countries continue to rise. In Nepal, the World Bank reports that remittances amounted to $1.2 billion (US dollars) in 2005, while GDP was $8.2 billion and official development assistance totaled $425 million (World Bank 2007). We use the 1995/1996 Nepal Living Standards Survey (NLSS) to examine the impact of remittances on human capital investments for female and male children. If remittances do affect human capital positively, then not only will remittances affect long-run growth in Nepal, but the opportunities for women in Nepal should improve as the female population becomes more educated. The effect of remittances on human capital investment is unclear a priori. Increasing income through remittances may increase investment in children’s schooling by relaxing household budget and capital constraints. Conversely, household absenteeism pressures children to work in the home, reducing time for education. Our data provide an opportunity to separate the effect of household disruption from the income effect of remittances on the decision to invest in schooling. We are able to measure the number of adults living outside the household so that we may control for absenteeism in estimating the impact of remittances on household schooling choices. We ask if the impact varies by gender and age group (young child versus older child). Our results indicate that young children benefit more from remittances, but the benefits, controlling How Do Remittances Affect Human Capital Formation of School-Age Boys and Girls?

This paper presents a model in which price setting firms decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention to idiosyncratic conditions than to aggregate conditions. When we calibrate the model to match the large average absolute size of price changes observed in micro data, prices react fast and by large amounts to idiosyncratic shocks, but only slowly and by small amounts to nominal shocks. Nominal shocks have strong and persistent real effects. (JEL D21, D83, E31, E52)

In a recent paper, Chiara Fumagalli and Massimo Motta (2006) challenge the idea that an incumbent can foreclose efficient entry in the face of scale economies by using exclusive contracts. They claim that inefficient exclusion does not arise when buyers are homogenous firms that compete downstream. However, when upstream firms can compete in two-part tariffs, their equilibrium analysis contains some errors. Fixing these errors, inefficient exclusion arises when scale economies are sufficiently large or the entrant's cost advantage is not too big. Inefficient exclusion arises to protect industry profits from competition. (JEL L11, L13, L14)

We study the emergence of norms of cooperation in experimental economies populated by strangers interacting indefinitely. Can these economies achieve full efficiency even without formal enforcement institutions? Which institutions for monitoring and enforcement facilitate cooperation? Finally, what classes of strategies do subjects employ? We find that, first, cooperation can be sustained even in anonymous settings; second, some type of monitoring and punishment institutions significantly promote cooperation; and, third, subjects mostly employ strategies that are selective in punishment. (JEL C71, C73, D12, Z13)

Immigration is often viewed as a proximate cause of the rising wage gap between highand low-skilled workers. Nevertheless, there is controversy over the appropriate theoretical and empirical framework for measuring the presumed effect, and over the precise magnitudes involved. This paper offers an overview and synthesis of existing knowledge on the relationship between immigration and inequality, focusing on evidence from cross-city comparisons in the U.S. While some researchers have claimed that a cross-city research design is inherently flawed, I argue that the evidence from cross-city comparisons is remarkably consistent with recent findings based on aggregate time series data. In particular, cross-city and aggregate time series comparisons provide support for three key conclusions: (1) workers with below high school education are perfect substitutes for those with a high school education; (2) “high school equivalent” and “college equivalent” workers are imperfect substitutes, with an elasticity of substitution on the order of 2; (3) within education groups, immigrants and natives are imperfect substitutes. Together these results imply that the average impacts of recent immigrant inflows on the relative wages of U.S. natives are small. The effects on overall wage inequality (including natives and immigrants) are larger, reflecting the concentration of immigrants in the tails of the skill distribution and higher residual inequality among immigrants than natives. Even so, immigration accounts for a small share (5%) of the increase in U.S. wage inequality between 1980 and 2000.

Using estate tax returns data, we observe that the share of women among the very wealthy in the United States peaked in the late 1960s at nearly one-half and then declined to one-third. We argue that this pattern reflects changes in the importance of dynastic wealth, with the share of women proxying for inherited wealth. If so, wealth mobility decreased until the 1970s and rose thereafter. Such an interpretation is consistent with technological change driving long-term trends in mobility and inequality, as well as the recent divergence between top wealth and top income shares documented elsewhere. (JEL D31, J16, J62, O33)

The increasing body of evidence from high income countries linking pollution to health outcomes (Ken Chay and Michael Greenstone 2003; Janet Currie and Matthew Neidell 2004), has raised concerns about the health impact of adverse air quality in developing countries, where, in general, environmental regulation is less stringent and health monitoring and treatment are less accessible. These concerns have, in turn, encouraged consideration of the effectiveness of alternative mechanisms for improving air quality while limiting the adverse impact on economic growth. However, the analysis of both the effects of pollution on health and the effectiveness of pollution abatement policies faces particular empirical challenges in low- and middle-income contexts, given the scarcity of reliable measures of pollution concentrations. The primary source of good quality data on air quality, ground monitoring, tends to be limited to larger metropolitan areas with monitors placed at sentinel sites that may or may not yield a representative picture of population exposure. This paper calls attention to, and makes use of, newly available procedures for extracting measures of air quality from satellite imagery. In particular, satellite-based measures of aerosol optical depth (AOD) are used to obtain estimates of air quality for the whole Mexican territory at a detailed geographic scale, and these estimates are related to measures of participation in a voluntary certification program at the level of the county. The resulting estimates are then combined with estimates of the relationship between participation in the certification program and infant mortality due to respiratory causes to obtain a rough estimate of the relationship between air quality and infant health in Mexico.