Knowledge that Transforms

The Israeli matriculation certificate is a prerequisite for most postsecondary schooling. In a randomized trial, we attempted to increase certification rates among low-achievers with cash incentives. The experiment used a school-based randomization design offering awards to all who passed their exams in treated schools. This led to a substantial increase in certification rates for girls but had no effect on boys. Affected girls had a relatively high ex ante chance of certification. The increase in girls' matriculation rates translated into an increased likelihood of college attendance. Female matriculation rates increased partly because treated girls devoted extra time to exam preparation. (JEL I21, I28, J16)

We develop a rational dynamic model in which people are loss averse over changes in beliefs about present and future consumption. Because changes in wealth are news about future consumption, preferences over money are reference-dependent. If news resonates more when about imminent consumption than when about future consumption, a decision maker might (to generate pleasant surprises) overconsume early relative to the optimal committed plan, increase immediate consumption following surprise wealth increases, and delay decreasing consumption following surprise losses. Since higher wealth mitigates the effect of bad news, people exhibit an unambiguous first-order precautionary-savings motive. (JEL D14, D81, D83, D91)

In this paper we exploit a unique database that merges longitudinal earnings data on Pennsylvanian workers with national death records to study the detailed nature of the correlation between earnings and mortality. We find that the estimates typically reported in the literature, which are based on single years of earnings data, are likely to understate substantially the strength of the association between income and mortality. In particular, relative to a single year of earnings, the average of earnings over a six-year period predicts a 70 percent greater impact of income on mortality. In addition, controlling for the mean level of earnings over a period, we find that greater earnings volatility is associated with higher mortality. We also examine the lag structure of the relationship between earnings and mortality. We find that conditional on a small number of years of recent earning levels, there is little or no correlation between earnings levels in earlier years and current mortality. This runs counter to the interpretation of the earnings-mortality correlation that views workers as "buying health" by allocating a steady fraction of their earnings to the accumulation of a health stock. It is also inconsistent with interpretations of the earnings- mortality link emphasizing the correlation of both variables with an unobserved, time-invariant trait, such as the rate at which workers discount the future. We find that explaining the patterns of correlation appears to require a relatively complex theory that we leave to future research.

The past 20 years have seen important changes in public policy with the potential for significant impacts on health insurance for children. These changes included both those explicitly intended to expand access to public insurance for children, including expansions in eligibility for Medicaid and the introduction of the State Children’s Health Insurance Program (SCHIP), and other changes in antipoverty policy. Since health insurance coverage among children is entwined with parental welfare participation and employment, shifts in policy designed to encourage work in place of welfare participation--such as welfare reform and the expansion of the Earned Income Tax Credit (EITC)--may have secondary impacts on children's health insurance coverage. As parents leave welfare, with its guaranteed health insurance through Medicaid, for jobs that may or may not have health insurance coverage offered as a benefit, children may experience a change in the source of their health insurance coverage or may become uninsured. Similarly, changes in health care markets and economic conditions such as rising health care prices and cyclicality in the availability of employment may also affect children's coverage. Despite the potential importance of these factors for coverage, the fraction of children who are uninsured has remained largely constant, particularly through the 1990s. However, this relatively constant level of uninsurance may mask changes in the underlying dynamics of health insurance among children. In this paper, we use monthly data from the 1986–1996 panels of the Survey of Income and Program Participation (SIPP) to examine patterns of health insurance coverage among children during the period 1986–1999, focusing on transitions between public coverage, private coverage, and no coverage. Using these data, we find that over the 1990s the rate of transitions among all three insurance states--public insurance, private insurance, and no insurance--increased, with a particular increase in transitions involving public coverage. We investigate whether there is evidence of a relationship between insurance transitions and various policy and economic variables, focusing on the impacts of expansions in public coverage availability, the effects of other policies directed at the poor that affect employment and insurance coverage, and economic conditions. We find that several of the policy changes that took place over the 1990s had important effects on health insurance transitions for children.

ABSTRACT The financing of R&D provides a potentially important channel to link finance and economic growth, but there is no direct evidence that financial effects are large enough to impact aggregate R&D. U.S. firms finance R&D from volatile sources: cash flow and stock issues. We estimate dynamic R&D models for high‐tech firms and find significant effects of cash flow and external equity for young, but not mature, firms. The financial coefficients for young firms are large enough that finance supply shifts can explain most of the dramatic 1990s R&D boom, which implies a significant connection between finance, innovation, and growth.

ABSTRACT Does limited attention among investors affect stock returns? We compare the response to earnings announcements on Friday, when investor inattention is more likely, to the response on other weekdays. If inattention influences stock prices, we should observe less immediate response and more drift for Friday announcements. Indeed, Friday announcements have a 15% lower immediate response and a 70% higher delayed response. A portfolio investing in differential Friday drift earns substantial abnormal returns. In addition, trading volume is 8% lower around Friday announcements. These findings support explanations of post‐earnings announcement drift based on underreaction to information caused by limited attention.

ABSTRACT By reaching a broad population of investors, mass media can alleviate informational frictions and affect security pricing even if it does not supply genuine news. We investigate this hypothesis by studying the cross‐sectional relation between media coverage and expected stock returns. We find that stocks with no media coverage earn higher returns than stocks with high media coverage even after controlling for well‐known risk factors. These results are more pronounced among small stocks and stocks with high individual ownership, low analyst following, and high idiosyncratic volatility. Our findings suggest that the breadth of information dissemination affects stock returns.

ABSTRACT The average cash‐to‐assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.