Knowledge that Transforms

We investigate empirically how fiscal shocks—unanticipated and exogenous changes of government consumption growth—affect the sovereign default premium. For this purpose, we assemble a new data set for 38 emerging and developed economies. It contains approximately 3,000 observations for the sovereign default premium and three alternative measures of fiscal shocks. We condition our estimates on whether shocks are positive or negative and initial conditions in terms of fiscal stress. An increase of government consumption barely affects the default premium. A reduction raises the premium if fiscal stress is severe but decreases it if initial conditions are benign.

This paper asks whether scarcity increases violence in markets that lack a centralized authority. We construct a model in which, by raising prices, scarcity fosters violence. Guided by our model, we examine this effect in the Mexican cocaine trade. At a monthly frequency, scarcity created by cocaine seizures in Colombia, Mexico's main cocaine supplier, increases violence in Mexico. The effects are larger in municipalities near the United States, with multiple cartels and with strong support for PAN (the incumbent party). Between 2006 and 2009 the decline in cocaine supply from Colombia could account for 10% to 14% of the increase in violence in Mexico.

Will college students who set goals work harder and perform better? We report two field experiments that involved four thousand college students. One experiment asked treated students to set goals for performance in the course; the other asked treated students to set goals for a particular task (completing online practice exams). Task-based goals had robust positive effects on the level of task completion and marginally significant positive effects on course performance. Performance-based goals had positive but small and statistically insignificant effects on course performance. A theoretical framework that builds on present bias and loss aversion helps to interpret our results.

School finance reforms caused some of the most dramatic increases in intergovernmental aid from states to local governments in U.S. history. We examine whether teachers' unions affected the fraction of reform-induced state aid that passed through to local spending and the allocation of these funds. Districts with strong teachers' unions increased spending nearly dollar-for-dollar with state aid and spent the funds primarily on teacher compensation. Districts with weak unions used aid primarily for property tax relief and spent remaining funds on hiring new teachers. The greater expenditure increases in strong union districts led to larger increases in student achievement.

I assemble and classify a database of judicial reforms funded by foreign aid agencies as either comprehensive (targeting all characteristics of quality, speed, access) or limited reform. A triple difference is used to compare firms in countries with or without judicial reforms, before and after reforms, and in sectors more or less reliant on contract enforcement mechanisms, due to their need for relationship-specific investments. I find that externally financed comprehensive judicial reforms improve perceptions of judiciary efficiency (for all firms) and firm productivity (for sectors relying on relationship-specific investments) by 0.15 and 0.09 (22%) standard deviation, respectively.

We study editorial decisions using anonymized submissions matched to citations at four leading economics journals. We develop a benchmark model in which editors maximize the expected quality of accepted papers and citations are unbiased measures of quality. We then generalize the model to allow different quality thresholds, systematic gaps between citations and quality, and a direct impact of publication on citations. We find that referee recommendations are strong predictors of citations and that editors follow these recommendations closely. We document two deviations from the benchmark model. First, papers by highly published authors receive more citations, conditional on the referees' recommendations and publication status. Second, recommendations of highly published referees are equally predictive of future citations, yet editors give their views significantly more weight.

This paper reports the results of two randomized field experiments, each offering different populations of Chicago youth a supported summer job. The program consistently reduces violent-crime arrests, even after the summer, without improving employment, schooling, or other arrests; if anything, property crime increases over two to three years. Using a new machine learning method, we uncover heterogeneity in employment impacts that standard methods would miss, describe who benefits, and leverage the heterogeneity to explore mechanisms. We conclude that brief youth employment programs can generate important behavioral change, but for different outcomes, youth, and reasons than those most often considered in the literature.

Using a proprietary database of online job postings, we find that education and experience requirements rose during the Great Recession. These increases were larger in states and occupations that experienced greater increases in the supply of available workers. This finding is robust to controlling for local demand conditions and firm [Formula: see text] job-title fixed effects and using a natural experiment arising from troop withdrawals as an exogenous shock to labor supply. Our results imply that the increase in unemployed workers during the Great Recession can account for 18% to 25% of the increase in skill requirements between 2007 and 2010.

We study the adoption of energy-efficient LED lighting in garment factories around Bangalore, India. Combining daily production line–level data with weather data, we estimate a negative, nonlinear productivity-temperature gradient. We find that LED lighting raises productivity on hot days. Using the firm's costs data, we estimate that the payback period for LED adoption is less than one-third the length after accounting for productivity co-benefits. The average factory in our data gains about $2,880 in power consumption savings and about $7,500 in productivity gains.

We show that tenth-grade teacher expectations affect students' likelihood of college completion. Our approach leverages a unique feature of a nationally representative dataset: two teachers provided their educational expectations for each student. Identification exploits teacher disagreements about the same student, an idea we formalize using a measurement error model. We estimate an elasticity of college completion with respect to teachers' expectations of 0.12. On average, teachers are overly optimistic, though white teachers are less so with black students. More accurate beliefs are counterproductive if there are returns to optimism or sociodemographic gaps in optimism. We find evidence of both.