Knowledge that Transforms

It takes a woman and a man to make a baby. This fact suggests that for a birth to take place, the parents should first agree on wanting a child. Using newly available data on fertility preferences and outcomes, we show that indeed, babies are likely to arrive only if both parents desire one. In addition, there are many couples who disagree on having babies, and in low-fertility countries women are much more likely than men to be opposed to having another child. We account for this evidence with a quantitative model of household bargaining in which the distribution of the burden of child care between mothers and fathers is a key determinant of fertility. The model implies that fertility is highly responsive to targeted policies that lower the child care burden specifically for mothers. (JEL C78, D13, J13, J16)

Fixing the investment horizon, the returns to currency carry trades decrease as the maturity of the foreign bonds increases. Across developed countries, the local currency term premia, which increase with the maturity of the bonds, offset the currency risk premia. Similarly, in the time-series, the predictability of foreign bond returns in dollars declines with the bonds’ maturities. Leading no-arbitrage models in international finance do not match the downward term structure of currency carry trade risk premia. We derive a simple preference-free condition that no-arbitrage models need to reproduce in the absence of carry trade risk premia on long-term bonds. (JEL E43, G12, G15)

Subsidy programs have two countervailing effects on firms: direct gains for eligible firms and indirect losses for those whose competitors are eligible. In 2006, India changed the eligibility criteria for small-firm subsidies, and the sales of newly eligible firms grew by roughly 35 percent. Competitors of the newly eligible firms were affected, with almost complete crowd-out within products that were less internationally traded, but little crowd-out for more-traded products. The newly eligible firms had relatively high marginal products, so relaxing the eligibility criteria for subsidies increased aggregate productivity by around 1−2 percent. Targeting different firms could have led to similar gains. (JEL D22, D24, H25, L25, L52, L60, O14)

This paper examines the effects of globalization on the distribution of worker-specific labor taxes using a unique set of tax calculators. We find a differential effect of higher trade and factor mobility on relative tax burdens in 1980–1993 versus 1994–2007 in the OECD. Prior to 1994, greater openness meant that higher income earners were taxed progressively more. However, after 1994, we document a globalization-induced rise in the labor income tax burden of the middle class, while the top 1 percent of workers and employees faced a reduction in their tax burden of 0.59–1.45 percentage points. (JEL D31, F16, F61, H22, H24)

We conducted a randomized survey with 2,666 US residents to study preferences for legalizing payments to kidney donors. We found strong polarization, with many participants supporting or opposing payments regardless of potential transplant gains. However, about 18 percent of respondents would switch to favoring payments for sufficiently large increases in transplants. Preferences for compensation have strong moral foundations; participants especially reject direct payments by patients, which they find would violate principles of fairness. We corroborate the interpretation of our findings with a choice experiment of a costly decision to donate money to a foundation that supports donor compensation. (JEL D63, D64, I11)

Tourism is a fast-growing services sector in developing countries. This paper combines a rich collection of Mexican microdata with a quantitative spatial equilibrium model and a new empirical strategy to study the long-term economic consequences of tourism both locally and in the aggregate. We find that tourism causes large and significant local economic gains relative to less touristic regions that are in part driven by significant positive spillovers on manufacturing. In the aggregate, however, these local spillovers are largely offset by reductions in agglomeration economies among less touristic regions, so that the national gains from trade in tourism are mainly driven by a classical market integration effect. (JEL L60, L83, O14, O18, R11, Z31, Z32)

How much are low- income individuals willing to pay for health insurance, and what are the implications for insurance markets? Using administrative data from Massachusetts’ subsidized insurance exchange, we exploit discontinuities in the subsidy schedule to estimate willingness to pay and costs of insurance among low- income adults. As subsidies decline, insurance take- up falls rapidly, dropping about 25 percent for each $40 increase in monthly enrollee premiums. Marginal enrollees tend to be lower- cost, indicating adverse selection into insurance. But across the entire distribution we can observe (approximately the bottom 70 percent of the willingness to pay distribution) enrollees’ willingness to pay is always less than half of their own expected costs that they impose on the insurer. As a result, we estimate that take- up will be highly incomplete even with generous subsidies. If enrollee premiums were 25 percent of insurers’ average costs, at most half of potential enrollees would buy insurance; even premiums subsidized to 10 percent of average costs would still leave at least 20 percent uninsured. We briefly consider potential explanations for these findings and their normative implications.

Persuaders often face the task of changing their listeners’ world-view, which may involve conveying evidence that disconfirms that view. It has been shown, however, that people are often reluctant to change their worldviews. These aspects of persuasion cannot be captured in the standard Bayesian framework. The paper identifies the constraints, opportunities, and trade-offs of persuading people to change worldview. It finds necessary and sufficient conditions under which it is optimal for persuaders to do so. It also shows when and how they conceal disconfirming evidence and take advantage of their listener’s existing worldview. (JEL D82, D83, D91)

Traditional approaches to structural vector autoregressions (VARs) can be viewed as special cases of Bayesian inference arising from very strong prior beliefs. These methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves. We use this approach to revisit the importance of shocks to oil supply and demand. Supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates. Supply shocks lead to a reduction in global economic activity after a significant lag, whereas shocks to oil demand do not. (JEL C32, L71, Q35, Q43)

We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from the idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel through a multivariate and nonparametric heterogeneity analysis of proxies for collateral and wealth effects. (JEL D14, E32, R31)