Knowledge that Transforms

We specify and estimate a dynamic game to study the equilibrium relationship between market structure and innovation in the automobile industry. The quality of each firm’s product for the average consumer, the key state variable, is modeled as stochastically increasing in innovation,the dynamic control, which is proxied by patent applications. Equilibrium innovation is a function of market structure, the vector of quality levels of all active firms, and the cost of R&D. Our main findings are as follows:(a) optimal innovation has an inverted-U shape in own quality; (b) holding own quality constant, innovation is declining in average rival quality but increasing in quality dispersion; and (c) following entry, each incumbent’s innovation declines, but aggregate innovation increases in most market structures. These findings are broadly consistent with the Schumpeterian hypothesis that market power leads to more innovation.

Between 2000 and 2010, five U.S. states adopted mandates requiring high school juniors to take a college entrance exam. In the two earliest-adopting states, nearly half of all students were induced into testing, and 40% to 45% of them earned scores high enough to qualify for selective colleges. Selective enrollment rose by 20% following implementation of the mandates, reflecting substitution away from noncompetitive schools. I conclude that a large number of high-ability students appear to dramatically underestimate their candidacy for selective colleges. Policies aimed at reducing this information shortage are likely to increase human capital investment for a substantial number of students.

This paper asks whether being located outside the United States lowers research productivity in a data set of foreign-born, U.S.-educated scientists. Instrumenting location with visa status that requires return to home countries, we find a large negative relationship between non-U.S. location and research output for countries with low income per capita but none for countries with high income per capita. This suggests that a scientist exogenously located in a country at the top of the income distribution can expect to be as productive in research as he or she would be in the United States.

This study examines the impact of a randomized experiment in Jordan in which female community college graduates were assigned to receive a wage subsidy voucher. The wage voucher led to a 38 percentage point increase in employment in the short run, but the average effect is much smaller and no longer statistically significant after the voucher period has expired. The extra job experience gained as a result of the wage subsidy does not provide a stepping-stone to new jobs for these recent graduates, which appears to be due to productivity levels not rising above a binding minimum wage.

This paper examines an unintended response to the one-child policy in China: births of twins. Analysis of population census data shows that the one-child policy has accounted for more than one-third of the increase in the reported births of twins since the 1970s. Investigation using birth spacing with prior births and height difference within twins suggests that the increase in the birth of twins is partly due to parents reporting regularly spaced children as twins to avoid the policy violation punishment. The study highlights the possibility of individual behavioral response to undesirable government policies and the potential social consequences.

We introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large, balanced panel of household level consumption data. This new measure, the minimum cost index, is the minimum cost of breaking all revealed preference cycles found in choices from budget sets. Unlike existing measures of rationality, it responds to both the number and severity of revealed preference violations.

Increasing the efficiency of the school system is a primary focus of policymakers. I analyze how the time of day affects students’ productivity and if efficiency gains can be obtained by rearranging the order of tasks they perform throughout the school day. Using a panel data set of nearly 2 million sixth- through eleventh-grade students in Los Angeles County, I perform within-teacher, class type, and student estimation of the time-of-day effect on students’ learning as measured by GPA and state test scores. I find that given a school start time, students learn more in the morning than later in the school day. Having a morning instead of afternoon math or English class increases a student’s GPA by 0.072 (0.006) and 0.032 (0.006), respectively. A morning math class increases state test scores by an amount equivalent to increasing teacher quality by one-fourth standard deviation or half of the gender gap. Rearranging school schedules can lead to increased academic performance.

This study analyzes the circumstances that enabled France to become in the late nineteenth century the first stable parliamentary democracy with universal (male) suffrage in Europe. It establishes a causal relationship between short-term variations in local income and the electoral support for the coalition of republican parties that represented the newly established regime. The results suggest the republican coalition won the parliamentary elections because most French regions did not suffer from transitory negative income shocks stemming from heavy precipitations. They thus raise questions about the rationality of voters and, ultimately, the actual causes of the consolidation of democracy in France.

Opinion polls and other surveys are used to capture public sentiments on a variety of issues. If citizens are unwilling to reveal certain policy preferences to others, surveys may fail to characterize population preferences accurately. The innovation of this paper is to use unique data that allow one to measure biases in surveyed preferences for a broad range of public policies. I combine data on 184 referenda held in Switzerland between 1987 and 2007 with postballot surveys that ask how the citizens voted for each proposal. The difference between stated preferences in the survey and revealed preferences at the ballot box provides a direct measure of survey bias. I find that these biases vary by policy area, with the largest occurring in policies on immigration, international integration, and votes involving liberal or conservative attitudes. Also, citizens show a tendency to respond in accordance with the majority.

Grogger and Ridgeway (2006) use the daylight saving time shift to develop a police racial profiling test that is based on differences in driver race visibility and (hence) the race distribution of traffic stops across daylight and darkness. However, urban environments may be well lit at night, eroding the power of their test. We refine their test using streetlight location data in Syracuse, New York, and the results change in the direction of finding profiling of black drivers. Our preferred specification suggests that the odds of a black driver being stopped (relative to nonblack drivers) increase 15% in daylight compared to darkness.