Are “Nearly Exogenous Instruments” reliable?

We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson–Rubin test over-rejects the null. We prove that in the limit these tests are no longer nuisance parameter free.     

“WHY NOT SETTLE DOWN ALREADY?” A QUANTITATIVE ANALYSIS OF THE DELAY IN MARRIAGE

A striking change in American society in the last 40 years has been the decline and delay in marriage. The fraction of young adults who have never been married increased significantly between 1970 and 2000. Idiosyncratic labor income volatility also rose. We establish a quantitatively important link between these facts. If marriage involves consumption commitments, then a rise in income volatility delays marriage. We quantitatively assess this hypothesis vis‐à‐vis others in the literature. Increased volatility accounts for about 20% of the observed delay in marriage and is strong relative to other mechanisms.     

How do school ‘report cards’ affect school choice decisions?

Abstract. We estimate the effect of information about school achievement that is disseminated to the public through websites and school ‘report cards’ on school choice decisions. We find that students are more likely to leave their school when public information reveals poor school‐level performance. Some parents’ school choice decisions respond to information soon after it becomes available. Others, including non‐English‐speaking parents, alter their school choice decisions only in response to information that has been disseminated widely and discussed in the media. Parents in low‐income neighbourhoods are most likely to alter their school choice decisions in response to new information. JEL classification: I21, D83     

Chasing after “good jobs.” Do they exist and does it matter if they do?

Most people believe that there are such things as good jobs—jobs that a worker would consider herself lucky to get. But for economists, the existence of good jobs is debatable. In this paper, I provide a definition of a good job based on various theories of the labour market: a job that involves a surplus captured partly by the worker. I use that definition to guide an empirical investigation of the existence and importance of good jobs. I conclude that good jobs do exist—that the labour market does not just function according to a Roy model with wage differentials reflecting only skill differentials, compensating differentials or bond posting—and that their impact on the overall wage structure is substantial. Finally, I discuss the implications of the existence of good jobs for policy setting and for assessments of the justice of a society.     

IS MARKET‐ORIENTED REFORM PRODUCING A ‘TWO‐TRACK’ EUROPE? EVIDENCE FROM ELECTRICITY AND TELECOMMUNICATIONS

ABSTRACT: The European Commission has formally recognized that adequate provision of basic household services, including energy, communications, water and transport, is key to ensuring equity, social cohesion and solidarity. Yet little research has been done on the impact of the reform of these services in this regard. This article offers an innovative way to explore such questions by analyzing and contrasting stated and revealed preferences on citizen satisfaction with and expenditure on two services, telecommunications and electricity, in two large countries, Spain and the UK. We find evidence that in telecommunications, but not in electricity, reform has led to a ‘two‐track’ Europe, where citizens who are elderly, not working or the less‐educated behave differently in the market, with the result that they are less satisfied with these services than their younger, working, better‐educated, counterparts.     

Public and Private Investments in Greece: Complementary or Substitute ‘Goods’?

This paper investigates whether government investment spending exerts a positive or a negative effect on private investments. Time-series data for Greece as well as the methodology of cointegration suggest that, over the period 1948-80, public investment spending exerted a positive effect on private investments, while over the period 1981-96, the relationship turned out to be negative. Empirical results indicate that the large increase of the public share in the total investment process tended to crowd out private investments and to jeopardize the growth process of the economy.     

DO CHINESE UNIONS HAVE “REAL” EFFECTS ON EMPLOYEE COMPENSATION?

In this article, we use enterprise population‐level data to investigate the effectiveness of Chinese unions in improving employee wage and nonwage compensation. We show that the effectiveness of Chinese unions stems from a “collective voice” face rather than from a “monopoly” face. The empirical findings on the effectiveness of unions are remarkable: unions in the workplace significantly improve employee wage and nonwage compensation, along with employee training. Moreover, the presence of unions within the same region and industry generates positive spillovers for employee compensation. The unions in China do have “real” effects. (JEL J30, J50, J51, K31)     

WHAT DETERMINES THE “LEGAL” QUALITY Of BANK REGULATION AND SUPERVISION?

This article has two contributions. First, using the methodology of Neyapti and Dincer, it provides measures of legal quality of bank regulation and supervision (RS) for a new set of developed and less‐developed countries. Second, it investigates the determinants of RS in view of the hypothesis that the existing institutional environment matters for the quality of formal institutions such as banking laws. The empirical evidence in this article demonstrates that past financial crises and prevailing levels of both financial market development and foreign direct investment inflows affect RS beyond and above the effects of other potential factors, such as macroeconomic performance and good governance. Evidence from transition economies also supports these findings. (JEL E44, G2, K29, O1)     

On Britain's Return to the Gold Standard: Was there a ‘Pigou–McKenna School’?

It is common to refer to the ‘Keynes–McKenna school’ in opposition to Britain's return to the gold standard. However, after considering A.C. Pigou's reading of Sir Reginald McKenna's testimony to the Chamberlain–Bradbury Committee and the influence of that reading on Pigou's draft of the Committee's report to the British government, the case is made for the ‘Pigou–McKenna school’ as a policy school that was supportive of a return to the gold standard but against doing so prematurely. This is perhaps more meaningful than reference to the ‘Keynes–McKenna school’, which incorrectly implies that McKenna was opposed to Britain returning to gold.     

DO “CAPITALIZATION EFFECTS” FOR PUBLIC GOODS REVEAL THE PUBLIC'S WILLINGNESS TO PAY?

This article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets. We extend Rosen's hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities. The model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these “capitalization effects” and welfare changes. We test this hypothesis in the context of changes in measures of school quality in five metropolitan areas. Results from boundary discontinuity designs suggest that capitalization effects understate parents’ willingness to pay for public school improvements by as much as 75%.     

“Fair go” for all? Wealth and Risk Aversion of Australian Households*

A mean‐variance framework is applied to Australian household financial portfolios in order to provide estimates of relative risk aversion in the economy. Controlling for various socio‐economic characteristics, we explore whether risk aversion heterogeneity is a function of wealth heterogeneity. In contrast to most studies, we find evidence of very high risk aversion amongst the majority of households of poor households but vastly lower risk aversion amongst the high percentiles in the wealth distribution. Applying a first differences model across three survey waves spanning 2002 to 2010, we find that risk tolerance increases significantly with wealth. Risk tolerance is positively associated with mortgage payments, but rental payments have no relationship. In addition, we found no evidence that holding a university education has any discernible impact on risk aversion. Lastly, we present some preliminary findings as to the impact of financial advice on observed risk aversion. Financial advice is found to accentuating risk aversion, particularly amongst the wealthiest households. The findings have potential implications for the distribution of wealth in Australia that has received renewed interest recently.     

“COERCIVE COOPERATION”? ONTARIO'S PAY EQUITY ACT OF 1988 AND THE GENDER PAY GAP

Evaluating the effect of pay‐equity laws is important and yet difficult as one needs to deduce what would have occurred without the policy intervention. We use a new tool, synthetic‐control method, to examine the effects of Ontario's Pay Equity Act on the gender pay gap. This tool enables us to create a “Synthetic” Ontario, which resembles Ontario more closely than does any other single province. Using Synthetic Ontario to compare what actually happened in Ontario to what would have happened, we find that the act has had little or no effect on the female‐male wage gap in Ontario. (JEL J7, J3)