Korea's Cash‐for‐Clunkers Program: Household‐Level Evidence

This paper examines the effects of a vehicle subsidy program introduced in Korea in the wake of the 2008 global recession. I adopt a simple binary choice model to approximate a household's decision to purchase a new car and identify the policy effect using a difference‐in‐difference framework in which non‐eligible households serve as the control group. The estimation results are as follows. First, the subsidy program significantly boosted the overall demand for new vehicles, increasing the average probability of a new purchase by eligible households from 7.1 to 13.9 percent. Second, beneficiaries of the subsidy program were mostly rich households and those owning relatively new cars. Finally, the program effect on aggregate vehicle sales was not quickly reversed in contrast to recent evidence on the comparable US program.     

The Determinants of Corruption: Cross‐Country‐Panel‐Data Analysis

This study explores the determinants of corruption, utilizing the Hausman and Taylor's technique to estimate a random effects model that incorporates both the effects of corruption determinants that vary over time and those that are time‐invariant, and using a larger panel dataset and a comprehensive set of corruption determinants. The first interesting result is that perception of strong support for rule of law is strongly correlated with reduced corruption, suggesting that a better quality of law enforcement reduces corruption. Rich countries have lower corruption, and the perception of free expression and accountability strongly decreases corruption, indicating that providing greater opportunities for citizens to participate in selecting their government, more freedom of expression, and free media are effective ways of curbing corruption. Conversely, natural resource abundance, country population size, country's dominant religious tradition, ethnic fractionalization, and political stability are unimportant determinants of corruption, while previous research has suggested they are important.     

Inequality‐averse well‐being measurement

We construct individual well‐being measures that respect individual preferences and depend on the bundles of goods consumed by the individual. Building on previous work in which general families of well‐being measures are identified, we introduce basic transfer principles that apply either to bundles or directly to indifference sets, and we characterize specific well‐being measures that involve either the ray utility or the money‐metric utility.     

‘Thailand‐plus‐one’: a GVC‐led development strategy for Cambodia

This paper discusses the location choices of export‐oriented firms in the context of a global value chain‐led development strategy. The results of a firm survey are used to examine, for the case of Cambodia, how less developed countries can participate in global value chains by specialising in a niche segment of the value chain. The survey results, which focus on the location choices of Cambodian firms that have mother factories in Thailand, show that the border region has advantages for access to suppliers and markets, while there are disadvantages for recruiting and retaining workers. Metropolitan areas, on the other hand, have advantages in the pooling of human resources, expatriates' living conditions, and access to government services, while inland transport costs are a burden for firms located in metropolitan areas. Policy implications are developed.     

Weathering the Storm: Measuring Household Willingness‐to‐Pay for Risk‐Reduction in Post‐Katrina New Orleans

The city of New Orleans suffered extensive damage as a result of Hurricane Katrina. Rebuilding involves decisions on investment in protective measures. An exhaustive list of protective measures has been studied in planning documents, with public comment solicited in town hall meetings. In this study we employ a different approach to examine public sentiment toward the selection and investment in protective measures. Our study uses a stated preference choice experiment with a stratified sample to investigate individuals' willingness‐to‐pay for rebuilding New Orleans's man‐made storm defenses, restoring natural storm protection, and improving evacuation options through a modernized transportation system. We target residents of the New Orleans metropolitan area as well as other U.S. citizens. Our results indicate that individuals are willing to pay for increased storm protection for New Orleans, but values differ among residents of the New Orleans metropolitan area and other U.S. citizens.     

A recession‐and‐state forecasting model

The state forecasting model (SFM) developed herein predicts the probability that a recession will begin or end within the next quarter. It is also important to forecast the state, as models prone to false alarms are not useful. The model combines parsimony, predictive accuracy, and ease of estimation using readily available data. No regressor is benchmark‐revised, and only one is seasonally adjusted. The SFM correctly forecasts, out‐of‐sample, the binary state in 163 of 164 quarters for an overall proportion of correct forecasts of 0.994. The results demonstrate the discriminating ability, longevity and striking forecasting ability of the model. A benchmark model based on the newly revised Leading Economic Index of the Conference Board has zero marginal predictive power in the presence the SFM.     

Bagehot for beginners: the making of lender‐of‐last‐resort operations in the mid‐nineteenth century1

In this article we develop new tools to survey the development of lending‐of‐last‐resort operations in the mid‐nineteenth century. One finding is that free lending and extensive liquidity support against good collateral developed gradually after 1847, and was already a fact of life before Bagehot published Lombard Street. Another is that the extension of the Bank of England's lender‐of‐last‐resort function went along with a reduction of its exposure to default risks, in contrast with accounts that have associated lending of last resort with moral hazard. Finally, we provide a new interpretation of the ‘high rates’ advocated by Bagehot. We suggest they were meant to prevent banks from free‐riding on the safety offered by the central bank, and were aimed at forcing them to keep lending during crises so as to maintain a critical degree of liquidity in the money market.     

Wealthy Hand‐to‐Mouth Households in China

The wealthy hand‐to‐mouth are households who are poor in liquid wealth (e.g. cash and checking accounts) and rich in illiquid wealth (e.g. housing and retirement accounts), while the poor hand‐to‐mouth are poor in both liquid and illiquid wealth. Data from the China Household Finance Survey reveal the following facts about the country’s wealthy hand‐to‐mouth. First, they represent the majority of the hand‐to‐mouth households in China. Second, they have different wealth portfolios and demographic features from the poor hand‐to‐mouth. Finally, they have larger consumption responses to income fluctuations than non‐hand‐to‐mouth households, after controlling for endogeneity, income, hand‐to‐mouth status and other household characteristics.     

Asymmetric Learning from Prices and Post‐Earnings‐Announcement Drift

Motivated by research in psychology and experimental economics, we assume that investors update their beliefs about an asset's value upon observing the price, but only when the price clearly reveals that others obtained private information that differs from their own private information. Specifically, we assume that investors learn from the price of an asset in an asymmetric manner—they learn from the price if they observe good (bad) private information and the price is worse (better) than what is justified based on public information alone. We show that asymmetric learning from an asset's price leads to post‐earnings‐announcement drift (PEAD), and that it generates arbitrage opportunities that are less attractive than alternative explanations of PEAD. In addition, our model predicts that PEAD will be concentrated in earnings surprises that are not dominated by accruals, and it also predicts that earnings response coefficients will decline in the magnitude of the earnings surprises.     

The Max‐Min Group Contest: Weakest‐link (Group) All‐Pay Auction

We investigate a group all‐pay auction in which each group's effort is represented by the minimum among the effort levels exerted by the group members and the prize is a group‐specific public good. We fully characterize the symmetric equilibria for two groups. There are four types of equilibria: the pure strategy equilibria in which all (active) players exert the same effort; the semi‐pure strategy equilibria in which the players in a group play the same pure strategy whereas those in the other group play the same mixed strategy; the nondegenerate mixed strategy equilibria with continuous support; and the nondegenerate mixed strategy equilibria with discontinuous support. We then analyze a general contest with n groups.