A Monte Carlo study of growth regressions

Using Monte Carlo simulations, this paper evaluates the bias properties of estimators commonly used to estimate growth regressions derived from the Solow model. We explicitly allow for measurement error, country-specific fixed effects and regressor endogeneity. An OLS estimator applied to a single cross-section of variables averaged over time (the between estimator) performs best in terms of the extent of bias on each of the estimated coefficients. Fixed-effects and the Arellano–Bond GMM estimator overstate the speed of convergence under a wide variety of assumptions, while the between estimator understates it. Finally, fixed effects and Arellano–Bond bias towards zero the slope estimates on the human and physical capital accumulation variables, while the between estimator and the Blundell–Bond system GMM estimator bias these coefficients upwards.      

Teen families,welfare transfers,and the minimum wage: evidence from Canada

Abstract This study evaluates the impacts of welfare transfers and the minimum wage on teen family formation by pooling provincial data from Canada between 1990 and 2005. OLS estimates suggest that welfare transfers have had limited impact on teen births. On the other hand, a 10% increase in the minimum wage is significantly correlated with a 3%–5% rise in teen birth rates. This finding is explained by further regressions, which reveal that an increase in the minimum wage is significantly associated with (1) higher earnings among male teens, (2) an increase in teen marriage rates, and (3) an increase in fertility among married teens but not among unmarried females. Finally, estimates based on the 2003 and 2005 waves of the Canadian Community Health Surveys demonstrate that married teens are more likely to engage in sex as well as unprotected intercourse in comparison with single teens.     

Aggregation Biases in Estimates of the Value per Statistical Life: Evidence from Longitudinal Matched Worker-Firm Data in Taiwan

This study uses a unique longitudinally-linked employer–employee dataset to estimate the magnitude of bias in estimating the value per statistical life (VSL) that arises from the conventional use of industry-average occupational risk. This unique dataset, covering workers in Taiwan over the period 1998–2002, allows us to distinguish among potential sources of bias including omitted variables and to control for the potential endogeneity of firm-specific job risk with respect to unobserved worker and firm characteristics. We find that VSL estimates based on risk data aggregated by three-digit manufacturing SIC codes are biased downward by an order of magnitude compared with estimates using firm-specific risk that control for endogeneity.     

Gravity models in integrated panels

This paper shows that standard gravity models of foreign trade include non-stationary variables (bilateral trade and GDP of trading partners). Furthermore, gravity models are characterized by inherited cross-sectional correlation between the panel units (country pairs). Therefore, the results of the standard panel unit root tests are biased and outperformed by the simple cross-sectionally augmented panel unit root test according to Pesaran (J Appl Econom 22:265–312, 2007). Nevertheless, the fixed effects estimator is similar to the dynamic OLS or fully modified OLS, which take into account the non-stationarity of analyzed macroeconomic variables as well as possible endogeneity between output and trade.     

我国城市规模分布Pareto指数测算及影响因素分析

This paper estimates the Pareto exponent of the city size (population size and economy size) distribution, all provinces, and three regions in China in 1997, 2000 and 2003 by OLS, comparatively analyzes the Pareto exponent cross section and times, and empirically analyzes the factors which impacts on the Pareto exponents of provinces. Our analyses show that the size distributions of cities in China follow the Pareto distribution and are of structural features. Variations in the value of the Pareto exponent of city population size distribution are significantly explained by industrialization, industry structure and regional transportation infrastructure, and variations in the value the Pareto exponents of city economy size distribution are significantly explained by industrialization and regional transportation infrastructure. __________ Translated from Shuliang Jingji Jishu Jingji Yanjiu 数量经济技术经济研究 (The Journal of Quantitative & Technical Economics), 2007, (4): 43–52     

Power laws in top wealth distributions: evidence from Canada

This article investigates Pareto power law (PPL) behavior at the top of the Canadian wealth distribution. To this end, Canadian Business data on the wealthiest 100 Canadians for the years 1999–2008 are used. The resulting estimates of the PPL exponent ranged from approximately 1.0 to 1.3 depending on the year of analysis and the estimation method used. These estimates are roughly comparable to those based on Forbes’ list of the wealthiest 400 Americans. Furthermore, whereas modified OLS and maximum likelihood estimates of the power law exponents conform to Zipf’s law, the OLS estimates do not. These results raise some concerns about deducing the magnitudes of and trends in the power law exponents based on a single estimation method and highlight the importance of extensive hypothesis testing for model adequacy. The battery of diagnostic tests pertaining to PPL behavior at the top of the Canadian wealth distribution yields some conflicting results.     

Winners, Losers, and the Nuclear-Waste Dilemma

This paper explores how property-right assignment affects social efficiency when a public program has both “public good” and “public bad” components. We show that when willingness to accept a public bad exceeds the willingness to pay, the net benefit is unambiguously lower when the property right supports the status quo institutional structure. Thus, Kaldor–Hicks efficiency tests tend to favor public programs and mitigation over the status quo even when mitigation negatively affects another group. To illustrate the result, we develop social-cost estimates for moving nuclear waste from current temporary-storage facilities to a permanent central repository at Yucca Mountain, NV, USA. For a representative city with a population of 226,195, the present value of the external cost of shipping waste is $1.42 billion when those living near temporary nuclear-waste storage facilities are assigned the property right to “health and safety.” That number swells to $5.95 billion when those living near the transport route are assigned the property right. Thus, property-right assignment affects the efficient level of nuclear-waste, and thus nuclear energy, produced.     

Aggregation and the Endogeneity Problem

This paper investigates the combined effects of the aggregation and endogeneity problems when there exists a correlation between explanatory variables and the error term in the micro equation. Comparing OLS estimates on the basis of an asymptotic-square-bias criterion, the analysis indicates that aggregate equations are in general subject to less endogeneity due to the synchronization effect. The trade-off between aggregation and endogeneity biases is examined and the conditions under which the aggregate equation is superior to the micro equation are derived in terms of the relative sizes of parameters. [210]     

Economic Benefits of Management Reform in the Gulf of Mexico Grouper Fishery: A Semi-parametric Analysis

This paper uses a semi-parametric empirical model to estimate the economic benefits of adopting a property rights-based management program in the Gulf of Mexico grouper fishery. The analysis predicts that a rights-based fleet will be comprised of fewer, more cost efficient boats than under the current controlled access management program. Results indicate that in the year of our data, 1993, the smaller, more productive fleet could harvest the allowable reef fish catch at a cost saving of $2.92–$7.07  million, 12–30% less than under controlled access management. Recent tightening of controlled access regulations suggest that the benefits from management reform could be even larger in the current day fishery.      

Optimal pricing of a two-sided monopoly platform with a one-sided congestion effect

This paper studies the optimal pricing of a two-sided monopoly platform when one side is affected by congestion. We show that the divide-and-conquer pricing strategy (or skewed pricing) depends not only on the relative magnitude of the sides’ price elasticities of demand but it also depends on the marginal congestion cost that an agent imposes on the others. Compared with the no-congestion case, this pricing strategy gives rise to some interesting features that violate the results of Rochet and Tirole (J Eur Econ Assoc 1:990–1029 in 2003, Rand J Econ 37:645–667 in 2006). In the case of equal price elasticities of demand, the no-congested side is charged the highest price. On the other hand, in the case of different price elasticities, the platform congestion pricing depends on a certain threshold of the marginal congestion cost. We show, under some conditions, that the divide-and-conquer pricing strategy is reversed. In the social context, the Rochet and Tirole’s (J Eur Econ Assoc 1:990–1029 in 2003) cost allocation condition is modified by the congestion cost. We show that the congestion does not only affect the buyers’ contribution to the sellers’ surplus, but it also affects the sellers’ contribution to the buyers’.     

Incentive regulation,service quality,and standards in U.S. electricity distribution

The widespread use of incentive regulation in telecom, electricity, and other industries in the U.S. and elsewhere has raised questions about its possible adverse effect on the quality of service. This paper examines U.S. electricity distribution utilities in the years 1993–1999, several of which were subject to incentive regulation. Controlling for other possible influences, including possible endogeneity of the regulatory regime, the data and model indicate that incentive regulation is indeed associated with significantly longer duration of service outages, although not necessarily more frequent outages. Importantly, this quality reduction is offset in cases where regulation incorporates service quality standards. We also examine the causal chain connecting incentive regulation, cost expenditures, and service quality. We conclude that careful design of quality standards can allow incentive regulation to achieve cost savings without quality degradation.     

Strategyproof sharing of submodular costs:budget balance versus efficiency

Summary. A service is produced for a set of agents. The service is binary, each agent either receives service or not, and the total cost of service is a submodular function of the set receiving service. We investigate strategyproof mechanisms that elicit individual willingness to pay, decide who is served, and then share the cost among them. If such a mechanism is budget balanced (covers cost exactly), it cannot be efficient (serve the surplus maximizing set of users) and vice-versa. We characterize the rich family of budget balanced and group strategyproof mechanisms and find that the mechanism associated with the Shapley value cost sharing formula is characterized by the property that its worst welfare loss is minimal. When we require efficiency rather than budget balance – the more common route in the literature – we find that there is a single Clarke-Groves mechanism that satisfies certain reasonable conditions: we call this the marginal cost pricing mechanism. We compare the size of the marginal cost pricing mechanism's worst budget surplus with the worst welfare loss of the Shapley value mechanism. Received: October 26, 1998; revised version: December 3, 1999     

Do cost efficiency gap and foreign competitors matter concerning optimal privatization policy at the free entry market?

In this paper, we demonstrate that in contrast to the case with exogenous number of foreign private firms, partial privatization is always the best policy for the public firm in long-run equilibrium, which casts doubt on the robust result in Matsumura and Kanda (J Econ 84(1):27–48, 2005) who argued that welfare-maximizing behavior by the public firm is always optimal in mixed markets. Critical cost gap determines that long-run degree of privatization is larger than the short-run one. In particular, regarding the scenario wherein one public firm competes with domestic private firms and foreign private firms, equilibrium price is lower than marginal cost of public firm instead of being equivalent to marginal cost of the public firm, and that public firm’s outputs, profit, and social welfare is the smallest in the concerned mixed oligopoly models.     

The trade-off between fertility and education: evidence from before the demographic transition

The trade-off between child quantity and quality is a crucial ingredient of unified growth models that explain the transition from Malthusian stagnation to modern growth. We present first evidence that such a trade-off indeed existed already in the nineteenth century, exploiting a unique census-based dataset of 334 Prussian counties in 1849. Furthermore, we find that causation between fertility and education runs both ways, based on separate instrumental-variable models that instrument fertility by sex ratios and education by landownership inequality and distance to Wittenberg. Education in 1849 also predicts the fertility transition in 1880–1905.     

农户人力资本投资与农民收入增长

Based on an analysis of some theories, this paper studies the relationships among rural household investments and their interaction with farmer income increase empirically by the data of 1983–2005. The findings are: (1) Health investment makes against the growth of farmer, human capital investments for other types, besides, it can not satisfy the needs of farmer. (2) Although migration investment is useful to the growth of farmer income, education and health investment, its effects is time lagged. (3) Education investment has the biggest effects on the growth of farmer income; besides, it also reduces the cost of migration. However, this reduction is a bit small. Finally, some brief suggestions are put forward based on the analysis. __________ Translated from Jingji kexue 经济科学 (Economic Science), 2007, (3): 26–35     

Returns to schooling in Kazakhstan

This paper examines rates of return to schooling in Kazakhstan using OLS (Ordinary Least Squares) and instrumental variable (IV) methodologies. We use spouse's education and smoking as instruments. We find that spouse's education is a valid instrument and that conventional OLS estimates that assume the exogenous nature of schooling, and hence do not control for endogeneity bias, may underestimate the true rates of return. The results indicate that the returns to schooling in Kazakhstan have increased with transition. This may reflect the relative scarcities of highly educated people in Kazakhstan with human capital that employers require and, following the market reforms, reward accordingly.     

Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors

This article provides estimates of price–marginal cost ratios or mark-ups for 50 sectors in eight Euro area countries and the US over the period 1981–2004. The estimates are obtained applying the methodology developed by Roger (J Polit Econ 103:316–330, 1995) on the EU KLEMS March 2007 database. Five stylized facts are derived. First, perfect competition can be rejected for almost all sectors in all countries; markup ratios are generally larger than 1. Second, average markups are heterogeneous across countries. Third, markups are heterogeneous across sectors, with services having higher markups on average than manufacturing. Fourth, services sectors generally have higher markups in the euro area than the US, whereas the pattern for manufacturing is the reverse. Fifth, there is no evidence that there is a broad range change in markups from the 1980s to the 1990s.     

Estimating the natural rates in a simple New Keynesian framework

The time-varying natural rate of interest and output and the implied medium-term inflation target for the US economy are estimated over the period 1983–2005. The estimation is conducted within the New Keynesian framework using Bayesian and Kalman-filter estimation techniques. With the model-consistent estimate of the output gap, we get a small weight on the backward-looking component of the New Keynesian Phillips curve—similar to what is obtained in studies which use labor share of income as a driver for inflation (e.g., Galí, Eur Econ Rev 45(7):1237–1270, 2001; Eur Econ Rev 47(4):759–760, 2003). The turning points of the business cycle are nevertheless broadly consistent with those of CBO/NBER. We find considerable variation in the natural rate of interest while the inflation target has been close to 2% over the last decade.     

Prison Labor: The Local Effects of Ohio Prison Industries

Prison labor has both positive and negative effects. Keeping prisoners active, training and socializing them to be productive citizens after prison, and helping to pay for their incarceration are some of the positives. Potential crowding out of free labor and industry is the major potential negative. This paper addresses the quantitative financial and employment consequences on local free labor and industry of prison industries in Ohio using an input–output model for Ohio. Based on the analysis, prison industries employment in Ohio has negligible to positive employment consequences for the Ohio economy and partially offsets the incarceration cost of the inmates who participate – providing between 5 and 10 percent of the incarceration cost in net cash flow and induced tax revenues.Presented at the 59th International Atlantic Economic Conference, London, March 9–13, 2005.