An Experimental Investigation of Increased Professional Education Requirements*

Abstract. We experimentally investigate the effects of a mandatory increase in education on the market for professional labor services when several service qualities are assumed to exist. We show that when suppliers have insufficient incentives to offer high-quality services in a free market, an increase in mandatory education can improve the coordination of supplier decisions and increase efficiency. If suppliers voluntarily provide a sufficient quantity of high-quality services, an education constraint can have the opposite effect. In both instances, however, an increase in the mandatory level of education can be expected to reduce the price of high-quality services while increasing the price of lower service qualities. Résumé. Les auteurs ont procédé à une analyse expérimentale des conséquences qu'aurait une hausse imposée du niveau d'études sur le marché des services professionnels, si l'on suppose l'existence de plusieurs qualités de services. L'analyse démontre que lorsque les stimulants sont insuffisants pour inciter les fournisseurs à offrir des services professionnels de qualité supérieure dans un marché libre, une hausse imposée du niveau d'études peut améliorer la coordination des décisions des fournisseurs et augmenter l'efficience. Si toutefois les fournisseurs offrent de leur propre chef une quantité suffisante de services de qualité supérieure, le fait d'imposer un niveau d'études supérieur peut avoir l'effet contraire. Dans les deux cas, on peut s'attendre à ce qu'une hausse du niveau d'études obligatoire réduise le prix des services de qualité supérieure tout en augmentant le prix des services de qualité plus faible.     

Stimulating Housing Markets

We study temporary fiscal stimulus designed to support distressed housing markets by inducing demand from buyers in the private market. Using difference-in-differences and regression kink research designs, we find that the First-Time Homebuyer Credit increased home sales by 490,000 (9.8%), median home prices by $2,400 (1.1%) per standard deviation increase in program exposure, and the transition rate into homeownership by 53%. The policy response did not reverse immediately. Instead, demand comes from several years in the future: induced buyers were three years younger in 2009 than typical first-time buyers. The program's market-stabilizing benefits likely exceeded its direct stimulus effects.     

Towards a More General Approach to Trade Liberalization

Despite the frequency with which they have been promoted as a model of development. East Asian trade policies have had little influence on the normative economics of trade reform. In contrast to directly dismantling protection, developing countries have often provided concessional import rights which override existing protection. These instruments include EPZs and duty remission. This paper accommodates these instruments of 'new trade liberalization' within a more general understanding of trade liberalization illustrating their similarities and their differences. Both old and new trade liberalization can, on their own, bring about complete free trade. Needless to say, so far, neither has!     

ECONOMIC FREEDOM AND INCOME INEQUALITY REVISITED: EVIDENCE FROM A PANEL ERROR CORRECTION MODEL

We investigate the causal relationship between income inequality and economic freedom using data from U.S. states over the period 1981 to 2004 within a panel error correction model framework. The results indicate bidirectional causality between income inequality and economic freedom in both the short and the long run. These results suggest that high income inequality may cause states to implement redistributive policies causing economic freedom to decline. As economic freedom declines, income inequality rises even more. In other words, it is quite possible for a state to get caught in a vicious circle of high income inequality and heavy redistribution. (JEL D63, H11)     

The Market for Equity Options in the 1870s

The introduction of exchange-traded options in 1973 led to explosive growth in the stock options market, but put and call options on equity securities have existed for more than a century. Prior to the listing of option contracts, trading was conducted in an order-driven over-the-counter market. From 1873 to 1875, quotes for options contracts were published weekly in The Commercial and Financial Chronicle during a period that saw extensive marketing efforts by a number of brokerage firms. In this article we examine these quotes to determine why this seemingly sophisticated market existed for only a brief period in financial history.     

Cream-Skimming or Profit-Sharing? The Curious Role of Purchased Order Flow

Purchased order flow refers to the practice of dealers or trading locales paying brokers for retail order flow. It is alleged that such agreements are used to “cream skim” uninformed liquidity trades, leaving the information-based trades to established markets. We develop a test of this hypothesis, using a model of the stochastic process of trades. We then estimate the model for a sample of stocks known to be used in order purchase agreements that trade on the New York Stock Exchange (NYSE) and the Cincinnati Stock Exchange. Our main empirical result is that there is a significant difference in the information content of orders executed in New York and Cincinnati, and that this difference is consistant with cream-skimming.