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%.     

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)     

“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.     

EQUIVALENCE SCALES AND THE WELFARE OF CHILDREN: A COMMENT ON “IS THERE BIAS IN THE ECONOMIC LITERATURE ON EQUIVALENCE SCALES?”

In a recent issue of this journal, M. Luisa Ferriera, Reuben C. Buse, and Jan-Paul Chavas argue that the equivalence scales implicit in the official U.S. poverty line and in public welfare programs overcompensate parents for their children, with resulting negative distributional and incentive effects. We show that their analysis is based on a very particular, and ethically unappealing, assumption about the importance of children's well-being.     

DOES FEDERAL FUNDING “CROWD IN” PRIVATE FUNDING OF SCIENCE?

Proposed cutbacks in government science funding have caused many to expect that the rate of scientific progress will significantly decline. Before the magnitude of the decline can be estimated, a preliminary question must be answered: what is the extent to which private funding of science may be expected to fill the gap left by the declining government funding? Using data on government and private funding of science, preliminary estimation indicates that past government funding of science has not “crowded out” private funding of science. If this finding is supported by further research, it would indicate that private funding could not be expected to replace lost federal funding of science. (JEL H4, HI, 03, D6, L3)     

STILL “SAVING BABIES”? THE IMPACT OF CHILD MEDICAID EXPANSIONS ON HIGH SCHOOL COMPLETION RATES

The decoupling of child Medicaid from the cash welfare system greatly increased access to public health insurance for low‐income children in the United States. In this paper, I show that the federally mandated public health insurance expansions of the late‐1980s and early‐1990s significantly increased the number of public high school completers in the 2000s. Using the legislated generosity of a state's child Medicaid program as a time‐varying, exogenous source of variation in a quasi‐experimental design, I find substantively large declines in the dropout rate and, importantly, large increases in traditional 4‐year graduation rates. Results for both measures are driven by Hispanic and White students, the two groups experiencing the greatest within‐group increases in eligibility due to the decoupling of child Medicaid from the Aid to Families with Dependent Children program. In addition, I find evidence that increases in the length of childhood years covered (e.g., through age 5 vs. through age 17) leads to greater gains in completion rates. This suggests that public health insurance coverage throughout childhood produces the largest effect. (JEL C23, H51, H52, H75, I21)     

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.     

Picking “Lemons” or Picking “Cherries”? Domestic and Foreign Acquisitions in Norwegian Manufacturing*

We compare the performance in employment, wages and productivity for domestic plants acquired by new domestic and foreign owners. Prospective foreign owners pick large, high‐wage, high‐productivity plants, while new domestic owners choose average performers of above‐average size. Employment, labour productivity, and total factor productivity decline in domestic acquisition targets before acquisitions; only wages recover afterwards. Employment, wages and labour productivity increase after foreign acquisitions. The sample selection introduced by long‐term comparisons and a focus on unique events introduces a downward bias into the results for domestic acquisitions and an upward bias for the foreign acquisitions.     

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)     

“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.