Identification of peer effects through social networks

We provide new results regarding the identification of peer effects. We consider an extended version of the linear-in-means model where interactions are structured through a social network. We assume that correlated unobservables are either absent, or treated as network fixed effects. We provide easy-to-check necessary and sufficient conditions for identification. We show that endogenous and exogenous effects are generally identified under network interaction, although identification may fail for some particular structures. We use data from the Add Health survey to provide an empirical application of our results on the consumption of recreational services (e.g., participation in artistic, sports and social activities) by secondary school students. Monte Carlo simulations calibrated on this application provide an analysis of the effects of some crucial characteristics of a network (i.e., density, intransitivity) on the estimates of peer effects. Our approach generalizes a number of previous results due to Manski [Manski, C., 1993. Identification of endogenous social effects: The reflection problem. Review of Economic Studies 60 (3), 531–542], Moffitt [Moffitt, R., 2001. Policy interventions low-level equilibria, and social interactions. In: Durlauf, Steven, Young, Peyton (Eds.), Social Dynamics. MIT Press] and Lee [Lee, L.F., 2007. Identification and estimation of econometric models with group interactions, contextual factors and fixed effects. Journal of Econometrics 140 (2), 333–374].     

Efficiency,productivity and technology comparison for farms in Central and Western Europe: The case of field crop and dairy farming in Hungary and France

This paper investigates the differences in technical efficiency and productivity change, and the technology gaps, between French and Hungarian farms in the dairy and cereal, oilseed and protein crops (COP) sectors during the period 2001–2007. The analyses were performed with national Farm Accountancy Data Network (FADN) data and the Data Envelopment Analysis (DEA) approach under each country's respective frontier and under a metafrontier.Results reveal that French COP farms were on average more efficient under their own technology than Hungarian farms under theirs, but there was no difference between the two countries for dairy farms. However, metatechnology ratios calculated with the construction of the metafrontier indicate that Hungarian technology was the more productive in both the dairy and the COP sectors, but more noticeably in COP production.     

DO PEERS AFFECT STUDENT ACHIEVEMENT? EVIDENCE FROM CANADA USING GROUP SIZE VARIATION

We provide the first empirical application of a new approach proposed by Lee (Journal of Econometrics 2007; 140 (2), 333–374) to estimate peer effects in a linear‐in‐means model when individuals interact in groups. Assumingsufficient group size variation, this approach allows to control for correlated effects at the group level and to solve the simultaneity (reflection) problem. We clarify the intuition behind identification of peer effects in the model. We investigate peer effects in student achievement in French, Science, Mathematics and History in secondary schools in the Province of Québec (Canada). We estimate the model using conditional maximum likelihood and instrumental variables methods. We find some evidence of peer effects. The endogenous peer effect is large and significant in Mathematics but imprecisely estimated in the other subjects. Some contextual peer effects are also significant. In particular, for most subjects, the average age of peers has a negative effect on own test score. Using calibrated Monte Carlo simulations, we find that high dispersion in group sizes helps with potential issues of weak identification. Copyright © 2012 John Wiley & Sons, Ltd.     

Innovation in the Shadow of Patent Litigation

We analyze non-cooperative R&D investment by two firms that already hold patents that they can assert against each other with probabilistic success. The market structure results from stochastic innovation and patent litigation. Depending on the level of infringement fees, we highlight positive and negative effects of litigation threats on innovation. We define an appropriate regulatory structure of infringement fees that will implement socially efficient R&D investments in the case of symmetric and asymmetric patent portfolios.     

A longitudinal content analysis of gender role portrayal in Belgian television advertising

This study explores gender role portrayal in advertisements broadcasted on Belgian commercial television. We gathered a sample of 493 commercials (featuring 907 characters) randomly selected out of two periods (January 2002–April 2003, n = 250 and January 2009–April 2010, n = 243) from a database containing all advertisements broadcasted on Belgian commercial television. A content analysis was carried out using a coding scheme based on existing literature. Content categories included gender of the characters, gender roles (i.e. parental, housekeeping and professional expert) and sexual objectification. Hypotheses predicted that men and women would be represented differently in television advertising, and that these differences would reflect traditional gender stereotypes. Moreover, due to regulatory changes, we hypothesize that these differences should decrease over time. Results are largely in accordance with the existing literature. Women tend to be depicted as younger and are portrayed more often within dependent roles as caregiving parent, housewife or as sexual objects than men. A longitudinal analysis of role portrayal changes across two periods within and between genders indicates little change in gender role portrayals in Belgian television advertising between 2002–2003 and 2009–2010. Despite social and regulatory changes, gender stereotypes in advertising seem to persist over time.     

Enhancing bank performance through branches or representative offices? Evidence from European banks

We investigate the impact of geographic integration and the level of multinationality by expansion as a foreign branch or representative office on the parent bank performance of 45 European banks during 2000–2007. We use breadth and depth to proxy for the level of multinationality in measuring a parent bank performance. We find that for foreign expansion as a branch, both dimensions (breadth and depth) have a positive impact on a bank's return on assets (ROA). For return on equity (ROE) and Tobin's Q, only depth is positively associated with a bank's ROE while breadth is positively correlated with a bank's Tobin's Q. However, the impact from expansion as a representative office is different; breadth and depth only have a positive impact on bank ROA performance in one of the six models. In terms of cost control, a representative office strategy is better able to control costs than a branching strategy. The model goodness of fit statistics suggest that variables associated with branching better explain the performance variables than similar variables associated with representative offices in terms of profitability. The results are opposite for net interest margin and cost ratio. Overall, our findings suggest that a branching strategy is a more effective strategy in enhancing a bank's profitability while a representative office strategy controls costs better.     

Solving the incomplete markets model with aggregate uncertainty using parameterized cross-sectional distributions

This note describes how the incomplete markets model with aggregate uncertainty in Den Haan et al. [Comparison of solutions to the incomplete markets model with aggregate uncertainty. Journal of Economic Dynamics and Control, this issue] is solved using standard quadrature and projection methods. This is made possible by linking the aggregate state variables to a parameterized density that describes the cross-sectional distribution. A simulation procedure is used to find the best shape of the density within the class of approximating densities considered. This note compares several simulation procedures in which there is—as in the model—no cross-sectional sampling variation.     

Social networks and labor market transitions

We study the influence of social networks on labor market transitions. We develop the first model where social ties and job status coevolve through time. Our key assumption is that the probability of formation of a new tie is greater between two employed individuals than between an employed and an unemployed individual. We show that this assumption generally generates negative duration dependence of exit rates from unemployment. Our model has a number of novel testable implications. For instance, we show that a higher connectivity among unemployed individuals reduces duration dependence and that exit rates depend positively on the duration of the last job held by the unemployed worker.     

Macroeconomic implications of financial policy

This paper studies the effects of financial policy in a model with heterogeneous agents, incomplete markets and portfolio restrictions. For an economy calibrated to replicate key aspects of the U.S. wealth distribution, we find that the quantitative effects of financial policy are relatively small. The reason is that the households determining aggregate behavior are relatively well insured and can therefore offset the actions of the firm by modifying their portfolio allocations. However, financial policy has important effects on asset prices. Whereas a higher level of debt in the capital structure of the firm introduces more risk into the economy by increasing the volatility of the equity return, it enhances the liquidity of households by increasing the supply of bonds. In an economy with a substantial amount of heterogeneity, this last effect dominates and leverage leads to a decrease in the equity premium. This is in contrast to the findings in representative agent models, in which leverage unambiguously increases the premium through a higher equity return volatility.