Income Uncertainty and Wealth Accumulation: How Precautionary are Taiwanese Households?*

To assess how recent job loss impacts wealth accumulation of Taiwanese households, the present study investigates the empirical relevance of the precautionary saving motive to explain measures of wealth during the past 2 decades. This study demonstrates that households facing increased transitory shock accumulate increased amounts of financial and housing wealth, whereas permanent shocks cause households to accumulate housing wealth only. Empirical results suggest an important policy implication: households in Taiwan will save less when social insurance policies are effective in reducing future transitory and permanent shocks to household income.     

Analysis of Labour Participation Behaviour of Korean Women with Dynamic Probit and Conditional Logit*

We analyse the dynamic labour participation behaviour of Korean women. State dependence under unobserved heterogeneity is considered, where the heterogeneity may be unrelated, pseudo‐related, or arbitrarily related to regressors. Three minor methodological contributions are made: interaction terms with lagged response are allowed in dynamic conditional logit; a three‐stage algorithm for dynamic probit is proposed; and treating the initial response as fixed is shown to be ill‐advised. The state dependence is about 0.6 × SD(error), higher for the married or junior college‐educated, and lower for women in their twenties and thirties. While education increases participation, college education has negative effects for women in their forties or above. Marriage has a high negative short‐term effect but a positive long‐term effect.     

Political Influence and the Banking Sector: Evidence from Korea*

This paper uses panel data to compare the performance of Korean banks with and without effective government control of the appointment of chief operating officers. A privatization programme succeeded in spreading ownership of banks widely among the public, but government retention of an ownership stake in an institution meant de facto control by government. Despite charging lower loan rates, banks controlled by government experience higher bad loans ratios. This is in line with expectations of regulatory forbearance and government protection for recipients of political loans. Banks controlled by government are less efficient than privately controlled banks and bad loan variables are higher at banks with lower efficiency scores.     

The role of generally accepted reporting methods in the public sector: An empirical test

This study explores the role of standard or generally accepted accounting and reporting methods in the public sector. It differs from prior studies that address public sector accounting issues in that it considers more directly how the political process influences decisions to report financial information. The primary contention is that adopting standard reporting methods reduces costs to public officials that arise from factors that characterize political markets. Empirical evidence based on data from the state governments is consistent with this contention, but theoretical and methodological problems restrict our ability to ascertain which specific factors are relevant.     

Vertical Relationships in the Automotive Industry: Do They Matter?

In this note we examine how vertical relationships are related to the efficiency of the operations in the automotive production chain. We first provide an overview of the nature of supplier arrangements by comparing current practices in the countries Japan, US, and Germany. Current best practices show that vertical linkages in the automotive industry have shifted away from simple market transactions and now involve closer long-term interactions coupled however with subtle incentive elements. We outline the economic issues which are present in vertical relationships and include a brief account of differing theoretical perspectives. Then, we use a refined methodology to measure productivity at the industry level for the supplier industries automotive parts and metalworking and for the final assembly industry. It turns out that Japanese industries achieve the highest productivity level at the supplier and at the assembly level. We interpret the empirical results and relate the differences in vertical arrangemen s with the efficiency of both parts in the relation.     

Randomized experiments from non-random selection in U.S. House elections

This paper establishes the relatively weak conditions under which causal inferences from a regression–discontinuity (RD) analysis can be as credible as those from a randomized experiment, and hence under which the validity of the RD design can be tested by examining whether or not there is a discontinuity in any pre-determined (or “baseline”) variables at the RD threshold. Specifically, consider a standard treatment evaluation problem in which treatment is assigned to an individual if and only if V>_v0$V>v_0$, but where _v0$v_0$ is a known threshold, and V is observable. V can depend on the individual's characteristics and choices, but there is also a random chance element: for each individual, there exists a well-defined probability distribution for V  . The density function—allowed to differ arbitrarily across the population—is assumed to be continuous. It is formally established that treatment status here is as good as randomized in a local neighborhood of V=_v0$V=v_0$. These ideas are illustrated in an analysis of U.S. House elections, where the inherent uncertainty in the final vote count is plausible, which would imply that the party that wins is essentially randomized among elections decided by a narrow margin. The evidence is consistent with this prediction, which is then used to generate “near-experimental” causal estimates of the electoral advantage to incumbency.     

The influence of moral hazard on investment in financially constrained and unconstrained firms

We extend Triole (2006) to link together two seemingly different cases – firms facing potential free cash flow problems versus firms facing financial constraints. The model predicts a large number of disparate findings in the empirical literature and so demonstrates its usefulness.     

New Evidence on Class Size Effects: A Pupil Fixed Effects Approach*

The impact of class size on student achievement remains a thorny question for educational decision makers. Meta‐analyses of empirical studies emphasize the absence of class‐size effects but detractors have argued against such pessimistic conclusions because many of the underlying studies have not paid attention to the endogeneity of class size. This article uses a stringent method to address the endogeneity problem using Trends in International Mathematics and Science Study data on 47 countries. We measure the class size effect by relating the difference in a student's achievement across subjects to the difference in his/her class size across subjects. This (subject‐differenced) within‐pupil achievement production function avoids the problem of the non‐random matching of children to specific schools, and to classes within schools. The results show a statistically significant negative effect of class size in 14 countries, but the effect size is small in most cases. Several robustness tests are carried out, including control for students’ subject‐specific ability and subject‐specific teacher characteristics, and correction for possible measurement error. Thus, our approach to addressing the endogeneity problem confirms the findings of meta‐analyses that find little support for class size effects. Additionally, we find that class size effects are smaller in countries with higher teacher quality.     

Optimal abatement of sulphur emissions in Europe

This study presents a mathematical model for determining cost-effective emissions' control strategies in Europe, by minimizing sulphur abatement costs subject to different pollution control targets. The purpose is to compare the efficiency of a uniform percentage emissions reduction with a scenario that takes variation in environmental conditions into account. Underlying the proposed model is the belief that a full cost-benefit analysis of acid rain abatement is infeasible. The model focuses on the costs of abatement and provides an estimation of the gains (or losses) that countries could achieve if they co-operate in their policies rather than act independently.