Monetary union and the Maastricht inflation criterion: The accession countries*

We model an accession country facing a Maastricht‐type inflation criterion that specifies an inflation ceiling. In addition to deciding whether or not to satisfy this criterion, the country must decide how much costly economic reform to undertake. If the country puts enough weight on the future that it can credibly meet the inflation criterion no matter what the ceiling is, then the inflation criterion benefits the country but lowers reform. If the country puts less weight on the future, then a criterion with a properly chosen inflation ceiling can increase reform. We derive the inflation ceilings that maximize the country's welfare and its reform.     

Time to learn? The organizational structure of schools and student achievement

Utilizing parametric and nonparametric techniques, we asses the impact of a heretofore relatively unexplored ‘input’ in the educational process, time allocation, on the distribution of academic achievement. Our results indicate that school year length and the number and average duration of classes affect student achievement. However, the effects are not homogeneous – in terms of both direction and magnitude – across the distribution. We find that test scores in the upper tail of the distribution benefit from a shorter school year, while a longer school year increases test scores in the lower tail. Furthermore, test scores in the lower quantiles increase when students have at least eight classes lasting 46–50 min on average, while test scores in the upper quantiles increase when students have seven classes lasting 45 min or less or 51 min or more.     

WHO BENEFITS FROM JOB CORPS? A DISTRIBUTIONAL ANALYSIS OF AN ACTIVE LABOR MARKET PROGRAM

Using recently developed econometric techniques to estimate quantile treatment effects (QTE) and experimental data, we examine the impact of Job Corps on earnings distribution. Our results indicate a great deal of heterogeneity in the effects of Job Corps. The QTEs show an increasing pattern along the earnings distribution, with much more pronounced differences at the upper quantiles for males, whites, and ages 20–24. Moreover, we find the QTEs to be very small at quantiles below the median for males, ages 16–17 and 18–19, and non‐resident students. We propose strong economic conditions and skill hypotheses to explain the heterogeneity observed over the earnings distribution. Copyright © 2013 John Wiley & Sons, Ltd.     

Perceived justice and post-recovery satisfaction in banking service failures: Do commitment types matter?

Based on the notion that the types of customer commitment to a service provider may have diverse reasons and effects on the customer’s perceptions, attitudes, and behaviors, this study aims to investigate the different buffering effects of calculative and affective commitments on the perceived justice and post-recovery satisfaction (PRS) relationship. Multiple and hierarchical regression analyses were conducted based on survey data collected from 284 households who experienced service failure in the banking sector. Results revealed that while affective commitment moderates the effects of procedural and interactional justice, calculative commitment increases the impact of distributive and procedural justice on PRS.     

On the persistence of income shocks over the life cycle: Evidence,theory, and implications

How does the persistence of earnings change over the life cycle? Do workers at different ages face the same variance of idiosyncratic earnings shocks? This paper proposes a novel specification for residual earnings that allows for an age profile in the persistence and variance of labor income shocks. We show that the statistical model is identified, and we estimate it using Panel Study of Income Dynamics data. We find that shocks to earnings are only moderately persistent (around 0.75) for young workers. Persistence rises with age, up to unity, until midway through life. The variance of persistent shocks exhibits a U-shaped profile over the life cycle (with a minimum of 0.01 and a maximum of 0.05). These results suggest that the standard specification in the literature (with age-invariant persistence and variance) cannot capture the earnings dynamics of young workers. We also argue that a calibrated job turnover model can account for these nonflat profiles. The key idea is that workers sort into better jobs and settle down as they age; in turn, magnitudes of wage growth rates decline, thereby decreasing the variance of shocks. Furthermore, the decline in job mobility results in higher persistence. Finally, we investigate the implications of age profiles for consumption–savings behavior. The welfare cost of idiosyncratic risk implied by the age-dependent income process is up to 1.6 percent of lifetime consumption lower compared with its age-invariant counterpart. This difference is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. These results suggest that age profiles of persistence and variances should be taken into account when calibrating life-cycle models.     

WHAT HAPPENED TO THE WILLINGNESS OF COMPANIES TO INVEST AFTER THE FINANCIAL CRISIS? EVIDENCE FROM LATIN AMERICAN COUNTRIES

In this article we investigate the changes in corporate investment dynamics in the aftermath of the global financial crisis. Using firm-level data from six Latin American countries from 2002 to 2015, we show that firms are less constrained and have greater ability to invest after the crisis. However, the willingness of firms to invest optimally is reduced. This is supported by strong evidence that during the postcrisis period investment–cash flow sensitivity disappears, investment-q sensitivity increases, and the estimated speeds of adjustment for target investment decrease. Moreover, after the crisis, firms notably increase their efforts to attain optimal cash and leverage levels. Our analysis implies that firms may not always be willing to invest optimally. The willingness to invest optimally appears to be time variant and moves together with the dynamics of cash and leverage policies, albeit in opposite directions.     

Managerial incentives and corporate leverage: evidence from the United Kingdom

This paper investigates the effect of managerial incentives and corporate governance on capital structure using a large sample of UK firms during the period 1999–2004. The analysis revolves around the view that managerial incentives are important in determining a firm's leverage. However, we argue that the exact impact of these incentives on leverage is likely to be determined by firm‐specific governance characteristics. To conduct our investigation, we construct a simple corporate governance measure using detailed ownership and governance information. We present evidence of a significant non‐monotonic relationship between executive ownership and leverage. There is also strong evidence suggesting that corporate governance practices have a significant impact on leverage. More importantly, the results reveal that the nature of the relation between executive ownership and leverage depends on the firm's corporate governance structure.     

Behavioral mechanism design: evidence from the modified first-price auctions

This paper tests the behavioral equivalence of a class of strategically-equivalent mechanisms that also do not differ in terms of their procedures. In a private value setting, we introduce a family of mechanisms, so-called Mechanism (α), that generalizes the standard first-price sealed-bid auction. In Mechanism (α), buyers are asked to submit a value which will then be multiplied by α to calculate the bids in the auction. When α =?1, Mechanism (α) is the standard first-price sealed-bid auction. We show that for any α, calculated bids should be identical across mechanisms. We conduct a laboratory experiment to test the behavioral equivalence of this class of mechanisms under different values of α. Even though the procedure and environment do not change across auctions, we do not observe the same bidding behavior across these strategically-equivalent mechanisms. Our research can inform mechanism design literature with respect to the design of optimal mechanisms.     

The impact of taxes and wasteful government spending on giving

We examine how taxes impact charitable giving and how this relationship is affected by the degree of wasteful government spending. In our model, individuals make donations to charities knowing that the government collects a flat-rate tax on income (net of charitable donations) and redistributes part of the tax revenue. The rest of the tax revenue is wasted. The model predicts that a higher tax rate increases charitable donations. Surprisingly, the model shows that a higher degree of waste decreases donations (when the elasticity of marginal utility with respect to consumption is high enough). We test the model’s predictions using a laboratory experiment with actual donations to charities and find that the tax rate has an insignificant effect on giving. The degree of waste, however, has a large, negative and highly significant effect on giving.