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Oleg BaranovOleg Baranov
Market Design and the Evolution of the Combinatorial Clock Auction,
(with Lawrence Ausubel) American Economic Review, Papers and Proceedings, 104(5): 446-451, May 2014

Abstract
The Combinatorial Clock Auction (CCA) is an important recent innovation in auction design which has been adopted for many spectrum auctions worldwide. Since its inception, the CCA has been in almost continual evolution. We begin by reviewing some important changes which have already occurred. Despite these enhancements, we observe that the performance of the CCA is still limited by weak activity rules, suboptimal price feedback, and a missing-bid problem. We then describe further evolutionary changes, including new activity rules, new approaches to pricing, and an integration of non-mutually-exclusive bids, which will help to address these issues. .



Tania BarhamTania Barham
Living Longer: The Effect of the Mexican Conditional Cash Transfer Program on Elderly Mortality,
(with Jacob Rowberry) Journal of Development Economics, Volume 105: 226-236, November 2013.

Abstract
With both an aging population and a transition from communicable to chronic diseases, the health of the elderly is a growing issue in many developing countries. Conditional cash transfer programs are usually thought to benefit young people, but may also benefit other age groups since some programs require that all household members have regular preventive health check-ups. This paper exploits the phasing-in of the Mexican conditional cash transfer program, Progresa, between 1997 and 2000, and shows a 4% decline in average, municipality-level mortality for people aged 65 and older. The program not only reduced deaths due to more traditional infectious diseases, but also diabetes related deaths. Given that diabetes deaths are a leading cause of death in Mexico, and in the top 10 causes of death in many high- and middle-income countries, this is an important finding.



Tania BarhamTania Barham
Staying for Benefits? The Effect of a Health and Family Planning Program on Out-Migration Patterns in Bangladesh,
(with Randall Kuhn) Journal of Human Resources, Volume 49 (4), Fall 2014. 

Abstract
There is concern that government programs or development aid alter the pattern of domestic migration. We exploit the quasi-random placement of a health and family planning program in Bangladesh to examine if the program changed migration patterns between 1979-91. We find the flow of out-migration to domestic destinations was 19 percent lower in the treatment than the comparison area for men and women when program differences were largest. Due to return migration, program effects diminished and the stock of migrants living outside the study area was lower for women at 9 percent and there were no significant effects for men.



Tania BarhamBrian Cadena
Native Competition and Low-Skilled Immigrant Inflows,
Journal of Human Resources, 48(4): 910-944, Fall 2013.

Abstract
This paper demonstrates that immigration decisions respond to differences in local labor market conditions by documenting the change in low-skilled immigrant inflows in response to supply increases among the US-born. Using pre-reform welfare participation rates as an instrument for changes in native labor supply, I find that immigrants prefer cities with fewer welfare leavers over cities with larger reform-induced supply shifts. The extent of the selection is substantial: for each additional native woman working in a city as a result of welfare reform, 0.8 fewer female immigrants choose to live and work there. These results provide direct evidence that international migration flows tend to equilibrate returns across US local labor markets.

 


Tania BarhamBrian Cadena
Can Self-Control Explain Avoiding Free Money? Evidence from Interest-Free Student Loans,
Review of Economics and Statistics, 95(4): 1117-1129, October 2013.

Abstract
This paper uses insights from behavioral economics to offer an explanation for a par- ticularly surprising borrowing phenomenon: One in six undergraduate students offered interest-free loans turn them down. Models of impulse control predict that students may optimally choose to turn down subsidized loans to avoid excessive consumption during school. Using the National Postsecondary Student Aid Study (NPSAS), we investigate students’ subsidized loan take-up decisions and identify a group of students for whom the loans funds create an especially tempting liquidity increase. Students who would receive their loans in cash are significantly more likely to reject the loan. These results suggest that consumers choose to limit their liquidity in economically meaningful situations, consistent with the predictions of the behavioral model.




Tania BarhamBrian Cadena
Recent Immigrants as Labor Market Arbitrageurs: Evidence from the Minimum Wage,
Journal of Urban Economics, 80: 1-12, March 2014.

Abstract
This paper investigates the local labor supply effects of changes to the minimum wage by examining the response of low-skilled immigrants' location decisions. Canonical models emphasize the importance of labor mobility when evaluating the employment effects of the minimum wage; yet few studies address this outcome directly. Low-skilled immigrant populations shift toward labor markets with stagnant minimum wages, and this result is robust to a number of alternative interpretations. This mobility provides behavior-based evidence in favor of a non-trivial disemployment effect of the minimum wage. Further, it reduces the estimated demand elasticity using teens; employment losses among native teens are substantially larger in states that have historically attracted few immigrant residents.

 


Tania BarhamBrian Cadena
Human Capital and the Lifetime Costs of Impatience,
with Benjamin Keys American Economic Journal: Economic Policy, forthcoming

Abstract
In this paper, we examine the role of impatience in the formation of human capital - arguably the most important investment decision individuals make during their lifetimes. We pay particular attention to a set of investment behaviors that cannot be explained solely by variation in exponential discount rates. Using data from the NLSY and a straightforward measure of impatience, we find that impatient people systematically acquire lower levels of multiple measures of human capital and that a substantial fraction of these differences arise from dynamically inconsistent behavior, such as starting an educational program but failing to complete it. the cumulative investment differences result in the impatient earning 18 percent less and expressing significantly more regret as this cohort reaches middle age.

 


Yongmin ChenYongmin Chen
Differential Pricing When Costs Differ: A Welfare Analysis
(with M. Schwartz), RAND Journal of Economics forthcoming

Abstract
This paper analyzes the welfare effects of monopoly differential pricing in the important but largely neglected case where marginal costs of service differ across consumer groups. Compared to uniform pricing, cost-based differential pricing generally raises total welfare. Although total output may fall or even its allocation across consumer groups may worsen, under a minor demand curvature condition at least one of these changes must be beneficial and dominate if the other is not. Aggregate consumer welfare also rises (under a mildly tighter condition). The source of consumer gains is not cost savings from output reallocation, which flow to the firm. Rather, to induce output reallocation the firm must vary its prices, thereby creating price dispersion without an upward bias in the average price. This improves consumer welfare even in cases where output falls. We contrast these results with those in the extensive literature on third-degree price discrimination and, furthermore, provide sufficient conditions for beneficial differential pricing when both demand elasticities and costs differ.



Yongmin ChenYongmin Chen
Interpersonal Bundling
(with T. Zhang), Management Sciences, forthcoming

Abstract
This paper studies a model of interpersonal bundling, in which a monopolist offers a good for sale under a regular price and a group purchase discount if the number of consumers in a group---the bundle size---belongs to some menu of intervals. We find that this is often a profitable selling strategy in response to demand uncertainty, and it can achieve the highest profit among all possible selling mechanisms. We explain how the profitability of interpersonal bundling with a minimum or maximum group size may depend on the nature of uncertainty and on parameters of the market environment, and discuss strategic issues related to the optimal design and implementation of these bundling schemes. Our analysis sheds light on popular marketing practices such as group purchase discounts, and offers insights on potential new marketing innovation.



Yongmin ChenYongmin Chen
Refusal to Deal, Intellectual Property Rights, and Antitrust
, Journal of Law, Economics, and Organization, 30: 533-557, 2014

Abstract
A vertically integrated firm, having acquired the intellectual property (IP) through innovation to become an input monopolist, can extract surplus by supplying efficient downstream competitors. That the monopolist would refuse to do so is puzzling and has led to numerous debates in antitrust. In this article, I clarify the economic logic of refusal to deal and identify conditions under which prohibiting such conduct would raise or lower consumer and social welfare. I further show how IP protection (as determined by IP laws) and restrictions on IP holders' conduct (as determined by antitrust laws) may interact to affect innovation incentive and post-innovation market performance.



Yongmin ChenYongmin Chen
(When) Do Stronger Patents Increase Continual Innovation
, Journal of Economic Behavior and Organization, 98: 115-124, 2014

Abstract
Under continual innovation, greater patent strength expands innovating firms' profit against imitation, but also shifts profit from current to past innovators. We show how the impact of patents on innovation, as determined by these two opposing effects, varies with industry characteristics. When the discount factor is sufficiently high, the negative profit division effect is negligible, and innovation monotonically increases in patent strength; otherwise, innovation has an inverted-U relationship with patent strength, and stronger patents are more likely to increase innovation when the discount factor or the fixed innovation cost is higher. We also show how the impact of patents on innovation may change with firms' innovation capability and with the intensity of competition from imitators.



Murat IyigunJonathan Hughes
Carpooling and Driver Responses to Fuel Price Changes: Evidence from Traffic Flows in Los Angeles (with Antonio Bento and Daniel Kaffine), Journal of Urban Economics, 77: 41-56, September 2013.

Abstract
There is substantial interest in policies to reduce carbon emissions and externalities from trans- portation. While there is a large literature investigating demand responses to fuel price changes, much less is known about particular margins of adjustment such as carpool formation. Because changes in the timing or number of vehicle trips can impact emissions, highway fatalities and congestion, understanding these effects has important policy implications. We explore the rela- tionships between fuel prices and the number of drivers commuting alone or as part of a carpool. Using a simple equilibrium sorting model we show that traffic flows in mainline lanes decrease when fuel prices increase. However, in carpool (HOV) lanes, flow can either increase or decrease with higher prices. Traffic flows in mainline lanes are shown to be more responsive to price changes when the presence of a carpool lane provides a substitute to driving alone. We test these predictions using eight years of traffic data covering over 1,700 locations in Los Angeles county. In our preferred specification, the elasticity of flow with respect to fuel price is -0.05 for mainline lanes and -0.08 for mainline lanes in highways with a HOV lane. The elasticity is 0.136 for HOV lanes. These estimates imply that the mean highway with an HOV lane experiences a 30 percent larger decrease in vehicle flow per hour when fuel prices rise compared with the mean highway without an HOV lane. Flows in HOV lanes show an immediate decrease following a price increase but respond positively to price increases over time, which suggests time is an important input to carpool formation.


Murat IyigunJonathan Hughes
Some Inconvenient Truths About Climate Change Policy: The Distributional Impacts of Transportation Policies (with Stephen Holland, Christopher Knittel and Nathan Parker), The Review of Economics and Statistics, forthcoming.

Abstract
Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly–2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy. The alternatives to CAT exhibit a feature that make them amenable to adoption–a right skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably–as much as $6,800 per capita, per year. We correlate our estimates of gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap & trade bill, H.R. 2454. Because Waxman-Markey (WM) would weaken the RFS, House members likely viewed the two policies as competitors. Conditional on a district's CAT gains, increases in a district's RFS gains are associated with decreases in the likelihood of voting for WM. Furthermore, we show that campaign contributions are correlated with a district's gains under each policy and that these contributions are correlated with a Member's vote on WM.

 


Murat IyigunJonathan Hughes
Unintended Consequences of Transportation Carbon Policies" . Forthcoming (with Stephen Holland, Christopher Knittel and Nathan Parker), Energy Journal, forthcoming.

Abstract
Renewable fuel standards, low carbon fuel standards, and ethanol subsidies are popular policies to incentivize ethanol production and reduce emissions from transportation. Compared to carbon trading, these policies lead to large shifts in agricultural activity and unexpected social costs. We simulate the 2022 Federal Renewable Fuel Standard (RFS) and find that energy crop production increases by 39 million acres. Land- use costs from erosion and habitat loss are between $277 and $693 million. A low carbon fuel standard (LCFS) and ethanol subsidies have similar effects while costs under an equivalent cap and trade (CAT) system are essentially zero. In addition, the alternatives to CAT magnify errors in assigning emissions rates to fuels and can over or under-incentivize innovation. These results highlight the potential negative efficiency effects of the RFS, LCFS and subsidies, effects that would be less severe under a CAT policy.


Xiaodong LiuDaniel Kaffine
The Effects of Regulation in the Presence of Multiple Unpriced Externalities: Evidence from the Transportation Sector, (with Antonio Bento, Kevin Roth, and Matt Zaragoza) American Economic Journal: Economic Policy, forthcoming.

Abstract
In transportation systems with unpriced congestion, allowing single-occupant low-emission vehicles in high occupancy vehicle (HOV) lanes to encourage their adoption exacerbates congestion costs for carpoolers. The resulting welfare effects of the policy are negative, with environmental benefits overwhelmingly dominated by theincreased congestion costs. Exploiting the introduction of the Clean Air Vehicle Stickers policy in California with a regression discontinuity design, our results imply a best-case cost of $124 per ton of reductions in greenhouse gases, $606,000 dollars per ton of nitrogen oxides reduction, and $505,000 dollars per ton of hydrocarbon reduction, exceeding those of other options readily available to policymakers.



Xiaodong LiuDaniel Kaffine
Did California's hand-held cell phone ban reduce accidents?, (with Nicholas Burger and Bob Yu) Transportation Research Part A ,66(1): >162-172, 2014.

Abstract
In transportation systems with unpriced congestion, allowing single-occupant low-emission vehicles in high occupancy vehicle (HOV) lanes to encourage their adoption exacerbates congestion costs for carpoolers. The resulting welfare effects of the policy are negative, with environmental benefits overwhelmingly dominated by theincreased congestion costs. Exploiting the introduction of the Clean Air Vehicle Stickers policy in California with a regression discontinuity design, our results imply a best-case cost of $124 per ton of reductions in greenhouse gases, $606,000 dollars per ton of nitrogen oxides reduction, and $505,000 dollars per ton of hydrocarbon reduction, exceeding those of other options readily available to policymakers.



Xiaodong LiuDaniel Kaffine
Scrap prices, waste and recycling policy, Land Economics, 90(1):169-180, 2014.

Abstract
This study examines the effect of waste and recycling policy on scrap prices and the importance of scrap price feedbacks as a determinant of policy costs. Price effects and direct and indirect channels of waste reduction are decomposed for deposit/refund, advance disposal fee, and recycling subsidies. Scrap price feedbacks decrease the cost of advance disposal fees, increase the cost of recycling subsidies, and have an ambiguous effect on the cost of deposit/refund. Simulation analysis finds that scrap price feedbacks substantially affect the costs of the policies and alter the ranking of instruments.




Xiaodong Liu
Daniel Kaffine

Carpooling and Driver Responses to Fuel Price Changes: Evidence from Traffic Flows in Los Angeles (with Antonio Bento and Jonathan Hughes), Journal of Urban Economics,77: 41-56, September 2013.

Abstract
There is substantial interest in policies to reduce carbon emissions and externalities from trans- portation. While there is a large literature investigating demand responses to fuel price changes, much less is known about particular margins of adjustment such as carpool formation. Because changes in the timing or number of vehicle trips can impact emissions, highway fatalities and congestion, understanding these effects has important policy implications. We explore the rela- tionships between fuel prices and the number of drivers commuting alone or as part of a carpool. Using a simple equilibrium sorting model we show that traffic flows in mainline lanes decrease when fuel prices increase. However, in carpool (HOV) lanes, flow can either increase or decrease with higher prices. Traffic flows in mainline lanes are shown to be more responsive to price changes when the presence of a carpool lane provides a substitute to driving alone. We test these predictions using eight years of traffic data covering over 1,700 locations in Los Angeles county. In our preferred specification, the elasticity of flow with respect to fuel price is -0.05 for mainline lanes and -0.08 for mainline lanes in highways with a HOV lane. The elasticity is 0.136 for HOV lanes. These estimates imply that the mean highway with an HOV lane experiences a 30 percent larger decrease in vehicle flow per hour when fuel prices rise compared with the mean highway without an HOV lane. Flows in HOV lanes show an immediate decrease following a price increase but respond positively to price increases over time, which suggests time is an important input to carpool formation.

 


Xiaodong LiuDaniel Kaffine
Can Decentralized Planning Really Achieve First-best in the Presence of Environmental Spillovers? (with Harrison Fell), Journal of Environmental Economics and Management, Forthcoming.

Abstract
Strikingly, Ogawa and Wildasin (2009) find that in a model with heterogenous jurisdictions, interjurisdictional capital flows, and interjurisdictional envirionmental damage spillovers, decentralized planning outcomes are equivalent to that under a single centralized planner. Taken to its extreme this result renders international agreements such as the Kyoto Protocol irrelevant. We first show the critical importance of two key assumptions (no retirement of capital, fixed environmental damages per unit of capital) in obtaining this result. Second, we consider a more general model allowing for capital retirement and abatement activities and show that generally the outcome of a decentralized market differs from the solution of a centralized planner's social welfare-maximizing problem.



Jin HyukJin-Hyuk Kim
Screening Incentives and Privacy Protection in Financial Markets: A Theoretical and Empirical Analysis ( with Liad Wagman), RAND Journal of Economics, forthcoming

Abstract
In 1999, Congress enacted the Gramm-Leach-Bliley Act, allowing a variety of financial institutions to sell, trade, share, or give out nonpublic personal information about their customers unless their customers direct that such information not be disclosed. We study a model in which firms offer financial products to individuals, such as loans, post prices for their products, and screen consumers who apply to purchase them. Any information obtained in the screening process may be traded to another firm selling related products. We show that firms' ability to sell consumer information can lead to lower prices, higher screening intensities, higher rejection rates of applicants, and increased social welfare. By exploiting variations in the adoption of local financial-privacy ordinances in five California Bay Area counties, we are able to provide simple estimates of the effects of stricter financial-privacy laws on the denial rates of applications for home-purchase loans and loan refinancing during 2001-2004. Consistent with the model's predictions, we show that denial rates for both purchase loans and loan refinancing decreased in counties where opt-in privacy ordinances were adopted. Moreover, we find that during the financial crisis of 2007-2008, estimated foreclosure rates were higher in counties where the privacy ordinance was adopted..




Xiadong LiuXiadong Liu
Endogenous Network Production Functions with Selectivity ( with William Horace and Eleonora Patacchini) Journal of Econometrics forthcoming.

Abstract
We consider a production function model that transforms worker inputs into outputs through peer effect networks. The distinguishing features of this production model are that the network is formal and observable through worker scheduling, and selection into the network is done by a manager. We discuss identification and suggest a variety of estimation techniques. In particular, we tackle endogeneity issues arising from selection into groups and exposure to common group factors by employing a polychotomous Heckman-type selection correction. We illustrate our method using data from the Syracuse University Menís Basketball team, where at any point in time the coach selects a lineup and the players interact strategically to win games.



Xiadong LiuXiadong Liu
Nonparametric Estimation of Large Auctions with Risk Averse Bidders Econometric Reviews forthcoming.

Abstract
This article studies the robustness of Guerre et al.'s (2000) two-step nonparametric estimation procedure in a first-price, sealed-bid auction with n (n ≫ 1) risk averse bidders. Based on an asymptotic approximation with precision of order O(n −2) of the intractable equilibrium bidding function, we establish the uniform consistency with rates of convergence of Guerre et al.'s (2000) two-step nonparametric estimator in the presence of risk aversion. Monte Carlo experiments show that the two-step nonparametric estimator performs reasonably well with a moderate number of bidders such as six.



James MarkusenJames Markusen
International Trade Puzzles: A Solution Linking Production and Preferences, (with Justin Caron and Thibault Fally), Quaterly Journal of Economics, forthcoming 2014.

Abstract
International trade theory is a general-equilibrium discipline, yet most of the standard portfolio of research focuses on the production side of general equilibrium. In addition, we do not have a good understanding of the relationship between characteristics of goods in production and characteristics of preferences. This paper conducts an empirical investigation into the relationship between a good's factor intensity in production and its income elasticity of demand in consumption. In particular, we find a strong and significant positive relationship between skilled-labor intensity in production and income elasticity of demand for several types of preferences, with and without accounting for trade costs and differences in prices. Counter-factual simulations yield a number of results. We can explain about half of “missing trade”, and show an important role for per-capita income in understanding trade/GDP ratios, the choice of trading partners, and the composition of trade. Furthermore, an equal rise in productivity in all sectors in all countries leads to a rising skill premium in all countries, with particularly large increases in developing countries.



Robert McNownRobert McNown
The determinants of income inequality in Thailand: A synthetic cohort analysis, (with Sasiwimon Warunsiri Paweenawata), Journal of Asian Economics, Vol. 31–32 (April–June 2014) 10–21.

Abstract
This paper presents tests and estimates of the human capital model of income inequality using synthetic cohort data for Thailand: 1992–2011. The model focuses on four primary determinants of income inequality: mean per capita income levels, the variances in years of education, in the number of children, and in the number of earners in the household. All of these factors are important sources of income inequality in Thailand, with relative impacts that differ across demographic groups and types of household structure. An inverted-U relation between mean per capita income levels and inequality is found, reflecting gender differences of the head of household, differences in household composition, and variation in access to finance. Although the human capital model emphasizes education, estimates presented here show other household characteristics, such as number of children and number of earners, can be even more important sources of inequality.



James MarkusenTerra McKinnish
Who Marries Differently-Aged Spouses? Education, Occupation, Earnings, Ability and Appearance, (with Hani Mansour), Review of Economics and Statistics, forthcoming.

Abstract
In direct contrast to conventional wisdom and most economic models of marital age gaps, we present robust evidence that men and women who are married to differently-aged spouses are negatively selected. Empirical results show lower cognitive ability, lower educational attainment, lower occupational wages, lower earnings, and less attractive appearance among those married to a differently-aged spouse. These results, obtained using samples of first marriages and controlling for age of marriage, are consistent with a model in which individuals with more schooling and more upwardly-mobile occupations interact more heavily with similarly-aged peers and are ultimately more likely to marry similarly-aged spouses.


Carol ShiueCarol Shiue
Endogenous Formation of Free Trade Agreements: Evidence from the Zollverein's Impact on Market Integration, (with Wolgang Keller), Journal of Economic History, forthcoming 2014.

Abstract
The Zollverein was arguably the most important free trade agreement of the nineteenth century. Although 1834 is the official date of the Zollverein's establishment, member states joined in a non-random sequence over several decades because the benefits of becoming a member increased, both as the size of the union increased, and as membership in the union became increasingly important for accessing foreign markets. We incorporate the endogenous effects of accession into an estimate of the economic impact of the Zollverein customs union. Our estimated effects are several times larger than simple estimates that do not take these effects into account.



Jeffrey ZaxJeffrey Zax
The Law of One Price in Chinese factor markets, (with Yin He), Singapore Economic Review, forthcoming 2014.

Abstract
This paper investigates whether Chinese factor markets became more integrated in the period around WTO accession. This would have required reductions in factor price dispersion. However, prices for 18 agricultural factors between 1998 and 2001 and for 118 industrial factors between 1999 and 2002 varied significantly across 36 cities. Variation declined temporarily for industrial factors, perhaps to facilitate WTO accession, but not for agricultural factors. Sixteen factors had especially high frequencies of city-specific price components, suggesting that they may have been subject to domestic trade restrictions. Idiosyncratic prices for agricultural factors were concentrated in two cities. However, most cities had idiosyncratic prices for at least some industrial factors.