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Fancisca AntmanLee Alston
The Development of Property Rights on Frontiers: Endowments, Norms and Politics,
(with Edwyna Harris and Bernardo Mueller) Journal of Economic History, forthcoming September 2012. Earlier version published as NBER Working Paper No. # 15264 (September 2009).

Abstract
How do property rights evolve when unoccupied areas attract economic use? Who are the first claimants on the frontier and how do they establish their property rights? When do governments provide de jure property rights? We present a conceptual framework that addresses these questions and apply it to the frontiers of Australia, Brazil and the U.S. Our framework stresses the crucial role of politics as frontiers develop, by identifying situations where the competition for land by those with de facto rights and those with de jure rights leads to violence or potential conflicts.



Fancisca AntmanLee Alston
Payment for Environmental Services: Hypotheses and Evidence,
(With Krister Andersson and Steven M. Smith), Annual Review of Resource Economics, forthcoming, Volum 5 (2013). Earlier version published as NBER Working Paper No. #18740 (Janurary 2013)

Abstract
The use of Payment for Environmental Services (PES) is not a new type of contract but they have become more in vogue because of the potential for sequestering carbon by paying to prevent deforestation and degradation of forest lands. We provide a framework utilizing transaction costs to hypothesize which services are more likely to be provided effectively. We then interpret the literature on PES programs to see the extent to which transaction costs vary as predicted across the type of service and assess the performance of PES programs. As predicted we find that transaction costs are the least for club goods like water and greatest for pure public goods like carbon reduction. Actual performance is difficult to measure and varies across the examples. More work and experimentation is needed to gain a better outlook on what elements support effective delivery of environmental services.



Fancisca AntmanLee Alston
Changing Social Contracts: Beliefs and Dissipative Inclusion in Brazil, (with Marcus Melo, Bernardo Mueller and Carlos Pereira), Journal of Comparative Economics (forthcoming 2013). Earlier version published as NBER Working Paper No. #18588 (December 2012).

Abstract
Social contracts about inequality and redistribution are country-specific. We rely on a model of inequality and redistribution where multiple steady states can emerge in given country. We link the model to the recent literature on beliefs and argue that beliefs are a major determinant of which equilibrium results. We show that changes in beliefs may shift the equilibrium in a country over time. We present evidence that beliefs are typically very stable over time, yet argue that Brazil has recently undergone a dramatic shift in beliefs which we show is associated with a change in the country's social contract in the past thirty years. The transition from one social contract to another has taken place through a process which we call 'dissipative inclusion', where redistribution and social inclusion are effectively achieved but accompanied by distortions, inefficiencies and rent dissipation.



Fancisca AntmanFrancisca M. Antman
Gender, Educational Attainment, and the Impact of Parental Migration on Children Left Behind.
Journal of Population Economics, 25(4): 1187-1214, October 2012.

Abstract
Estimation of the causal effect of parental migration on children’s educational attainment is complicated by the fact that migrants and nonmigrants are likely to differ in unobservable ways that also affect children’s educational outcomes. This paper suggests a novel way of addressing this selection problem by looking within the family to exploit variation in siblings’ ages at the time of parental migration. The basic assumption underlying the analysis is that parental migration will have no effect on the educational outcomes of children who are at least 20 years old because they have already completed their education. Their younger siblings, in contrast, may still be in school, and thus will be affected by the parental migration experience. The results point to a statistically significant positive effect of paternal US migration on education for girls, suggesting that pushing a father’s US migration earlier in his daughter’s life can lead to an increase in her educational attainment of up to 1 year relative to delaying migration until after she has turned 20 years old. In contrast, paternal domestic migration has no statistically significant effect on educational attainment for girls or boys, suggesting that father absence does not play a major role in determining children’s educational outcomes. Instead, these results suggest that the marginal dollars from US migrant remittances appear to enable families to further educate their daughters. Thus, policymakers should view international migration as a potential pathway by which families raise educational attainments of girls in particular.




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
Development Effects of Electrification: Evidence from the Topographic Placement of Hydropower Plants in Brazil,
(with Molly Lipscomb and  Mushfiq Mobarak)  American Economic Journal: Applied Economics, 5(2): 200-231, April 2013.

Abstract
We estimate the development effects of electrification across Brazil over the period 1960-2000. Brazil relies almost exclusively on hydropower, which requires intercepting water at high velocity. We build an engineering model which takes as inputs only geography (river gradient, water flow and Amazon) and simulates a time series of hypothetical electricity grids for Brazil that show how the grid would have evolved had infrastructure investments been made based solely on geologic cost considerations, ignoring all demand-side concerns. Using the model as an instrument, we document large positive effects of electrification on development that are underestimated when one fails to account for the political allocation of infrastructure projects or its targeting to under-developed areas. Broad-based improvement in labor productivity across sectors and areas rather than general equilibrium re-sorting (in-migration to electrified counties) appears to be the likely mechanism by which these development gains are realized.



Tania BarhamTania Barham
Enhancing Cognitive Functioning: Medium-Term Effects of a Health and Family Planning Program in Matlab, 
American Economic Journal: Applied Economics, 4(1): 245-73, January 2012.

Abstract
It is believed that early life circumstances are crucial to success later in life. Yet causal evidence that the impacts of early childhood health interventions continue into late childhood and adolescence is sparse. This paper exploits a quasi-random placement of the Matlab Maternal and Child Health and Family Planning Program in Bangladesh to determine whether children eligible for child health interventions in early childhood had better cognitive functioning at ages 8–14. I find a program effect of 0.39 standard deviations on cognitive functioning and similar effects for height and educational attainment.



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 BarhamAnn Carlos
Smallpox and Native American Mortality: The 1780s Epidemic in the Hudson Bay Region
, (with Frank Lewis) Explorations in Economic History, 49(3): 277-290, July 2012.

Abstract
The smallpox epidemic of 1781–82 in the Hudson Bay region is said to have devastated the native population, causing mortality of at least 50%. We reassess this claim using a four-pronged approach. First, we total smallpox deaths reported by two fur trading posts that were in the midst of the epidemic. Second, we review case fatality rates in other smallpox outbreaks, and discuss the likely incidence of the disease among Native Americans. Third, we analyse trade during the period of the epidemic. Fourth, we estimate the native population prior to the epidemic based on the carrying capacity of the region. All four approaches lead to a similar conclusion. Mortality from smallpox was likely under 20%, which is much less than previously asserted.



Yongmin ChenYongmin Chen
Profitability of Product Bundling
, (with Michael Riordan), International Economic Review, 54(1): 35-57, February 2013.

Abstract
Using copulas to model the stochastic dependence of values, this article establishes new general conditions for the profitability of product bundling. A multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two of its products are negatively dependent, are independent, or have sufficiently limited positive dependence. The profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single-product rival.

 


Yongmin ChenYongmin Chen
Ex ante Investment, Ex post Remedy, and Product Liability
(with Xinyu Hua), International Economic Review, 53(3): 845-866, 2012.

Abstract
Low-quality products may cause consumer harm. A firm can reduce the probability of low quality through ex ante investment before sales, and can take remedy actions such as product recalls if it learns after sales that product quality is low. An increase in the firm's product liability increases its incentive for ex post remedy; more ex post remedy, however, may reduce the firm's ex ante quality investment. On the other hand, higher product liability increases consumer demand for the product, resulting in high output and hence greater return to ex ante investment. The trade-off between these two effects, the "substitution effect" and the "output effect", can lead to an inverted U-shaped relationship between ex ante investment and product liability. We find that the firm always prefers full liability whereas consumers might be better off with less than full liability. Full product liability tends to be socially optimal when the potential consumer loss from low quality is sufficiently high; otherwise partial liability can be socially optimal.



Yongmin ChenYongmin Chen
Profitability of Product Bundling
(with Michael Riordan), International Economic Review, 54(1): 35-57, February, 2013.

Abstract
Using copulas to model the stochastic dependence of values, this paper establishes new general conditions on the profitability of product bundling. A multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two products are negatively dependent, independent, or have limited positive dependence. With more than two goods, the same conditions are sufficient for an optimal monopoly selling scheme to include a bundle of at least two products. The profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single-product rival.



Yongmin ChenPhilip E. Graves
Benefit-Cost Analysis of Environmental Projects: A Plethora of Biases Understating Net Benefits
, Journal of Benefit-Cost Analysis, manuscript 1041, August 2012.

Abstract
There are many reasons to suspect that benefit-cost analysis applied to environmental policies will result in policy decisions that will reject those environmental policies. The important question, of course, is whether those rejections are based on proper science. The present paper explores sources of bias in the methods used to evaluate environmental policy in the United States, although most of the arguments translate immediately to decision-making in other countries. There are some “big picture” considerations that have gone unrecognized, and there are numerous more minor, yet cumulatively important, technical details that point to potentially large biases against acceptance on benefit-cost grounds of environmental policies that have true marginal benefits greater than true marginal costs, both in net present value terms. It is hoped that the issues raised here will improve future conduct of benefit-cost analyses of environmental policies.



Yongmin ChenPhilip E. Graves
Spatial Equilibrium in the Labor Market,
The Handbook of Regional Science, Chapter 19, Peter Nijkamp and Manfred Fisher (eds), section editors Alessandra Faggian and Mark Partridge, Springer, New York, in press, 2013.

Abstract
Over long periods of human history, labor market equilibrium involved movements from low-wage areas to high-wage areas, a form of arbitrage under the implicit view that wage differentials corresponded to utility differentials. This “labor economics” view is likely to be viable as long as movement and information costs are high, and under this view the movements would be expected to cause wage convergence over space. In recent decades, perhaps beginning as early as the 1960’s, both the out of pocket and psychological costs of movement have plummeted with advances in transportation and communication technology and innovation. In addition, these same advances have enabled individual households and firms to have vastly improved information about potential benefits of locating in a host of potential locations. These observations, along with recently failures to observe convergence in wage rates, suggest that an alternative view—assuming a utility equilibrium over space—might better predict and explain the labor market equilibrium. This “urban/regional economics” view takes wages and rents as being compensatory for varying levels of household and firm amenities. In this view, whether the spatial equilibrium in labor markets involves convergence or divergence becomes quite a complicated issue. This chapter explores a number of the complexities, hinting at a broad range of potentially very fruitful future research.



Yongmin ChenPhilip E. Graves
The Hedonic Method of Valuing Environmental Policies and Quality,
The Handbook of Regional Science, Chapter 6, Peter Nijkamp and Manfred Fisher (eds), section editor, Amit Batabyal, Springer, New York, in press, 2013.

Abstract
Benefit-cost analysts attempt to compare two states of the world, the status quo and a state in which a policy having benefits and costs is being contemplated. For environmental policies, this comparison is greatly complicated by the difficulty in inferring the values that individuals place on an increment to environmental quality. Unlike ordinary private goods, environmental goods are not directly exchanged in markets with observable prices. In this chapter, the hedonic approach to inferring the benefits of an environmental policy is examined.



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 IyigunMurat Iyigun
Social Organizations, Risk-Sharing Institutions and Industrialization (with Avner Greif and Diego Sasson) American Economic Review, P & P, May 2013.

Abstract
We analyze the role of risk-sharing institutions in transitions to modern economies. Transitions require individual-level risk-taking in pursuing productivity-enhancing ac- tivities including using and developing new knowledge. Individual-level, idiosyncratic risk implies that distinct risk sharing institutions – even those providing the same level of insurance – can lead to different growth trajectories if they differently mo- tivate risk-taking. Historically, risk sharing institutions were selected based on their cultural and institutional compatibility and not their unforeseen growth implications.

We simulate our growth model incorporating England’s and China’s distinct pre- modern risk-sharing institutions. The model predicts a transition in England and not China even with equal levels of risk sharing. Under the clan-based Chinese institution, the relatively risk-averse elders had more control over technological choices implying lower risk-taking.

Focusing on non-market institutions expands on previous growth-theoretic models to highlight that transitions can transpire even in the absence of exogenous productivity shocks or time-dependent state variables. Recognizing the role of non- market institutions in the growth process bridges the view that transitions are due to luck and the view that transitions are inevitable. Transitions transpire when ‘luck’ cre- ates the conditions under which economic agents find it beneficial to make the choices leading to positive rates of technological change. Luck came in the form of historical processes leading to risk-sharing institutions whose unintended consequences encour- aged productivity-enhancing risk-taking.



Murat IyigunMurat Iyigun
Lessons from the Ottoman Harem on Ethnicity, Religion and War,
Economic Development and Cultural Change, 61(4): 693-730, July 2013.

Abstract
The Ottoman Empire had a profound impact in Europe, the Middle East, and North Africa at the apogee of its power, covering the era between 1453 and 1699. In this article, I exploit the empire’s unique culture and institutions to examine the roles of ethnicity and religion in conflict and war. Using comprehensive data on Ottoman wars and conflicts covering the reigns of 31 Ottoman sultans between 1400 and 1909, I document that the ethnic background of the Valide Sultan (queen mother) was an important and independent determinant of whether the empire engaged in military conquests in Europe, North Africa, or the Middle East. Depending on the empirical specification, the reign of a sultan with a European maternal genealogy was enough to offset more than 70% of the empire’s western orientation in imperial conquests. While these findings do not rule out a direct role of queen mothers and harem politics in Ottoman affairs, they are more in line with a longer-term channel of cultural transmission between the Valide Sultans and their sons.



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
Greenhouse gas emissions, waste and recycling policy, (with Kaylee Acuff) Journal of Environmental Economics and Management, 65(1): 74-86, 2013.

Abstract
This paper examines least-cost policies for waste reduction, incorporating upstream greenhouse gas externalities associated with the production of consumption goods from various materials. In particular, we decompose the effect of deposit/refund, advance disposal fees, and recycling subsidies on upstream greenhouse gas emissions. We find that the benefits of reducing greenhouse gas emissions are of the same order as or larger than the benefits of reducing solid waste disposal, implying larger optimal total waste reduction than previous studies. Furthermore, the least-cost intervention levels will be material-specific and vary substantially across materials. Finally, despite the reductions in emissions implied by increased recycling rates, direct recycling subsidies are more costly and generate less emissions reductions than a deposit/refund or advance disposal fee.




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
Scrap prices, waste and recycling policy,  Land Economics, forthcoming.

Abstract
This study examines the effect of waste and recycling policy on scrap prices and the importance of scrap price feedbacks as a determinate of the costs of waste and recycling policy. The effect of a deposit/refund, advance disposal fee, and recycling subsidies on scrap prices are derived, and the direct and indirect channels of waste reduction are decomposed for the three instruments. Scrap prices 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 LiuDaniel Kaffine
Emissions savings from wind power generation in Texas, (with Brannin McBee and Jozef Lieskovsky),  Energy Journal, 34(1):155-175, 2013.

Abstract
Wind power has the potential to reduce emissions associated with conventional electricity generation. Using detailed, systemic hourly data of wind generation and emissions from plants in ERCOT (Texas), we empirically estimate the SO2, NOx and CO2 emissions offset by wind generation. Our estimation strategy implicitly captures both the marginal unit of generation displaced by wind on the electrical grid, and the marginal emissions reduction from that displaced unit. Our results also reveal substantial variation in emissions reductions, which appear to be strongly driven by differences in the generation mix. The environmental benefits from emissions reductions in ERCOT fail to cover government subsidies for wind generation.



Xiaodong LiuWolfgang Keller
The Gravity of Knowledge ( with Stephen Yeaple), American Economic Review, forthcoming

Abstract
We analyze the international operations of multinational firms to measure the spatial barriers to transferring knowledge. We model firms that can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). The model shows how knowledge transfer costs can be inferred from multinationals' operations. We use firm-level data on the trade and sales of U.S. multinationals to confirm the model's predictions. Disembodied knowledge transfer costs not only make the standard multinational firm model consistent with the fact that affiliate sales fall in distance but quantitativelyaccounts for much of the gravity in multinational activity.



Xiaodong LiuJin-Hyck Kim
A Simple Model of Copyright Levies: Implications for Harmonization, International Tax and Public Finance, forthcoming, November 2012.

Abstract
Copyright levies are used as a way of compensating rightholders for the private use made of their protected works. This paper builds a simple model of copyright levies and investigates welfare implications of the harmonization of levy rates. The result is that, when the policy-maker places sufficient weight on the interests of collecting societies, harmonization could reduce social welfare. When countries are asymmetric, the country with a larger proportion of foreign consumption and more inefficient tax system loses more from harmonization. A calibration exercise using European data shows that harmonization would increase aggregate social welfare. However, in some countries, policy-makers are worse off although consumers are better off with harmonization. Especially, when larger countries have higher decision weights, the policy-makers are worse off overall, and hence would not agree to harmonize the levy rates.



Xiaodong LiuJin-Hyck Kim
 Does Competition Affect Evolutionary Dynamics? Evidence from a Collegiate University, Applied Economics Letters, 20(8): 781-785, 2013.

Abstract
This article shows that competition is inversely related to the strength of evolutionary dynamics using a collegiate university's admission statistics during the period 2004–2009. Specifically, estimated coefficients of the replicator dynamic equation is inversely related to the subject's applications-to-offers ratio. This suggests that competition favours a choice of strategies that is serially independent of the previous round's pay-offs.



Xiaodong LiuXiaodong Liu
 Nonparametric Estimation of Large Auctions with Risk Averse Bidder, Econometric Reviews, forthcoming.

Abstract
The paper explores the robustness of Guerre, Perrign and Vuong's (2000) two-step nonparametric estimation procedure in first-price, sealed-bid auctions 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 estabilish the uniform consistency with rates of convergence of Guerre, Perrign and Vuong's (2000) two-step nonparametric estimator performs reasonably well with a moderate number of bidders such as six.



Xiaodong LiuXiaodong Liu
Estimation of a Local-Aggregate Network Model with Sampled Networks, Economics Letters 118, 243-246, 2013.

Abstract
This work considers the estimation of a network model with sampled networks.  Chandrasekhar and Lewis (2011) show that the estimation with sampled networks could be biased due to measurement error induced by sampling and propose a bias correction by restricting the estimation to sampled nodes to avoid measurement error in the regressors. However, measurement error may still exist in the instruments and thus induce the weak instrument problem when the sampling rate is low. For a local-aggregate model, we show that the instrument based on the outdegrees of sampled nodes is free of measurement error and thus remains informative even if the sampling rate is low. Simulation studies suggest that the 2SLS estimator with the proposed instrument works well when the sampling rate is low and the other instruments are weak.




Xiaodong LiuXiaodong Liu
Learning from Peers in Signaling Game Experiments, (with John H. Kagel and Lung-fei Lee), Journal of Applied Econometrics, Vol 27 (7): 1037-1058.

Abstract
We investigate peer group effects in laboratory experiments based on Milgrom and Roberts' (1982, Econometrica 50: 443–459) entry limit pricing game. We generalize Heckman's (1981, in Structural Analysis of Discrete Data with Econometric Applications. MIT Press: Cambridge, MA) dynamic discrete-choice panel data models by introducing time-lagged social interactions, using the unbiased GHK simulator to implement the computationally cumbersome maximum likelihood estimation. We find that subjects' decisions are significantly influenced by past decisions of peers on several dimensions, including potential entrants' choices and strategic play of like-type monopolists. The proposed model and estimation method may be applicable to other experiments where peer group effects are likely to play an important role.



Xiaodong LiuXiaodong Liu
On the Consistency of the LIML Estimator of a Spatial Autoregressive Model with Many Instruments, Economics Letters 116: 472-475, 2012. 

Abstract
This paper derives the LIML estimator for a spatial autoregressive model with endogenous regressors in the presence of many instruments. The LIML estimator is consistent when the number of instruments increases at a slower rate relative to the sample size. Due to spatial correlation, the LIML estimator in general is inconsistent when the number of instruments increases at the same rate as the sample size.



Xiaodong LiuCarlos Martins-Filho
On nonparametric estimation: with a focus on agriculture, (with R. Fare, S. Grosskopf and C. Pasurka), Annual Review of Resource Economics, 5: 93-110, Juen 2013.

Abstract
We review nonparametric estimation of efficiency and productivity, by which we mainly mean activity analysis or Data Envelopment Analysis (DEA). The review covers topics which we hope will be of special interest to those doing research in the realm of agriculture. We also include a brief appendix addressing nonparametric estimation from an econometric perspective.



Xiaodong LiuCarlos Martins-Filho
Semiparametric stochastic frontier estimation via profile likelihood, (with F. Yao), Econometric Reviews, forthcoming.

Abstract
We consider the estimation of a nonparametric stochastic frontier model with composite error density which is known up to a finite parameter vector. Our primary interest is on the estimationof the parameter vector, as it provides the basis for estimation of firm specific (in)efficiency. Ourfrontier model is similar to that of Fan et al. (1996), but here we extend their work in that: a) we establish the asymptotic properties of their estimation procedure, and b) propose and establish the asymptotic properties of an alternative estimator based on the maximization of a conditionalprofile likelihood function. The estimator proposed in Fan et al. (1996) is asymptotically normally distributed but has bias which does not vanish as the sample size n → ∞. In contrast, our proposed estimator is asymptotically normally distributed and correctly centered at the true value of the parameter vector. In addition, our estimator is shown to be efficient in a broad class ofsemiparametric estimators. Our estimation procedure provides a fast converging alternative to the recently proposed estimator in Kumbhakar et al. (2007). A Monte Carlo study is performed to shed light on the finite sample properties of these competing estimators.



Xiaodong LiuCarlos Martins-Filho
Kernel based estimation of semiparametric regression in triangular systems, (with F. Yao) Economics Letters, 115: 24-27, 2012.

Abstract
We propose a kernel-based estimator for a partially linear model in triangular systems where endogenous variables appear both in the nonparametric and linear component functions. Our estimator is easy to implement, has an explicit algebraic structure, and exhibits good finite sample performance in a Monte Carlo study.



Xiaodong LiuCarlos Martins-Filho
On asymptotic normality of the local polynomial regression estimator with stochastic bandwidths, (with P. Saraiva) Communications in Statistics-Theory and Methods, 41: 1052-1068, 2012.

Abstract
Nonparametric density and regression estimators commonly depend on a bandwidth. Theasymptotic properties of these estimators have been widely studied when bandwidths are nonstochastic. In practice, however, in order to improve finite sample performance of theseestimatorsbandwidths are selected by data driven methods, such as cross-validation or plug-in procedures. As a result, nonparametric estimators are usually constructed using stochastic bandwidths. In this article, we establish the asymptotic equivalence in probability of local polynomial regression estimators under stochastic and nonstochastic bandwidths. Our result extends previous work by Boente and Fraiman (1995) and Ziegler (2004).



Xiaodong LiuKeith E. Maskus
Labor Skills and Foreign Direct Investment in a Dynamic Economy: Estimating the Knowledge-Capital Model for Singapore, (with Gnanaraj Chellaraj and Aaditya Mattoo) World Bank Policy Research Working Paper no.4950, Review of Development Economics, 2013, in press.

Abstract
In this paper we analyze changes in the inbound and outbound investment between Singapore and a sample of industrialized and developing countries. The nature of Singapore's two-way investment with the industrialized nations has shifted into skill-seeking activities over the period, while Singapore's investments in developing countries have increased sharply and become concentrated in labor-seeking activities. Over the 1984-2003 period, as host Singapore became skill abundant relative to parent industrialized countries, average inbound investment stocks from these countries increased by US$ 24.8 billion annually, while the corresponding figure for outbound stocks to host developing countries was US$ 9.5 billion.




Xiaodong LiuKeith E. Maskus
Thailand-Cigarettes (Philippines): A More Serious Role for the Less Favourable Treatment Standard of Article III.4, (with William J. Davey ) World Trade Review, Vol. 12, No. 2, 2013, 163-193.

Abstract
This paper analyzes a number of economic and legal issues raised by the Appellate Body Report in the Thai–Cigarettes case. The paper suggests two improvements that could be made to Panel procedures; supports the Appellate Body's interpretation of Article XX(d) in the present case, which seems to discard an earlier mistaken approach to Article XX; and examines, in some detail, whether the Appellate Body's application of the ‘less favourable treatment’ component of GATT Article III:4 in this and other cases is consistent with its jurisprudence under GATT Article III:2 and TBT Article 2.1. From an economics perspective, the case is straightforward on its face. However, the Appellate Body's rigorous application of the ‘less favourable treatment’ principle might not survive a fuller market analysis in terms of policy impacts on conditions of competition. Further, while we agree with the rejection of Thailand's Article XX claim, we raise the question of whether a strict national-treatment rule may be an unwarranted constraint on policy where there is a clear trade-related external cost to address.



Xiaodong LiuKeith E. Maskus
Skilled Immigration and Innovation: Evidence from Enrolment Fluctuations in U.S. Doctoral Programmes, (with Eric Stuen and, Ahmed Mobarak) Economic Journal, Vol.122, No. 565, December 2012: 1143-1372 [lead article].

Abstract
We study the contribution of doctoral students to innovation at 2,300 American science and engineering departments from 1973 to 1998. Macroeconomic and policy shocks in source countries that differentially affect enrolments across fields and universities isolate exogenous variation in the supply of students. Both US and international students contribute significantly to the production of knowledge at scientific laboratories, and their contributions are statistically comparable, consistent with an optimising department. A theoretical model of scholarships helps us to infer the productivity effects of student quality. Visa restrictions limiting entry of high-quality students are found to be particularly costly for academic innovation.




Xiaodong LiuKeith E. Maskus
Preferential Trade and Welfare with Differentiated Products, (with Denise Eby Konan), Review of International Economics, Vol. 20, No. 5, November 2012: 884-892.

Abstract
We consider analytically and numerically the welfare tradeoffs inherent in a preferential trade area (PTA) with products differentiated by region of origin. For a small open economy in such a setting, welfare gains are associated with higher trade volumes within the PTA. However, welfare losses are induced by declining tariff revenues on trade with non-member countries. We show that both effects are concave, while one is a non-monotonic and the other a potentially non-monotonic function of pre-PTA partner trade shares. Therefore, the relationship between initial partner import shares and direct static welfare impacts of a PTA are theoretically ambiguous. This finding contrasts with conventional results in the homogeneous-goods case, whereby the smaller is the pre-agreement trade volume with a potential partner the more beneficial is a PTA.



Xiaodong LiuKeith E. Maskus
Knowledge Capital, International Trade and Foreign Direct Investment: A Sectoral Analysis, (with Titus O. Awukose, and Yiting), An Economic Inquiry, Vol. 50, No. 3, July 2012: 707-723

Abstract
The knowledge-capital (KC) model of multinational enterprises (MNEs) is now a widely adopted empirical approach to explain the location and production decisions of global firms based on both horizontal and vertical motivations. Although most of the existing studies have focused on highly aggregated national data, we extend this model to sectoral data consisting of broad manufacturing industries and explicitly account for the dynamic nature of international investment data. The empirical results from a dynamic panel data analysis indicate that the predictions of the KC model regarding MNE behavior vary by the type of industry. Production processes in electronics and transportation equipment are more characterized by efficient vertical specialization of research and development activities and assembly, whereas other sectors display more complex motivations.



James MarkusenJames Markusen
Expansion of Trade at the Extensive Margin: A General Gains-from-Trade Result and Illustrative Examples, Journal of International Economics (2012), 89(1): 262-270, January 2013.

Abstract
The basic gains-from-trade theorem makes a stark comparison between completely free trade and complete autarky. This paper is motivated by recent evidence that trade has greatly expanded on the extensive margin (aka fragmentation, offshoring) by adding newly traded goods and services and that much of this new trade is in intermediates. I provide an extension of existing gains-from-trade results by allowing trade in an added set of final and/or intermediate goods. As seems generally understood, a sufficient condition for all countries to gain from fragmentation is that the relative world prices of initially-trade goods don't change. However, trade costs break the strict link between domestic and world prices in my approach and this results in interesting subtleties as initially-traded goods change their trade status following fragmentation. I illustrate these results by applying them to two recent and quite specific formulations of expansion at the extensive margin: Grossman and Rossi-Hansberg (2008) and Markusen and Venables (2007). Symmetry in two senses results in gains for all countries: countries are relatively symmetric in size and the newly-traded goods are relatively symmetric in their factor intensities with respect to the world endowment ratio.

 


James MarkusenJames Markusen
International Welfare and Employment Linkages arising from Minimum Wages
(with Egger, Hartmut and Peter Egger), International Economic Review 53 (2012), 771-789.

Abstract
We formulate a two-country model with monopolistic competition and heterogeneous firms to reconsider labor market linkages in open economies. Labor-market imperfections arise by virtue of country-specific real minimum wages. Two principal experiments are considered. First, we show that trade liberalization under minimum wages differs significantly from trade liberalization under standard assumptions. In the former case, there is effectively a perfectly elastic supply of labor to production whereas in the conventional case it is assumed that aggregate labor supply is perfectly inelastic. Standard effects on marginal and average firm productivity are reversed in our model, yet there are significant gains from trade arising from employment expansion, an effect quite different from the source of gains from trade in the conventional approach. Second, we show that with firm heterogeneity an increase in one country's minimum wage triggers firm exit in both countries and thus harms workers at home and abroad. In an extension to our baseline model, we illustrate that offshoring production from the high-wage to the low-wage country within multinational firms lowers the scope for exporting the costs of a higher minimum wage to the trading partner.

 


James MarkusenJames Markusen
Putting Per-Capita Income back into Trade Theory
, Journal of International Economics, 90(2): 255-265, July 2013.

Abstract
A major role for per-capita income in international trade, as opposed to simply country size, was persuasively advanced by Linder (1961). Yet this crucial element of Linder's story was abandon by most later trade economists in favor of the analytically-tractable but counter-empirical assumption that all countries share identical and homothetic preferences. This paper collects and unifies a number of disjoint points in the existing literature and builds further on them using simple and tractable alternative preferences. Adding non-homothetic preferences to a traditional models helps explain such diverse phenomenon as growing wage gaps, the mystery of the missing trade, home bias in consumption, and the role of intra-country income distribution, solely from the demand side of general equilibrium. With imperfect competition, we can explain higher markups and higher price levels in higher per-capita income countries, and the puzzle that gravity equations show a positive dependence of trade on per-capita incomes, aggregate income held constant. In all cases, the effects of growth are quite different depending on whether it is growth in productivity or through factor accumulation. The paper concludes with some suggestions for calibration, estimation, and gravity equations.



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.


Scott J. Savage
James MarkusenEffect of Network Unbundling on Retail Prices: Evidence from the Telecommunications Act of 1996
, (with G. Rosston and B Wimmer), Journal of Law and Economics, 2013, 56, 487-519.

Abstract
This paper empirically examines the effects of network unbundling on retail prices in U.S. local telephone markets. Panel data for 7,604 wire centers in 43 states from 1996 to 2002 are used to estimate the price effects from the unbundling and entry-promoting conditions of the Telecommunications Act. Results show that Section 271 led to the rebalancing of prices between customer groups in which residential prices increased and the prices paid by small businesses decreased. There is some rebalancing of prices between urban and rural regions, with business prices decreasing by a larger amount in urban regions. Our results from all markets indicate that regulators responded rationally to competition by rebalancing prices to reduce cross subsidies.

 


Scott J. Savage
James MarkusenMarket Restructuring and the Efficiency of Electricity Generation: Plant Level Evidence From the United States 1995 to 2006,
(with J. Dean Craig), The Energy Journal, 2013, 34(1), 1-31.

Abstract
This paper examines the effects of market restructuring initiatives that introduced competition into the United States electricity industry on the thermal efficiency of electricity generation. An empirical model is estimated on annual data for over 950 plants from 1996 to 2006. Model estimates show that access to wholesale electricity markets and retail choice together increased the efficiency of investor-owned plants by about nine percent and that these gains stem from organizational and technological changes within the plant. Although not directly targeted by restructuring initiatives, similar efficiency gains are also found for municipality-owned plants. This result suggests that the potential benefits from competition have spilled over to public electricity generation.