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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 AntmanFrancisca Antman
Elderly Care and Intrafamily Resource Allocation when Children Migrate,
Journal of Human Resources, 47(2): 331-63, March 2012.

Abstract
This paper considers the intrafamily allocation of elderly care in the context of international migration where migrant children may be able to provide financial assistance to their parents, but are unable to offer physical care. To investigate the interaction between siblings, I take a non-cooperative view of family decision-making and estimate best response functions for individual physical and financial contributions as a function of siblings' contributions. I address the edogeneity of siblings' contributions and individual migration decisions by using siblings' characteristics as instrumental variables as well as models including family fixed effects. For both migrants and non-migrants, I find evidence that financial contributions function as strategic complements while siblings' time contributions operate as strategic substitutes. This suggeststhat children's contributions toward elderly care may be based on both strategic bequest and public good motivations.

 


Tania BarhamTania Barham
“Development Effects of Electrification: Evidence from the Topographic Placement of Hydropower Plants in Brazil,”
(with Molly Lipscomb and  Mushfiq Mobarak)  forthcoming American Economic Journal: Applied Economics.

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
"Enhanging Cognitive Functioning: Medium-Term Effects of a health and Family Planning Program in Matlab"
American Economic Journal: Applied Economics, 4(1): 245-273, 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, forthcoming.

Abstract
This paper demonstrates that immigration decisions depend on local labor market conditions by documenting the change in low-skilled immigrant in ows 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 nd that immigrants competing with native entrants systematically prefer cities with smaller supply shocks. The extent of the response is substantial: for each native woman working due to reform, 0.5 fewer fe male immigrants enter the local labor force. These results provide direct evidence that international migration ows 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, forthcoming.

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.

 


Yongmin ChenYongmin Chen
Ex ante Investment, Ex post Remedy, and Product Liability
(with Xinyu Hua), International Economic Review, forthcoming.

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, forthcoming.

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.


Thibault FallyThibault Fally
Foreign Entry an Spillovers with Technological Incompatibilities in the Supply Chain, (with Carluccio) Journal of International Economics forthcoming.

Abstract
Does foreign entry improve host country productivity and welfare? Previous studies have looked at the role of backward linkages with domestic suppliers and their e ects on domestic competitors. In this paper, we study how these externalities are affected by technological incompatibilities between foreign and domestic technologies. When foreign technologies require specialized inputs, some local suppliers self-select into production for multinational firms. A decrease in the cost of inputs compatible with the foreign technology has heterogeneous effects. It benefits foreign firms and the most productive downstream domestic firms that adopt the foreign technology, and negatively affects firms using the domestic technology. Technological incompatibilities reduce the welfare gains from openness to FDI, but this negative effect can be overcome by domestic technology adoption. The model's predictions are consistent with the stylized facts drawn from the empirical literature on FDI spillovers.



Thibault FallyThibault Fally
Global Sourcing under Imperfect Capital Markets (with Juan Carluccio), Review of Economics and Statistics, forthcoming.

Abstract
We develop a simple model to study the interactions between a supplier's financial constraints and contract incompleteness in a vertical relationship. Production complexity increases the extent of contract incompleteness and the hold-up problem, which generates a cost when the supplier needs financial participation from the downstream firm. Vertical integration alleviates the impact of financial constraints but reduces the supplier's incentives. We apply the model to an analysis of multinational firms' sourcing strategies and predict that (1) complex and specific inputs are more likely to be sourced from financially developed countries and (2) multinationals are more likely to integrate suppliers located in countries with poor financial institutions, especially when trade involves complex goods. We examine and validate these predictions using firm-level trade data on multinational firms with operations in France. We provide evidence that financial development generates a comparative advantage in the supply of complex goods. Moreover, we find higher shares of intra-firm imports of complex inputs from countries with a lower level of financial development. The findings are robust to different measures of complexity and specificity, and are not driven by industry differences in fixed costs or traditional measures of external financial dependence. Quantitatively, we find that financial development is as important as contract enforcement in alleviating hold-up problems.

 


Thibault FallyThibault Fally
Measuring the Upstreamness of Production and Trade Flows, (with Antràs, Pol, Davin Chor, and Russell Hillberry) American Economic Review (Papers & Proceedings), 102(3): 412–16, 2012.

Abstract
We propose two distinct approaches to the measurement of industry upstreamness (or average distance from final use) and show that they yield an equivalent measure. Furthermore, we provide two additional interpretations of this measure, one of them related to the concept of forward linkages in Input-Output analysis. On the empirical side, we construct this measure for 426 industries using the 2002 US Input-Output Tables. We also verify the stability of upstreamness across countries in the OECD STAN database, albeit with a more aggregated industry classification. Finally, we present an application that explores the determinants of the average upstreamness of exports at the country level using trade flows for 2002.

 


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.

 


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 LiuXiaodong Liu
Learning from Peers in Signaling Game Experiments (with John H. Kagel and Lung-fei Lee), Journal of Applied Econometrics, forthcoming 2011.

Abstract
We investigate peer group effects in laboratory experiments based on Milgrom and Roberts' (1982, Econometrica50: 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.


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

Abstract
We study the contribution of foreign doctoral students to innovation at 2300 American science and engineering (S&E) departments from 1973 to 1998. Macroeconomic and policy shocks in source countries that differentially affect enrollments across fields and universities isolate exogenous variation in the supply of students. Both U.S. and international students contribute significantly to the production of knowledge at scientific laboratories. A theoretical model of scholarships helps us infer the productivity effects of student quality. Visa restrictions limiting entry of high-quality students are found to be particularly costly for academic innovation. Foreign students increasing the diversity of departments appears to be one mechanism by which students contribute to the productivity of laboratories.

 


James MarkusenKeith Maskus
“Southern Innovation and Backward Knowledge Spillovers: A Dynamic FDI Model,” (with Yin He), International Economic Review, Vol. 53, No. 1, February 2012, 281-304

Abstract
We develop a general-equilibrium model of endogenous innovation and foreign direct investment (FDI) from developed North to developing South. In the benchmark model, Northern firms innovate with the help of localized spillovers and a share of new products is transferred to Southern production via FDI. An increase in Southern imitation risk reduces the multinationalization rate. We extend the model to permit Southern innovation. Because such innovation bears higher costs, it yields inefficient specialization in both regions and reduces global growth. However, it generates a U-shaped relationship between FDI and local imitation. We also allow for "backward" spillovers in knowledge to Northern innovation, which partially restores global efficiency and growth.

 


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

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.