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Wednesday, October 21, 2015

Not permitted

When Governments Regulate Governments

David Konisky & Manuel Teodoro
American Journal of Political Science, forthcoming

Abstract:
This article advances a political theory of regulation that accounts for the choices of regulators and regulated entities when both are governments. Leading theories of regulation assume that governments regulate profit-maximizing firms: Governments set rules, to which firms respond rationally in ways that constrain their behavior. But often the entities that governments regulate are other governments. We argue that government agencies and private firms often face different compliance costs, and that agencies have greater incentives than firms to appeal regulations through political channels. Simultaneously, the typical enforcement instruments that regulators use to influence firm behavior may be less effective against governments. Our empirical subjects are public and private entities' compliance with the U.S. Clean Air Act and Safe Drinking Water Act. We find that, compared with private firms, governments violate these laws significantly more frequently and are less likely to be penalized for violations.

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Policy Uncertainty and Corporate Investment

Huseyin Gulen & Mihai Ion
Review of Financial Studies, forthcoming

Abstract:
Using a news-based index of policy uncertainty, we document a strong negative relationship between firm-level capital investment and the aggregate level of uncertainty associated with future policy and regulatory outcomes. More importantly, we find evidence that the relation between policy uncertainty and capital investment is not uniform in the cross-section, being significantly stronger for firms with a higher degree of investment irreversibility and for firms that are more dependent on government spending. Our results lend empirical support to the notion that policy uncertainty can depress corporate investment by inducing precautionary delays due to investment irreversibility.

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Corruption, Product Market Competition, and Institutional Quality: Empirical Evidence from the US States

Jamie Bologna
West Virginia University Working Paper, September 2015

Abstract:
This paper argues that the effect of corruption on competition is dependent on the institutional environment. When institutions are relatively efficient, observed corruption is likely to be associated with less competition. Conversely, in areas with low-quality institutions (e.g., excessively burdensome regulations) corruption may lead to more competition. I employ unique data on competition, corruption, and institutional quality across US states from 1997-2009 and report that a higher level of corruption is associated with more competition in states with low levels of institutional quality. However, as institutional quality improves, the positive effect of corruption decreases in magnitude and becomes negative at high levels of institutional quality.

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Conflicts of Interest and the Realtor Commission Puzzle

Panle Jia Barwick, Parag Pathak & Maisy Wong
NBER Working Paper, August 2015

Abstract:
This paper documents uniformity in real estate commission rates across markets and time using a dataset on realtor commissions for 653,475 residential listings in eastern Massachusetts from 1998-2011. Newly established real estate brokerage offices charging low commissions grow more slowly than comparable entrants with higher commissions. Properties listed with lower commission rates experience less favorable transaction outcomes: they are 5% less likely to sell and take 12% longer to sell. These adverse outcomes reflect decreased willingness of buyers' agents to intermediate low commission properties (steering) rather than heterogeneous seller preferences or reduced effort of listing agents. While all agents and offices prefer properties with high commissions, firms and agents with large market shares purchase a disproportionately small fraction of low commission properties. The negative outcomes for low commissions provide empirical support for regulatory concerns that steering reinforces the uniformity of commissions.

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Razing San Francisco: The 1906 Disaster as a Natural Experiment in Urban Redevelopment

James Siodla
Journal of Urban Economics, September 2015, Pages 48-61

Abstract:
Urban developers face frictions in the process of redeveloping land, the timing of which depends on many economic factors. This timing can be disrupted by a large shock that destroys thousands of buildings, which could then have substantial short-run and long-run effects. Studying the impact of an urban disaster, therefore, can provide unique insight into urban dynamics. Exploiting the 1906 San Francisco Fire as an exogenous reduction in the city's building stock, this paper examines residential density across razed and unburned areas between 1900 and 2011. In prominent residential neighborhoods, density increased at least 60 percent in razed areas relative to unburned areas by 1914, and a large density differential still exists today. These outcomes suggest that thriving cities face substantial redevelopment frictions in the form of durable buildings and that large shocks can greatly alter the evolution of urban land-use outcomes over time.

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When Is Social Responsibility Socially Desirable?

Jean-Etienne de Bettignies & David Robinson
NBER Working Paper, July 2015

Abstract:
We study a model in which corporate social responsibility (CSR) arises as a response to inefficient regulation. In our model, firms, governments, and workers interact. Firms generate profits but create negative spillovers that can be attenuated through government regulation, which is set endogenously and may or may not be socially optimal. Governments may choose suboptimal levels of regulation if they face lobbying pressure from companies. Companies can, in turn, hire socially responsible employees who enjoy taking actions to ameliorate the negative spillovers. Because firms can capture part of the rent created by allowing socially responsible employees to correct social ills, in some settings they find it optimal to lobby for inefficient rules and then capture the surplus associated with being "good citizens" in the face of bad regulation. In equilibrium, this means CSR can either increase or decrease social welfare, depending on the costs of political capture.

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How limiting deceptive practices harms consumers

Salvatore Piccolo, Piero Tedeschi & Giovanni Ursino
RAND Journal of Economics, Fall 2015, Pages 611-624

Abstract:
There are two competing sellers of an experience good, one offers high quality, one low. The low-quality seller can engage in deceptive advertising, potentially fooling a buyer into thinking the product is better than it is. Although deceptive advertising might seem to harm the buyer, we show that he could be better off when the low-quality seller can engage in deceptive advertising than not. We characterize the optimal deterrence rule that a regulatory agency seeking to punish deceptive practices should adopt. We show that greater protection against deceptive practices does not necessarily improve the buyer welfare.

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E-Books: A Tale of Digital Disruption

Richard Gilbert
Journal of Economic Perspectives, Summer 2015, Pages 165-184

Abstract:
E-book sales surged after Amazon introduced the Kindle e-reader at the end of 2007 and accounted for about one quarter of all trade book sales by the end of 2013. Amazon's aggressive (low) pricing of e-books led to allegations that e-books were bankrupting brick and mortar book booksellers. Amazon's commanding position as a bookseller also raises concerns about monopoly power, and publishers are concerned about Amazon's power to displace them in the book value chain. I find little evidence that e-books are primarily responsible for the decline of independent booksellers. I also conclude that entry barriers are not sufficient to allow Amazon to set monopoly prices. Publishers are at risk from Amazon's monopsony (buyer) power and so sought "agency" pricing in an effort to raise the price of ebooks, promote retail competition, and reduce Amazon's influence as an e-retailer. (In the agency pricing model, the publisher specifies the retail price with a commission for the retailer. In a traditional, "wholesale" pricing model, publishers sell a book to retailers at a wholesale price and retailers set the retail price.) Although agency pricing was challenged by the Department of Justice, it may yet prevail in some form as an equilibrium pricing model for e-book sales.

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Divided opinion on the Fair Minimum Wage Act of 2013: Random or systematic differences?

Donal O'Neill
Economics Letters, November 2015, Pages 175-178

Abstract:
This paper analyses economists' support for the Fair Minimum Wage Act of 2013. I find systematic differences between those supporting the legislation and those opposing it, with support higher among females, young labor economists and those located further from Chicago.

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Quantifying the Premium Externality of the Uninsured

Stephen (Teng) Sun & Constantine Yannelis
Journal of the European Economic Association, forthcoming

Abstract:
In insurance markets, the uninsured can generate a negative externality on the insured, leading insurance companies to charge higher premia. Using a novel panel data set and a staggered policy change that introduces exogenous variation in the rate of uninsured drivers at the county level in California, we find that uninsured drivers lead to higher insurance premia: a 1 percentage point increase in the rate of uninsured drivers raises premia by roughly 1%. We calculate the monetary fine on the uninsured that would fully internalize the externality and conclude that actual fines in most US states are inefficiently low.

By KEVIN LEWIS | 09:00:00 AM

Tuesday, October 20, 2015

A black and white issue

Segregation and Inequality in Public Goods

Jessica Trounstine
American Journal of Political Science, forthcoming

Abstract:
Many U.S. cities function without regular problems. They have well-kept roads, sewers that never overflow, and public parks with swing sets and restrooms. Others struggle to maintain balanced budgets, fail to adequately equip or staff their police forces, and offer little assistance to residents of limited means. What explains these differences? I argue that segregation along racial lines contributes to public goods inequalities. Racially segregated cities are also politically polarized cities, making collective investment more challenging and public goods expenditures lower. I provide evidence for this argument using election data from 25 large cities and demographic data matched to city finances in more than 2,600 places. To handle the problem of endogeneity, I instrument for segregation using the number of waterways in a city. I find that segregated municipalities are more politically polarized and spend less on a wide range of public goods.

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The Mortality Consequences of Distinctively Black Names

Lisa Cook, Trevon Logan & John Parman
NBER Working Paper, October 2015

Abstract:
Race-specific given names have been linked to a range of negative outcomes in contemporary studies, but little is known about their long term consequences. Building on recent research which documents the existence of a national naming pattern for African American males in the late nineteenth and early twentieth centuries (Cook, Logan and Parman 2014), we analyze long-term consequences of distinctively racialized names. Using over three million death certificates from Alabama, Illinois, Missouri and North Carolina from 1802 to 1970, we find a robust within-race mortality difference for African American men who had distinctively black names. Having an African American name added more than one year of life relative to other African American males. The result is robust to controlling for the age pattern of mortality over time and environmental factors which could drive the mortality relationship. The result is not consistently present for infant and child mortality, however. As much as 10% of the historical between-race mortality gap would have been closed if every black man were given a black name. Suggestive evidence implies that cultural factors not captured by socioeconomic or human capital measures may be related to the mortality differential.

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Closing Ranks: Closure, Status Competition, and School Segregation

Jeremy Fiel
American Journal of Sociology, July 2015, Pages 126-170

Abstract:
The shift away from school desegregation policies toward market-based reforms necessitates a deeper understanding of the social and institutional forces driving contemporary school segregation. The author conceptualizes school segregation as a mode of monopolistic closure amid status competition, where racial/ethnic groups compete for school-based status and resources. He tests the theory by analyzing primary and secondary school segregation throughout the United States from 1993 to 2010. Findings support the hypotheses that segregation increases with the salience of race/ethnicity and the decentralization of school systems, which fuels differentiation and provides incentives and opportunities to monopolize schools. Parallel findings for black-white, Hispanic-white, and black-Hispanic segregation suggest that a core set of processes drives school segregation as a general phenomenon.

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Start-up Nation? Slave Wealth and Entrepreneurship in Civil War Maryland

Felipe Gonzalez, Guillermo Marshall & Suresh Naidu
University of California Working Paper, August 2015

Abstract:
Slave property rights yielded a source of collateral as well as a coerced labor force. Using data from Dun and Bradstreet linked to the 1860 census and slave schedules in Maryland, we find that slaveowners were more likely to start businesses prior to the uncompensated 1864 emancipation, even conditional on total wealth and human capital, and this advantage disappears after emancipation. We assess a number of potential explanations, and find suggestive evidence that this is due to the superiority of slave wealth as a source of collateral for credit rather than any advantage in production. The collateral dimension of slave property magnifies its importance to historical American economic development.

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Keeping “the wheel in motion”: Trans-Atlantic Credit Terms, Slave Prices, and the Geography of Slavery in the British Americas, 1755–1807

Nicholas Radburn
Journal of Economic History, September 2015, Pages 660-689

Abstract:
This article uses a new dataset of 330 slaving voyages to examine terms of credit issued for British American slave sales between 1755 and 1807. It shows that credit terms consistently varied between American colonies, and that slave ship captains considered these differences when electing where to land enslaved Africans. Our dataset also shows that credit terms were highly erratic, especially in the last quarter of the century, contributing to both surges and collapses in the slave trade to individual colonies, and in the trade as a whole. Four such instances are examined in detail to show that instability in credit terms played an important and hitherto unacknowledged role in the volume and direction of Britain's trans-Atlantic slave trade in the second one-half of the eighteenth century.

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Effects of Racial Prejudice on the Health of Communities: A Multilevel Survival Analysis

Yeonjin Lee et al.
American Journal of Public Health, November 2015, Pages 2349-2355

Objectives: We examined whether and how racial prejudice at both the individual and community levels contributes to mortality risk among majority as well as minority group members.

Methods: We used data on racial attitudes from the General Social Survey (1993–2002) prospectively linked to mortality data from the National Death Index through 2008.

Results: Whites and Blacks living in communities with higher levels of racial prejudice were at an elevated risk of mortality, independent of individual and community sociodemographic characteristics and individually held racist beliefs (odds ratio = 1.24; 95% confidence interval = 1.04, 1.49). Living in a highly prejudiced community had similar harmful effects among both Blacks and Whites. Furthermore, the interaction observed between individual- and community-level racial prejudice indicated that respondents with higher levels of racial prejudice had lower survival rates if they lived in communities with low degrees of racial prejudice. Community-level social capital explained the relationship between community racial prejudice and mortality.

Conclusions: Community-level racial prejudice may disrupt social capital, and reduced social capital is associated with increased mortality risk among both Whites and Blacks. Our results contribute to an emerging body of literature documenting the negative consequences of prejudice for population health.

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Racial Discrimination in Local Public Services: A Field Experiment in the US

Corrado Giulietti, Mirco Tonin & Michael Vlassopoulos
University of Southampton Working Paper, August 2015

Abstract:
Discrimination in access to public services can act as a major obstacle towards addressing racial inequality. We examine whether racial discrimination exists in access to a wide spectrum of public services in the US. We carry out an email correspondence study in which we pose simple queries to more than 19,000 local public service providers. We find that emails are less likely to receive a response if signed by a black-sounding name compared to a white-sounding name. Given a response rate of 72% for white senders, emails from putatively black senders are almost 4 percentage points less likely to receive an answer. We also find that responses to queries coming from black names are less likely to have a cordial tone. Further tests demonstrate that the differential in the likelihood of answering is due to animus towards blacks rather than inferring socioeconomic status from race.

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“The Most Progressive and Forward Looking Race Relations Experiment in Existence”: Race “Militancy”, Whiteness, and DRRI in the Early 1970s

Say Burgin
Journal of American Studies, August 2015, Pages 557-574

Abstract:
At the end of the 1960s, the United States military was rocked by race-related violence and riots. Growing fears of black “militancy” eventually compelled the military's largely white leadership to implement policies aimed at ameliorating racial disparities. One of the most significant changes was the establishment of the Defense Race Relations Institute (DRRI) and the requirement that all troops partake in race relations education. Largely overlooked in histories of military race relations and rarely viewed in terms of its place in the larger landscape of US race relations, DRRI was founded to train the military's race relations educators. Its original curriculum and methodology, during the years 1971–74, represented a radical response to the problems of racism in the military, and central to its framework was a critique of whiteness as a nexus of racialized power. This paper attempts to present a complex understanding of the motivations involved in the founding of the DRRI as it historicizes the military's quest to contain race “militancy” through the establishment of DRRI.

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Racial/Ethnic Disparities in Cumulative Environmental Health Impacts in California: Evidence From a Statewide Environmental Justice Screening Tool (CalEnviroScreen 1.1)

Lara Cushing et al.
American Journal of Public Health, November 2015, Pages 2341-2348

Objectives: We used an environmental justice screening tool (CalEnviroScreen 1.1) to compare the distribution of environmental hazards and vulnerable populations across California communities.

Methods: CalEnviroScreen 1.1 combines 17 indicators created from 2004 to 2013 publicly available data into a relative cumulative impact score. We compared cumulative impact scores across California zip codes on the basis of their location, urban or rural character, and racial/ethnic makeup. We used a concentration index to evaluate which indicators were most unequally distributed with respect to race/ethnicity and poverty.

Results: The unadjusted odds of living in one of the 10% most affected zip codes were 6.2, 5.8, 1.9, 1.8, and 1.6 times greater for Hispanics, African Americans, Native Americans, Asian/Pacific Islanders, and other or multiracial individuals, respectively, than for non-Hispanic Whites. Environmental hazards were more regressively distributed with respect to race/ethnicity than poverty, with pesticide use and toxic chemical releases being the most unequal.

Conclusions: Environmental health hazards disproportionately burden communities of color in California. Efforts to reduce disparities in pollution burden can use simple screening tools to prioritize areas for action.

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The dominant narrative of slavery in South Carolina’s history standards

Jeffrey Eargle
Journal of Social Studies Research, forthcoming

Abstract:
Using a critical analysis approach, I investigated the dominant narrative of slavery and African Americans prior to the Civil War in the 2011 South Carolina Social Studies Academic Standards Support Document for the 11th grade U.S. History course. Findings indicate that the Support Document does not offer a complete narrative of slavery and African Americans, perpetuates a negative image of African Americans, excludes themes of African American heroism, and maintains myths related to slavery. The dominant narrative found in the Support Document was compared to the scholarship of historians to construct a counter-narrative for teacher leaders to consider during curriculum development.

By KEVIN LEWIS | 09:00:00 AM

Monday, October 19, 2015

Making markets

Can Markets Discipline Government Agencies? Evidence from the Weather Derivatives Market

Amiyatosh Purnanandam & Daniel Weagley
Journal of Finance, forthcoming

Abstract:
We analyze the role of financial markets in shaping the incentives of government agencies using a unique empirical setting: the weather derivatives market. We show that the introduction of weather derivative contracts on the Chicago Mercantile Exchange improves the accuracy of temperature measurement by 13% to 20% at the underlying weather stations. We argue that temperature-based financial markets generate additional scrutiny of the temperature data measured by the National Weather Service, which motivates the agency to minimize measurement errors. Our results have broader implications: the visibility and scrutiny generated by financial markets can potentially improve the efficiency of government agencies.

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Smart money, dumb money, and capital market anomalies

Ferhat Akbas et al.
Journal of Financial Economics, forthcoming

Abstract:
We investigate the dual notions that "dumb money" exacerbates well-known stock return anomalies and "smart money" attenuates these anomalies. We find that aggregate flows to mutual funds (dumb money) appear to exacerbate cross-sectional mispricing, particularly for growth, accrual, and momentum anomalies. In contrast, hedge fund flows (smart money) appear to attenuate aggregate mispricing. Our results suggest that aggregate flows to mutual funds can have real adverse allocation effects in the stock market and that aggregate flows to hedge funds contribute to the correction of cross-sectional mispricing.

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Do Weather-Induced Moods Affect the Processing of Earnings News?

Ed DeHaan, Joshua Madsen & Joseph Piotroski
Stanford Working Paper, August 2015

Abstract:
Building on research in psychology, we predict that unpleasant weather negatively affects capital market participants' moods and activity levels, causing a muted response to information events. Exploiting within firm-quarter tests, we find that analysts experiencing unpleasant weather are less likely to update their reports following earnings announcements relative to analysts experiencing pleasant weather. At the market level, we find a muted initial price response and larger subsequent price drift for firms that announce earnings when New York City weather is unpleasant. Our tests are consistent with weather-induced bad moods impeding the efficiency of market participants' responses to earnings news.

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Can analysts pick stocks for the long-run?

Oya Altınkılıç, Robert Hansen & Liyu Ye
Journal of Financial Economics, forthcoming

Abstract:
This paper examines post-revision return drift, or PRD, following analysts' revisions of their stock recommendations. PRD refers to the finding that the analysts' recommendation changes predict future long-term returns in the same direction as the change (i.e., upgrades are followed by positive returns, and downgrades are followed by negative returns). During the high-frequency algorithmic trading period of 2003-2010, average PRD is no longer significantly different from zero. The new findings agree with improved market efficiency after declines in real trading cost inefficiencies. They are consistent with a reduced information production role for analysts in the supercomputer era.

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Investor sentiment and local bias in extreme circumstances: The case of the Blitz

Andrew Urquhart & Robert Hudson
Research in International Business and Finance, forthcoming

Abstract:
This paper treats the Blitz, the bombing of Britain during World War Two, as a natural experiment which can provide insights into the effects of investor sentiment on stock returns. The period of the Blitz is very interesting in that one of the world's major financial centres was under regular and severe air attack, as were many other industrial and commercial centres. These conditions provide a unique opportunity to study both investor sentiment and local bias effects in extreme circumstances. We show that negative investor sentiment during the Blitz as a whole was not evident. However major bombings in London generate negative investor sentiment on stock returns while major bombings outside of London generate no negative investor sentiment on stock returns, which is consistent with local bias effects.

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The price of wine

Elroy Dimson, Peter Rousseau & Christophe Spaenjers
Journal of Financial Economics, forthcoming

Abstract:
Using historical price records for Bordeaux Premiers Crus, we examine the impact of aging on wine prices and the long-term investment performance of fine wine. In line with the predictions of an illustrative model, young maturing wines from high-quality vintages provide the highest financial returns. Past maturity, famous châteaus deliver growing non-pecuniary benefits to their owners. Using an arithmetic repeat-sales regression over 1900-2012, we estimate a real financial return to wine investment (net of storage costs) of 4.1%, which exceeds bonds, art, and stamps. Returns to wine and equities are positively correlated. Finally, we find evidence of in-sample return predictability.

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Does Academic Research Destroy Stock Return Predictability?

David McLean & Jeffrey Pontiff
Journal of Finance, forthcoming

Abstract:
We study the out-of-sample and post-publication return predictability of 97 variables shown to predict cross-sectional stock returns. Portfolio returns are 26% lower out-of-sample and 58% lower post-publication. The out-of-sample decline is an upper bound estimate of data mining effects. We estimate a 32% (58%-26%) lower return from publication-informed trading. Post-publication declines are greater for predictors with higher in-sample returns, and returns are higher for portfolios concentrated in stocks with high idiosyncratic risk and low liquidity. Predictor portfolios exhibit post-publication increases in correlations with other published-predictor portfolios. Our findings suggest that investors learn about mispricing from academic publications.

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Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market

Mingfeng Lin & Siva Viswanathan
Management Science, forthcoming

Abstract:
An extensive literature in economics and finance has documented home bias, the tendency that transactions are more likely to occur between parties in the same geographical area rather than outside. Using data from a large online crowdfunding marketplace and employing a quasi-experimental design, we find evidence that home bias still exists in this virtual marketplace for financial products. Furthermore, through a series of empirical tests, we show that rationality-based explanations cannot fully explain such behavior and that behavioral reasons at least partially drive this remarkable phenomenon. As crowdfunding becomes an alternative and increasingly appealing channel for financing, a better understanding of home bias in this new context provides important managerial, practical, and policy implications.

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Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect

Tom Chang, David Solomon & Mark Westerfield
Journal of Finance, forthcoming

Abstract:
We analyze brokerage data and an experiment to test a cognitive dissonance based theory of trading: investors avoid realizing losses because they dislike admitting that past purchases were mistakes, but delegation reverses this effect by allowing the investor to blame the manager instead. Using individual trading data, we show that the disposition effect - the propensity to realize past gains more than past losses - applies only to nondelegated assets like individual stocks; delegated assets, like mutual funds, exhibit a robust reverse-disposition effect. In an experiment, we show increasing investors' cognitive dissonance results in both a larger disposition effect in stocks and a larger reverse-disposition effect in funds. Additionally, increasing the salience of delegation increases the reverse-disposition effect in funds. Cognitive dissonance provides a unified explanation for apparently contradictory investor behavior across asset classes and has implications for personal investment decisions, mutual fund management, and intermediation.

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Disclosure Standards and the Sensitivity of Returns to Mood

Brian Bushee & Henry Friedman
Review of Financial Studies, forthcoming

Abstract:
We provide evidence that higher-quality disclosure standards are associated with stock returns that are less sensitive to noise driven by investors' moods. We identify return-mood sensitivity (RMS) based on the association between index returns and urban cloudiness, a source of short-term variation in mood. Based on a stylized model, we predict and find evidence consistent with higher-quality disclosure standards reducing RMS by tilting susceptible investors' trades toward information and by facilitating sophisticated investors' arbitrage. Our findings suggest that disclosure standards play an important role in enhancing price efficiency by reducing noise in returns, particularly noise related to investors' short-term moods.

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Does individual investor trading impact firm valuation?

Qin Wang & Jun Zhang
Journal of Corporate Finance, December 2015, Pages 120-135

Abstract:
Motivated by recent evidence of informed trading by individual investors (Kaniel, Liu, Saar and Titman, 2012; Kelley and Tetlock, 2013; Wang and Zhang, 2015), we posit that individual investor trading enhances firm performance. Consistent with the conjecture, we find that individual investor trading positively impacts firm value. The results are robust to inclusion of year, industry and firm fixed effects, alternative model specifications, a control for endogeneity, Granger causality test, matched sample analysis and subsample analyses. The positive effect of individual investor trading on firm value is stronger for firms with higher information production and stocks with higher spread, consistent with the information and spread channel mechanism. Our results suggest that trading by individual investors enhances firm value by improving stock price informativeness and reducing spread.

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Do analysts understand the economic and reporting complexities of derivatives?

Hye Sun Chang, Michael Donohoe & Theodore Sougiannis
Journal of Accounting and Economics, forthcoming

Abstract:
We investigate whether and how the complexity of derivatives influences analysts' earnings forecast properties. Using a difference-in-differences design, we find that, relative to a matched control sample of non-users, analysts' earnings forecasts for new derivatives users are less accurate and more dispersed after derivatives initiation. These results do not appear to be driven by the economic complexity of derivatives, but rather the financial reporting of such economic complexity. Overall, despite their financial expertise, analysts routinely misjudge the earnings implications of firms' derivatives activity. However, we find evidence that a series of derivatives accounting standards has helped analysts improve their forecasts over time.

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The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments

Bernardo Bortolotti, Veljko Fotak & William Megginson
Review of Financial Studies, November 2015, Pages 2993-3035

Abstract:
We document that announcement-period abnormal returns of sovereign wealth fund (SWF) equity investments in publicly traded firms are positive but lower than those of comparable private investments. Further, SWF investment targets suffer from declining return on assets and sales growth over the following three years. Our results are robust to controls for target and deal characteristics and are not driven by SWF target selection criteria. Larger discounts are associated with SWFs taking seats on boards of directors and with SWFs under strict government control acquiring greater stakes, supporting the hypothesis that political influence negatively affects firm value and performance.

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Target revaluation after failed takeover attempts: Cash versus stock

Ulrike Malmendier, Marcus Opp & Farzad Saidi
Journal of Financial Economics, forthcoming

Abstract:
Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and we show that targets of cash offers are revalued on average by +15% after deal failure, whereas stock targets return to their pre-announcement levels. The differences in revaluation do not revert over longer horizons. We find no evidence that future takeover activities or operational changes explain these differences. While the targets of failed cash and stock offers are both more likely to be acquired over the following eight years than matched control firms, no differences exist between cash and stock targets, neither in the timing nor in the value of future offers. Similarly, we cannot detect differential operational policies following the failed bid. Our results are most consistent with cash bids revealing prior undervaluation of the target. We reconcile our findings with the opposite conclusion in earlier literature (Bradley, Desai, and Kim, 1983) by identifying a look-ahead bias built into their sample construction.

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Who Should Pay for Credit Ratings and How?

Anil Kashyap & Natalia Kovrijnykh
University of Chicago Working Paper, August 2015

Abstract:
This paper analyzes a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on the unobservable effort exerted by a credit rating agency (CRA). We analyze optimal compensation schemes for the CRA that differ depending on whether a social planner, the firm, or investors order the rating. We find that rating errors are larger when the firm orders it than when investors do. However, investors ask for ratings inefficiently often. Which arrangement leads to a higher social surplus depends on the agents' prior beliefs about the project quality. We also show that competition among CRAs causes them to reduce their fees, put in less effort, and thus leads to less accurate ratings. Rating quality also tends to be lower for new securities. Finally, we find that optimal contracts that provide incentives for both initial ratings and their subsequent revisions can lead the CRA to be slow to acknowledge mistakes.

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Institutional Investors and the Information Production Theory of Stock Splits

Thomas Chemmanur, Gang Hu & Jiekun Huang
Journal of Financial and Quantitative Analysis, June 2015, Pages 413-445

Abstract:
We make use of a large sample of transaction-level institutional trading data to test an extended version of Brennan and Hughes' (1991) information production theory of stock splits. We compare brokerage commissions paid by institutional investors before and after a split, assess the private information held by them, and relate the informativeness of their trading to brokerage commissions paid. We show that institutions make abnormal profits net of brokerage commissions by trading in splitting stocks. We also show that the information asymmetry faced by firms goes down after stock splits. Overall, our empirical results support the information production theory.

By KEVIN LEWIS | 09:00:00 AM

Sunday, October 18, 2015

Let's get along

Power decreases trust in social exchange

Oliver Schilke, Martin Reimann & Karen Cook
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
How does lacking vs. possessing power in a social exchange affect people’s trust in their exchange partner? An answer to this question has broad implications for a number of exchange settings in which dependence plays an important role. Here, we report on a series of experiments in which we manipulated participants’ power position in terms of structural dependence and observed their trust perceptions and behaviors. Over a variety of different experimental paradigms and measures, we find that more powerful actors place less trust in others than less powerful actors do. Our results contradict predictions by rational actor models, which assume that low-power individuals are able to anticipate that a more powerful exchange partner will place little value on the relationship with them, thus tends to behave opportunistically, and consequently cannot be trusted. Conversely, our results support predictions by motivated cognition theory, which posits that low-power individuals want their exchange partner to be trustworthy and then act according to that desire. Mediation analyses show that, consistent with the motivated cognition account, having low power increases individuals’ hope and, in turn, their perceptions of their exchange partners’ benevolence, which ultimately leads them to trust.

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Supernatural and secular monitors promote human cooperation only if they remind of punishment

Onurcan Yilmaz & Hasan Bahçekapili
Evolution and Human Behavior, forthcoming

Abstract:
People’s large-scale cooperation with genetically unrelated people is widely assumed to lie beyond the scope of standard evolutionary mechanisms like kin selection and reciprocal altruism and to require mechanisms specific to human sociality. The emergence of the idea of being monitored by supernatural agents who can punish social norm violations has been proposed as one solution to this problem. In parallel, secular authorities can have similar functions with that of religious authority based on supernatural agents in today’s secularized world. However, it is not clear whether it is the idea of religious or secular authority in general or the punishing aspects of both institutions in particular that leads to increased cooperation and prosociality. Study 1 showed that people reported more prosocial intentions after being implicitly primed with punishing religious and secular authorities (versus non-punishing ones or a neutral one) in a scrambled sentence task. Study 2 showed that explicitly priming the punishing aspects of God (versus the non-punishing aspects or a neutral prime) led to an increase in the level of prosocial intentions. The findings support the supernatural punishment hypothesis and suggest a similar mechanism for the influence of secular authority on prosociality. More generally, the findings are consistent with views that punishment, whether real or imagined, played an important role in the evolution of large-scale cooperation in the human species.

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Social Power and Recognition of Emotional Prosody: High Power Is Associated With Lower Recognition Accuracy Than Low Power

Ayse Uskul, Silke Paulmann & Mario Weick
Emotion, forthcoming

Abstract:
Listeners have to pay close attention to a speaker’s tone of voice (prosody) during daily conversations. This is particularly important when trying to infer the emotional state of the speaker. Although a growing body of research has explored how emotions are processed from speech in general, little is known about how psychosocial factors such as social power can shape the perception of vocal emotional attributes. Thus, the present studies explored how social power affects emotional prosody recognition. In a correlational study (Study 1) and an experimental study (Study 2), we show that high power is associated with lower accuracy in emotional prosody recognition than low power. These results, for the first time, suggest that individuals experiencing high or low power perceive emotional tone of voice differently.

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High construal level can help negotiators to reach integrative agreements: The role of information exchange and judgement accuracy

Stefanie Wening, Nina Keith & Andrea Abele
British Journal of Social Psychology, forthcoming

Abstract:
In negotiations, a focus on interests (why negotiators want something) is key to integrative agreements. Yet, many negotiators spontaneously focus on positions (what they want), with suboptimal outcomes. Our research applies construal-level theory to negotiations and proposes that a high construal level instigates a focus on interests during negotiations which, in turn, positively affects outcomes. In particular, we tested the notion that the effect of construal level on outcomes was mediated by information exchange and judgement accuracy. Finally, we expected the mere mode of presentation of task material to affect construal levels and manipulated construal levels using concrete versus abstract negotiation tasks. In two experiments, participants negotiated in dyads in either a high- or low-construal-level condition. In Study 1, high-construal-level dyads outperformed dyads in the low-construal-level condition; this main effect was mediated by information exchange. Study 2 replicated both the main and mediation effects using judgement accuracy as mediator and additionally yielded a positive effect of a high construal level on a second, more complex negotiation task. These results not only provide empirical evidence for the theoretically proposed link between construal levels and negotiation outcomes but also shed light on the processes underlying this effect.

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Why Does Involvement in Voluntary Associations Promote Trust? Examining the Role of Network Diversity

Jennifer Glanville
Sociological Inquiry, forthcoming

Abstract:
Scholars argue that trust is fundamental to maintaining a healthy society, and consequently, recent evidence that trust may be declining in the United States has generated an interest in the determinants of trust. According to the social capital literature, particularly the work of Robert Putnam, involvement in voluntary associations influences the development of generalized trust. One way in which organizational participation is thought to foster trust is through creating more diverse, or bridging, social networks. However, scarcely any research has empirically examined this mechanism. Using data from the Social Capital Community Benchmark Survey, I test whether network diversity (ties to persons from different social backgrounds) accounts for some of the influence of organizational involvement on trust. The results suggest that the influence of involvement in multiple associations on trust is largely mediated by its influence on network diversity. In addition, while recent research observes that some predictors of trust vary by race and ethnicity, I find no differences in these relationships across non-Hispanic white, African American, and Latino respondents.

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The Dynamics of Prosocial Leadership: Power and Influence in Collective Action Groups

Ashley Harrell & Brent Simpson
Social Forces, forthcoming

Abstract:
This paper bridges insights from theories of collective action, power, and influence to address the conditions under which group leaders solve collective action problems. We show how leaders' behaviors impact the success of collective action groups as a whole via both power and influence processes. In a laboratory experiment, groups first completed a baseline measure of cooperation in a public good dilemma without punishment. In a second phase, the capacity to punish was introduced. One condition, the “peer-sanctioning condition,” was equivalent to the prevailing solution in the experimental literature on collective action, where the ability to punish others is distributed equally among all group members. In the other two conditions, only a single group “leader” could punish; we varied whether the person assigned to lead was other-regarding (prosocial) or self-regarding (proself). The results support our prediction that prosocial leaders increase their contributions to the group after ascending to leadership, while proself leaders reduce their contributions. Further, as expected, rank-and-file group members are influenced by leaders' contribution behaviors; as a result, prosocial-led groups as a whole were substantially more productive than proself-led groups. Indeed, as predicted, prosocial leaders were even more effective in maintaining large group contributions than the standard peer-sanctioning system. These findings suggest that putting power and influence in the right hands solves collective action problems and promotes collective welfare.

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The costs and benefits of coordinating with a different group

Paul Grout, Sébastien Mitraille & Silvia Sonderegger
Journal of Economic Theory, forthcoming

Abstract:
We consider a setup where agents care about i) taking actions that are close to their preferences, and ii) coordinating with others. The preferences of agents in the same group are drawn from the same distribution. Each individual is exogenously matched with other agents randomly selected from the population. Starting from an environment where everyone belongs to the same group, we show that introducing agents from a different group (whose preferences are uncorrelated with those of each of the incumbents) generates costs but may also (surprisingly) generate benefits in the form of enhanced coordination.

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Where do social preferences come from?

Chaning Jang & John Lynham
Economics Letters, forthcoming

Abstract:
Where do preferences for fairness come from? We use a unique field setting to test for a spillover of sharing norms from the workplace to a laboratory experiment. Fishermen working in teams receive random income shocks (catching fish) that they must regularly divide among themselves. We demonstrate a clear correlation between sharing norms in the field and sharing norms in the lab. Furthermore, the spillover effect is stronger for fishermen who have been exposed to a sharing norm for longer, suggesting that our findings are not driven by selection effects. Our results are consistent with the hypothesis that work environments shape social preferences.

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Facing expectations: Those that we prefer to fulfil and those that we disregard

Christophe Heintz et al.
Judgment and Decision Making, September 2015, Pages 442–455

Abstract:
We argue that people choosing prosocial distribution of goods (e.g., in dictator games) make this choice because they do not want to disappoint their partner rather than because of a direct preference for the chosen prosocial distribution. The chosen distribution is a means to fulfil one’s partner’s expectations. We review the economic experiments that corroborate this hypothesis and the experiments that deny that beliefs about others’ expectations motivate prosocial choice. We then formulate hypotheses about what types of expectation motivate someone to do what is expected: these are justifiable hopeful expectations that are clearly about his own choices. We experimentally investigate how people modulate their prosociality when they face low or unreasonably high expectations. In a version of a dictator game, we provide dictators with the opportunity to modulate their transfer as a function of their partner’s expectations. We observe that a significant portion of the population is willing to fulfil their partner’s expectation provided that this expectation expresses a reasonable hope. We conclude that people are averse to disappointing and we discuss what models of social preferences can account for the role of expectations in determining prosocial choice, with a special attention to models of guilt aversion and social esteem.

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An Evolutionary Perspective on Cooperative Behavior in Gamers

Grant Devilly et al.
Psychology of Popular Media Culture, forthcoming

Abstract:
This research was the first experimental study to investigate the effect of video gaming on measures of cooperative behavior from an evolutionary standpoint. The final sample comprised a total 117 participants (39 male, 78 females), with a mean age of 24 years (SD = 8.93). Participants were randomly assigned to 1 of 4 media conditions (violent book, violent video game, nonviolent video game, and violent TV show) and measured on prosocial behavior before any media exposure and assessed on cooperative behavior after media exposure. Novice and regular gamers did not differ on prosocial behavior before gaming. After media exposure, a self-constructed version of the iterated Prisoner’s Dilemma game was used to measure cooperation. Further analyses were then conducted to measure differences between conditions on cooperative behavior. It was found that regular and multiplayer gamers were not significantly higher or lower on measures of cooperative behavior compared to novices or solitary gamers. Although nonsignificant, effect sizes were consistent with past research which suggests heightened cooperation in regular gamers. Media type exposure did not have a significant effect on cooperative behavior. Findings suggest that cooperative behavior is not less prominent in regular or multiplayer gamers than novices or solitary gamers. These results indicate that, contrary to the predictions one may make from the GAM model of violent gaming (Anderson & Bushman, 2001), violent media exposure does not appear to produce reductions in prosocial or cooperative behavior.

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Risky Business: When Humor Increases and Decreases Status

Bradford Bitterly, Alison Wood Brooks & Maurice Schweitzer
University of Pennsylvania Working Paper, September 2015

Abstract:
Across five experiments, we demonstrate that humor can influence status, but that the use of humor is risky. Successful humor can increase status, but unsuccessful humor (e.g., inappropriate humor) can harm status. The relationship between humor and status is mediated by perceptions of competence; the effective use of humor signals competence, and in turn increases the joke teller’s status. Rather than conceptualizing humor as a frivolous or ancillary organizational behavior, we argue that humor plays a fundamental role in shaping interpersonal perceptions and hierarchies within groups.

By KEVIN LEWIS | 09:00:00 AM

Saturday, October 17, 2015

As I recall

On Race and Time

Gordon Moskowitz, Irmak Olcaysoy Okten & Cynthia Gooch
Psychological Science, forthcoming

Abstract:
Arousal is known to shape time perception, and heightened arousal causes one to perceive that time has slowed (i.e., a given length of time feels longer than it actually is). The current experiments illustrate that among White people who experience arousal when contemplating race (specifically those for whom appearing biased is an ongoing concern), time perception slows when they observe faces of Black men. We asked participants to judge the duration of presentation for faces of White and Black men (shown for periods ranging from 300 to 1,200 ms) relative to a standard duration of 600 ms. Evidence of bias emerged when White participants concerned with bias saw faces of Black men (e.g., durations of less than 600 ms were perceived as being greater than 600 ms). The current findings have implications for intergroup interactions in which timing is essential — for example, length of job interviews, police officers’ perception of the length of an encounter and when force should be initiated, and doctors’ perception of the length of medical encounters. Racially biased time perception is a new form of implicit bias, one exerted at the perceptual level.

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Fiction and Social Cognition: The Effect of Viewing Award-Winning Television Dramas on Theory of Mind

Jessica Black & Jennifer Barnes
Psychology of Aesthetics, Creativity, and the Arts, forthcoming

Abstract:
Previous research has shown that reading award-winning literary fiction leads to increases in performance on tests of theory of mind (Kidd & Castano, 2013). Here, we extend this research to another medium, exploring the effect of viewing award-winning TV dramas on subsequent performance on a test of theory of mind ability, the Reading the Mind in the Eyes Test (Baron-Cohen, Wheelwright, Hill, Raste, & Plumb, 2001). In 2 separate studies, participants were randomly assigned to watch either an award-winning TV drama (Mad Men or West Wing for Study 1; The Good Wife or Lost for Study 2) or a TV documentary (Shark Week or How the Universe Works for Study 1; NOVA Colosseum or Through the Wormhole for Study 2). In both studies, participants who viewed a TV drama performed significantly higher on the Reading the Mind in the Eyes Test than did those who viewed a documentary. These results suggest that film narratives, as well as written narratives, may facilitate the understanding of others’ minds.

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Increasing placebo responses over time in U.S. clinical trials of neuropathic pain

Alexander Tuttle et al.
Pain, forthcoming

Abstract:
Recent failures of clinical trials of novel analgesics designed to treat neuropathic pain have led to much speculation about the underlying reasons. One oft-discussed possibility is that the placebo response in these trials has increased in recent years, leading to lower separation between the drug and placebo arms. Whether this has indeed occurred has not yet been adequately addressed. Here, we extracted data from published randomized controlled trials (RCTs) of drugs for the treatment of chronic neuropathic pain over the years 1990-2013. We find that placebo responses have increased considerably over this period, but drug responses have remained stable, leading to diminished treatment advantage. This trend has been driven by studies conducted in the U.S.A. Consideration of participant and study characteristics revealed that in the U.S.A. but not elsewhere, RCTs have increased in study size and length. These changes are associated with larger placebo response. Analysis of individual RCT time courses showed different kinetics for the treatment versus placebo responses, with the former evolving more quickly than the latter and plateauing, such that maximum treatment advantage was achieved within 4 weeks.

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Carrying a Biological “Backpack”: Quasi-Experimental Effects of Weight Status and Body Fat Change on Perceived Steepness

Guy Taylor-Covill & Frank Eves
Journal of Experimental Psychology: Human Perception and Performance, forthcoming

Abstract:
The apparent steepness of hills and stairs is overestimated in explicit perception. These overestimations are malleable in that when physiological resources are compromised, apparent steepness is further overestimated. An alternative explanation of these experimental findings attributes them to demand characteristics. This article tests the relationship between estimated steepness and naturally occurring differences in body composition. A quasi-experimental field study revealed more exaggerated reports of staircase steepness in overweight than in healthy-weight participants in a situation where experimental demand would be an implausible explanation for any differences. A longitudinal follow-up study used dual X-ray absorptiometry to objectively measure participants’ body composition at the beginning and end of a weight-loss program (N = 52). At baseline, higher levels of body fat were associated with steeper explicit estimates of staircase steepness. At follow-up, changes in body fat were associated with changes in estimated steepness such that a loss of fat mass co-occurred with shallower estimates. Discussion focuses on the malleability of perceived steepness at an individual level and the implication of these findings for the debate surrounding “embodied” models of perception.

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Temperature effects on polygraph detection of concealed information

Luke MacNeill & M.T. Bradley
Psychophysiology, forthcoming

Abstract:
Thermoregulatory influences on electrodermal and cardiovascular activity may interfere with the detection of concealed information using a polygraph. This possibility was assessed by means of a mock terrorism scenario. Seventy-two participants were assigned to either a guilty or an innocent role. They were given a polygraph test at one of three ambient temperatures: 10°C, 22°C, or 34°C. Among guilty participants, electrodermal and cardiovascular measures were least effective at 10°C. Electrodermal results were optimal at 22°C, whereas cardiovascular results were optimal at 34°C. Among innocent participants, the effectiveness of these same measures was not affected by ambient temperature. Temperature had no significant impact on respiration results within the guilty or the innocent groups. Taken together, these findings have implications for those who use polygraphs in uncontrolled testing environments.

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Which Ticker Format Works Best? Effects of Updating and Scrolling News Content on Viewer Memory and Program Engagement

Jean Brechman et al.
Journalism & Mass Communication Quarterly, forthcoming

Abstract:
This study considers two news ticker formats — the update ticker and the scrolling ticker — to determine the impact of ticker format on memory for news items in the tickers as well as for news program content presented in the background. Post-viewing responses between two treatment groups were compared, revealing better recognition of both types of news content when tickers updated rather than scrolled. Also, viewers report no differences in perceived clutter or program liking, suggesting there is no downside to using an update format.

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Learned and Remembered But Rejected: Preschoolers’ Reality Judgments and Transfer From Sesame Street

James Alex Bonus & Marie-Louise Mares
Communication Research, forthcoming

Abstract:
Although preschoolers learn from educational TV, they may not use information appropriately due to their developing understanding of video and fantasy-reality distinctions. Seventy 3- to 5-year-olds watched a Sesame Street clip, introduced as either “fun” or “for learning,” that depicted aspects of Hispanic culture (e.g., fiestas). They answered comprehension questions and rated the reality of the educational and fantasy content. Approximately a week later, a seemingly unrelated interviewer asked for help planning a fiesta (transfer task), then reassessed memory and reality judgments. Regardless of condition, children retained most of what they learned, but all ages became increasingly skeptical about the reality of both the educational and fantasy content. Consistent with theorizing about transfer, children’s use of the educational content depended on both memory and reality judgments. Older children remembered the information better than younger children, but memory only predicted transfer if the information was remembered as real.

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A Magnitude Effect in Judgments of Subjective Closeness

Alf Børre Kanten & Karl Halvor Teigen
Personality and Social Psychology Bulletin, forthcoming

Abstract:
Events can be far away from or near an observer in several respects: They can be distant or close in a spatial, temporal, social, or hypothetical sense. They can also vary in magnitude, physically, or in terms of impact and importance. We examine the existence of a general effect of perceived magnitude on judgments of subjective closeness. Studies 1 to 4 show that proximity judgments, of any type, are affected by the severity of an event so that a highly severe event will be described as closer than a less severe one. Study 5 demonstrates the Magnitude Effect for positive events. Finally, Study 6 shows that the effect can be extended to distances between comparable events, in addition to the distance from an observer to an event. We see the Magnitude Effect as a spillover from the scales used to describe events to the scales used to describe distances.

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‘Who's the Thief?’ The Influence of Knowledge and Experience on Early Detection of Criminal Intentions

Corinne Ines Koller, Olive Emil Wetter & Franziska Hofer
Applied Cognitive Psychology, forthcoming

Abstract:
Our study investigates if people are able to recognize thieves based on their nonverbal behavior prior to committing the crime. We implemented authentic closed-circuit television footage from thefts committed at an international airport into a computer-based test. Five groups of participants (students, police recruits, inexperienced police officers, experienced police officers, and criminal investigators) were studied. The results show that criminals display nonverbal behavior that can be used by observers for early recognition of criminal intentions. In addition, early recognition seems to benefit from knowledge about the criminals' modi operandi (criminal investigators performed best), which renders early recognition teachable and trainable. Further, all participants seem to be biased towards innocence, but this bias was less pronounced in police officers than in students. These findings are discussed in relation to the well-documented truth-bias and investigator-bias in lie detection research as well as taking our measurement method into account.

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Mine in Motion: How Physical Actions Impact the Psychological Sense of Object Ownership

Grace Truong et al.
Journal of Experimental Psychology: Human Perception and Performance, forthcoming

Abstract:
Our attention and memory can be biased toward objects having high self-relevance, such as things we own. Yet in explaining such effects, theorizing has been limited to psychological determinants of self-relevance. Here we examined the contribution physical actions make to this ownership bias. In Experiment 1, participants moved object images on a touch interactive table that either arbitrarily belonged to “self” or “other,” and that were moved into locations closer or farther from their bodies. Subsequent recognition was highest for self-owned objects moved closer to the body, as measured via a subsequent memory recall test. In Experiment 2, when participants moved images via keyboard rather than overt action, the proximity effect of the body on attention was abolished. In Experiment 3, participants pulled or pushed self-owned or other-owned object images to side-by-side locations on a touch interactive table. Self-owned objects that were pulled were recognized the most. Our findings demonstrate that physical actions can have a direct impact on the psychological saliency of owned objects, with the act of bringing objects toward the self leading to greater recall.

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An Exploration of Deception Detection: Are Groups More Effective Than Individuals?

Roger McHaney, Joey George & Manjul Gupta
Communication Research, forthcoming

Abstract:
Deception is a pervasive problem often found in human behavior. This study investigates why past deception studies have found groups perform no better than individuals in detection using time-interaction-performance theory which suggests teams are not immediately effective. Only after establishing relational links is potential reached. Established groups spend less time building relational links and instead focus on task-oriented activities more effectively. We sought to determine whether groups with prior history of interaction outperform individuals in deception detection. First, participants were randomly assigned to an individual or ad hoc group role. Later, additional preexisting work groups were recruited. Participants were instructed to identify deception in online video interviews. The experiment tested theoretical explanations regarding cohesion, interaction, and satisfaction as components of relational links and relationships to deception detection. Results indicated that groups which exhibited higher levels of relational links, that is, established groups, were more accurate in deception detection than ad hoc groups.

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Moving to Learn: How Guiding the Hands Can Set the Stage for Learning

Neon Brooks & Susan Goldin-Meadow
Cognitive Science, forthcoming

Abstract:
Previous work has found that guiding problem-solvers' movements can have an immediate effect on their ability to solve a problem. Here we explore these processes in a learning paradigm. We ask whether guiding a learner's movements can have a delayed effect on learning, setting the stage for change that comes about only after instruction. Children were taught movements that were either relevant or irrelevant to solving mathematical equivalence problems and were told to produce the movements on a series of problems before they received instruction in mathematical equivalence. Children in the relevant movement condition improved after instruction significantly more than children in the irrelevant movement condition, despite the fact that the children showed no improvement in their understanding of mathematical equivalence on a ratings task or on a paper-and-pencil test taken immediately after the movements but before instruction. Movements of the body can thus be used to sow the seeds of conceptual change. But those seeds do not necessarily come to fruition until after the learner has received explicit instruction in the concept, suggesting a “sleeper effect” of gesture on learning.

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Turning I into me: Imagining your future self

Neil Macrae et al.
Consciousness and Cognition, December 2015, Pages 207–213

Abstract:
A widely endorsed belief is that perceivers imagine their present selves using a different representational format than imagining their future selves (i.e., near future = first-person; distant future = third-person). But is this really the case? Responding to the paucity of work on this topic, here we considered how temporal distance influences the extent to which individuals direct their attention outward or inward during a brief imaginary episode. Using a non-verbal measure of visual perspective taking (i.e., letter-drawing task) our results confirmed the hypothesized relation between temporal distance and conceptions of the self. Whereas simulations of an event in the near future were dominated by a first-person representation of the self, this switched to a third-person depiction when the event was located in the distant future. Critically, this switch in vantage point was restricted to self-related simulations. The theoretical and practical implications of these findings are considered.

By KEVIN LEWIS | 09:00:00 AM

Friday, October 16, 2015

Health scare

A New Conservative Cold Front? Democrat and Republican Responsiveness to the Passage of the Affordable Care Act

Stephen Morgan & Minhyoung Kang
Sociological Science, September 2015

Abstract:
Through an analysis of the 2004 through 2014 General Social Survey (GSS), this article demonstrates that the 2010 passage of the Affordable Care Act (ACA) decreased support for spending on health among Democrats, Independents, and Republicans, contrary to the conjecture that a rigid partisanship equilibrium has taken hold among voters in the United States. Instead, only a partisan deflection is present, with spending preferences declining more for Republicans than for Democrats, and with Independents in between. Through supplemental analysis of the GSS panel data, as well as comparative analysis of other GSS items on national spending preferences, government responsibility, and confidence in leaders, this article also undermines support for an alternative explanation that cannot be entirely eliminated from plausibility, which is that the identified period effect that emerged in 2010 and persisted through 2014 is a response to the Great Recession and resulting deficit spending by the federal government. Implications for public opinion research are discussed, lending support to current models of thermostat effects and policy-specific political mood from the political science literature, which are informed by an older literature on weather fronts in public opinion that originated in the sociology literature.

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The Price of Responsibility: The Impact of Health Reform on Non-Poor Uninsureds

Mark Pauly, Adam Leive & Scott Harrington
NBER Working Paper, September 2015

Abstract:
This paper estimates the change in net (of subsidy) financial burden ("the price of responsibility") and in welfare that would be experienced by a large nationally representative sample of the "non-poor" uninsured if they were to purchase Silver or Bronze plans on the ACA exchanges. The sample is the set of full-year uninsured persons represented in the Current Population Survey for the pre-ACA period with incomes above 138 percent of the federal poverty level. The estimated change in financial burden compares out-of-pocket payments by income stratum in the pre-ACA period with the sum of premiums (net of subsidy) and expected cost sharing (net of subsidy) for benchmark Silver and Bronze plans, under various assumptions about the extent of increased spending associated with obtaining coverage. In addition to changes in the financial burden, our welfare estimates incorporate the value of additional care consumed and the change in risk premiums for changes in exposure to out-of-pocket payments associated with coverage, under various assumptions about risk aversion. We find that the average financial burden will increase for all income levels once insured. Subsidy-eligible persons with incomes below 250 percent of the poverty threshold likely experience welfare improvements that offset the higher financial burden, depending on assumptions about risk aversion and the value of additional consumption of medical care. However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare; indicating a positive "price of responsibility" for complying with the individual mandate. The percentage of the sample with estimated welfare increases is close to matching observed take-up rates by the previously uninsured in the exchanges.

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Health-Care Reform or Labor Market Reform? A Quantitative Analysis of the Affordable Care Act

Makoto Nakajima & Didem Tuzemen
Federal Reserve Working Paper, September 2015

Abstract:
An equilibrium model with firm and worker heterogeneity is constructed to analyze labor market and welfare implications of the Patient Protection and Affordable Care Act, commonly called the Affordable Care Act (ACA). The authors' model implies a significant reduction in the uninsured rate from 22.6 percent to 5.6 percent. The model predicts a moderate positive welfare gain from the ACA because of the redistribution of income through health insurance subsidies at the exchange as well as the Medicaid expansion. About 2.1 million more part-time jobs are created under the ACA at the expense of 1.6 million full-time jobs, mainly because the link between full-time employment and health insurance is weakened. The model predicts a small negative effect on total hours worked (0.36 percent), partly because of the general equilibrium effect.

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Has the Affordable Care Act increased part-time employment?

Aparna Mathur, Sita Nataraj Slavov & Michael Strain
Applied Economics Letters, forthcoming

Abstract:
We examine the impact of the Affordable Care Act (ACA) on part-time employment. Because the ACA's employer health insurance mandate applies to individuals who work 30 or more hours per week, employers may try to avoid the mandate by cutting workers' hours below the 30-hour threshold in order to avoid having to provide them with health insurance. Although the employer mandate only went into effect in 2015, many observers have argued that forward-looking employers began to shift towards a part-time workforce well in advance of the mandate. To test this hypothesis, we examine relative shifts across two categories of part-time workers (25-29 hours and 31-35 hours). We find some evidence of a shift from the 31-35-hour category into the 25-29-hour category after the passage of ACA in March 2010. However, that shift is not more pronounced among low-wage workers or among workers in industries and occupations most likely to be affected by the mandate. Thus, there is little evidence that the ACA has caused the shift across hours categories, or led to an increase in part-time employment. However, the ACA could cause a shift towards part-time work in the future as the mandate takes effect.

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Increased Use Of Prescription Drugs Reduces Medical Costs In Medicaid Populations

Christopher Roebuck et al.
Health Affairs, September 2015, Pages 1586-1593

Abstract:
We used data on more than 1.5 million Medicaid enrollees to examine the impact of changes in prescription drug use on medical costs. For three distinct groups of enrollees, we estimated the effects of aggregate prescription drug use - and, more specifically, the use of medications to treat eight chronic noncommunicable diseases - on total nondrug, inpatient, outpatient, and other Medicaid spending. We found that a 1 percent increase in overall prescription drug use was associated with decreases in total nondrug Medicaid costs by 0.108 percent for blind or disabled adults, 0.167 percent for other adults, and 0.041 percent for children. Reductions in combined inpatient and outpatient spending from increased drug utilization in Medicaid were similar to an estimate for Medicare by the Congressional Budget Office. Moving forward, policy makers evaluating proposed changes that alter medication use among the nearly seventy million Medicaid recipients should consider the net effects on program spending to ensure that scarce federal and state health care dollars are allocated efficiently.

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Mandatory Universal Drug Plan, Access to Health Care and Health: Evidence from Canada

Chao Wang et al.
Journal of Health Economics, December 2015, Pages 80-96

Abstract:
This paper examines the impacts of a mandatory, universal prescription drug insurance program on health care utilization and health outcomes in a public health care system with free physician and hospital services. Using the Canadian National Population Health Survey from 1994 to 2003 and implementing a difference-in-differences estimation strategy, we find that the mandatory program substantially increased drug coverage among the general population. The program also increased medication use and general practitioner visits but had little effect on specialist visits and hospitalization. Findings from quantile regressions suggest that there was a large improvement in the health status of less healthy individuals. Further analysis by pre-policy drug insurance status and the presence of chronic conditions reveals a marked increase in the probability of taking medication and visiting a general practitioner among the previously uninsured and those with a chronic condition.

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What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics

Zarek Brot-Goldberg et al.
NBER Working Paper, October 2015

Abstract:
Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch.

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Adverse selection, moral hazard and the demand for Medigap insurance

Michael Keane & Olena Stavrunova
Journal of Econometrics, forthcoming

Abstract:
In this paper we study the adverse selection and moral hazard effects of Medicare supplemental insurance (Medigap). While both have been studied separately, this is the first paper to analyze them in a unified econometric framework. We find that adverse selection into Medigap is weak, but the moral hazard effect is substantial. On average, Medigap coverage increases health care spending by 24%, with especially large effects for relatively healthy individuals. These results have important policy implications. For instance, they imply that conventional remedies for inefficiencies created by adverse selection (e.g., mandatory enrolment) may lead to substantial health care cost increases.

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Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D

Maria Polyakova
NBER Working Paper, September 2015

Abstract:
I take advantage of regulatory and pricing dynamics in Medicare Part D to empirically explore interactions among adverse selection, switching costs, and regulation. I first document novel evidence of adverse selection and switching costs within Part D using detailed administrative data. I then estimate a contract choice and pricing model in order to quantify the importance of switching costs for risk-sorting, and for policies that may affect risk sorting. I first find that in Part D, switching costs help sustain an adversely-selected equilibrium and are likely to mute the ability of ACA policies to improve risk allocation across contracts, leading to higher premiums for some enrollees. I then estimate that, overall, decreasing the cost of active decision-making in the Part D environment could lead to a substantial gain in consumer surplus of on average $400-$600 per capita, which is around 20%-30% of average annual per capita drug spending.

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Does health plan generosity enhance hospital market power?

Laurence Baker, Kate Bundorf & Daniel Kessler
Journal of Health Economics, December 2015, Pages 54-62

Abstract:
We test whether the generosity of employer-sponsored health insurance facilitates the exercise of market power by hospitals. We construct indices of health plan generosity and the price and volume of hospital services using data from Truven MarketScan for 601 counties from 2001-2007. We use variation in the industry and union status of covered workers within a county over time to identify the causal effects of generosity. Although OLS estimates fail to reject the hypothesis that generosity facilitates the exercise of hospital market power, IV estimates show a statistically significant and economically important positive effect of plan generosity on hospital prices in uncompetitive markets, but not in competitive markets. Our results suggest that most of the aggregate effect of hospital market structure on prices found in previous work may be coming from areas with generous plans.

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The Effect of Hospital/Physician Integration on Hospital Choice

Laurence Baker, Kate Bundorf & Daniel Kessler
NBER Working Paper, August 2015

Abstract:
In this paper, we estimate how hospital ownership of physicians' practices affects their patients' hospital choices. We match data on the hospital admissions of Medicare beneficiaries, including the identity of their admitting physician, with data on the identity of the owner of the admitting physician's practice. We find that a hospital's ownership of an admitting physician's practice dramatically increases the probability that the physician's patients will choose the owning hospital. We also find that patients are more likely to choose a high-cost, low-quality hospital when their admitting physician's practice is owned by that hospital.

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High-Cost Patients Had Substantial Rates Of Leaving Medicare Advantage And Joining Traditional Medicare

Momotazur Rahman et al.
Health Affairs, October 2015, Pages 1675-1681

Abstract:
Medicare Advantage payment regulations include risk-adjusted capitated reimbursement, which was implemented to discourage favorable risk selection and encourage the retention of members who incur high costs. However, the extent to which risk-adjusted capitation has succeeded is not clear, especially for members using high-cost services not previously considered in assessments of risk selection. We examined the rates at which participants who used three high-cost services switched between Medicare Advantage and traditional Medicare. We found that the switching rate from 2010 to 2011 away from Medicare Advantage and to traditional Medicare exceeded the switching rate in the opposite direction for participants who used long-term nursing home care (17 percent versus 3 percent), short-term nursing home care (9 percent versus 4 percent), and home health care (8 percent versus 3 percent). These results were magnified among people who were enrolled in both Medicare and Medicaid. Our findings raise questions about the role of Medicare Advantage plans in serving high-cost patients with complex care needs, who account for a disproportionately high amount of total health care spending.

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What Should We Expect? A Comparison of the Community Benefit and Projected Government Support of Maryland Hospitals

Jason Turner et al.
Medical Care Research and Review, forthcoming

Abstract:
Designation as a tax-exempt, not-for-profit entity carries with it specific tax benefits. In exchange for tax exemptions, not-for-profit entities are expected to provide benefits to their communities. To evaluate whether hospitals provide community benefits (CBs) equivalent to the financial subsidies and advantages extended to them, tax liabilities and financial support were projected for all Maryland acute care hospitals between 2010 and 2012 and in the aggregate over the 3 years of this study. A comparison was then made between the provision of CBs and the financial support that governments provide to the hospitals. The results indicate that hospitals provide significantly and substantially more CBs than the material financial support they receive. Even after modeling changes in CB activities and the associated tax liabilities that may result from transitioning to taxable status, the benefits that hospitals provide to the communities they serve continue to exceed the potential government tax revenues.

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Healthcare Exceptionalism? Performance and Allocation in the U.S. Healthcare Sector

Amitabh Chandra et al.
NBER Working Paper, October 2015

Abstract:
The conventional wisdom in health economics is that idiosyncratic features of the healthcare sector leave little scope for market forces to allocate consumers to higher performance producers. However, we find robust evidence across a variety of conditions and performance measures that higher quality hospitals tend to have higher market shares at a point in time and expand more over time. Moreover, we find that the relationship between performance and allocation is stronger among patients who have greater scope for hospital choice, suggesting a role for patient demand in allocation in the hospital sector. Our findings suggest that the healthcare sector may have more in common with "traditional" sectors subject to standard market forces than is often assumed.

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Will the RN Workforce Weather the Retirement of the Baby Boomers?

David Auerbach, Peter Buerhaus & Douglas Staiger
Medical Care, October 2015, Pages 850-856

Setting: Data on employed RNs from the United States Bureau of the Census Current Population Survey (1979-2000, N=72,222) and American Community Survey (2001-2013, N=342,712).

Results: Annual retirements from the nursing workforce will accelerate from 20,000 a decade ago to near 80,000 in the next decade as baby boomer RNs continue to age. We project that this outflow will be more than offset by continued strong entry of new RNs into the workforce. Overall, we project that the registered nursing workforce will increase from roughly 2.7 million FTE RNs in 2013 to 3.3 million in 2030. We also find that the workforce will reach its peak average age in 2015 at 44.4. This increase in workforce size, which was not expected in forecasts made a decade ago, is contingent on new entry into nursing continuing at its current rate. Even then, supply would still fall short of demand as recently projected by the Health Resources and Services Agency in the year 2025 by 128,000 RNs (4%).

Conclusions: The unexpected surge of entry of new RNs into the workforce will lead to continued net growth of the nursing workforce, both in absolute FTE and FTE per capita. While this growth may not be sufficient to meet demand, such projections are uncertain in the face of a rapidly evolving health care delivery system.

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The Effect of Health Savings Accounts on Group Health Insurance Coverage

Jinqi Ye
Journal of Health Economics, forthcoming

Abstract:
This paper presents new empirical evidence on the impact of tax subsidies for Health Savings Accounts (HSAs) on group insurance coverage. HSAs are tax-free health care expenditure savings accounts. Coupled with high deductible health insurance plans (HDHPs), they together represent new health insurance options. The tax advantage of HSAs expands the group health insurance market by making health care more affordable. Using individual level data from the Current Population Survey and exploiting policy variation by state and year from 2004 to 2012, I find that HSA tax subsidies increase small-group coverage by a statistically significant 2.5 percentage points, although not coverage in larger firms. Moreover, if the tax price of HSA contribution decreases by 10 cents, small-group insurance coverage increases by almost 2 percentage points. I also find that for older workers or less-educated workers, HSA subsidies are associated with 2-3 percentage point increase in their group insurance coverage.

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Less Physician Practice Competition Is Associated With Higher Prices Paid For Common Procedures

Daniel Austin & Laurence Baker
Health Affairs, October 2015, Pages 1753-1760

Abstract:
Concentration among physician groups has been steadily increasing, which may affect prices for physician services. We assessed the relationship in 2010 between physician competition and prices paid by private preferred provider organizations for fifteen common, high-cost procedures to understand whether higher concentration of physician practices and accompanying increased market power were associated with higher prices for services. Using county-level measures of the concentration of physician practices and county average prices, and statistically controlling for a range of other regional characteristics, we found that physician practice concentration and prices were significantly associated for twelve of the fifteen procedures we studied. For these procedures, counties with the highest average physician concentrations had prices 8-26 percent higher than prices in the lowest counties. We concluded that physician competition is frequently associated with prices. Policies that would influence physician practice organization should take this into consideration.

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The Effect of Medicaid on Adult Hospitalizations: Evidence from Tennessee's Medicaid Contraction

Ausmita Ghosh & Kosali Simon
NBER Working Paper, September 2015

Abstract:
The 2010 Affordable Care Act (ACA) Medicaid expansions aimed to improve access to care and health status among low-income non-elderly adults. Previous work has established a link between Medicaid coverage expansion and reduced mortality (Sommers, Baicker and Epstein, 2012), but the mechanism of this reduction is not clearly understood. Prior to the ACA, one of the largest policy changes in non-elderly adult Medicaid access was a 2005 contraction through which nearly 170,000 enrollees lost Medicaid coverage in Tennessee. We exploit this change in Medicaid coverage to estimate its causal impact on inpatient hospitalizations. We find evidence that the contraction decreased the share of hospitalizations covered by Medicaid by 21 percent and increased the share uninsured by nearly 61 percent, relative to the pre-reform levels and to other states. We also find that 75 percent of the increase in uninsured hospitalizations originated from emergency department visits, a pattern consistent with losing access to medical homes. However, uninsured hospitalizations increased for both avoidable and unavoidable conditions at the same rate, which does not suggest a lack of preventive care. Although there may be limited symmetry in response to Medicaid expansion and contraction, these findings are also consistent with the substantial decrease in uncompensated care costs in the states that have thus far expanded Medicaid under the ACA. These results also help shed light on the mechanisms by which Medicaid might affect mortality for non-elderly adults.

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A Large State Medicaid Outpatient Advanced Imaging Utilization Management Program: Substantial Savings Without the Need for Denials

Robert Rapoport et al.
Medical Care Research and Review, forthcoming

Abstract:
A decade of rapidly rising outpatient advanced imaging utilization ended toward the end of the past decade, with slow growth since. This has been attributed to repetitive reimbursement cuts, medical radiation exposure concerns, increasing deductibles and patient copayments, and the influence of radiology benefit management companies. State Medicaid programs have been reluctant to institute radiology benefit management preauthorization programs since the time burden for obtaining test approval could cause providers to drop out. Also, these patients may lack the knowledge to appeal denials, and medically necessary tests could be denied with adverse outcomes. Little data exist demonstrating the efficacy of such programs in decreasing utilization and cost. We report a 2-year experience with an outpatient advanced imaging prior notification program for a large state Medicaid fee-for-service population. The program did not allow any denials, but nevertheless the data reveal a large, durable decrease in advanced imaging utilization and cost.

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California's Early ACA Expansion Increased Coverage And Reduced Out-Of-Pocket Spending For The State's Low-Income Population

Ezra Golberstein, Gilbert Gonzales & Benjamin Sommers
Health Affairs, October 2015, Pages 1688-1694

Abstract:
The Affordable Care Act (ACA) expanded eligibility for Medicaid to millions of low-income adults. While many expanding states implemented their expansion in 2014, five states and the District of Columbia expanded eligibility as early as 2010 by taking advantage of provisions in the ACA and Medicaid waivers. We used restricted data from the National Health Interview Survey to examine the impact of California's Low Income Health Program, an early expansion program that began in 2011. Our study demonstrates that the county-by-county rollout of expanded public insurance coverage in California significantly increased coverage, by 7 percentage points, and significantly reduced the likelihood of any family out-of-pocket medical spending in the previous year, by 10 percentage points, among low-income adults.

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Use of Insurance Against a Small Loss as an Incentive Strategy

Daniella Meeker et al.
Decision Analysis, September 2015, Pages 122-129

Abstract:
The success of extended warranties and buyer protection plans suggests that insurance against a small loss has high decision utility. We explore whether the behavioral insight that people are highly averse to small chances of loss can be used to create a powerful incentive that has very low expected value. We compare decisions of individuals offered fixed payments for healthy choices to those offered insurance in exchange for healthy choices. We test the prediction that aversion to small losses will result in very high rates of health behavior uptake in exchange for insurance. Three hundred participants endowed with a $2 bonus randomly received one of two incentives for completing a scheduled health risk assessment: (1) an insurance guarantee against the 1% risk of losing the $2 bonus or (2) a fixed payment at the expected value of the insurance. Relative to the fixed payment condition, participants in the insurance intervention were 70% more likely to meet their health risk assessment appointment (p < 0.01). Fixed payments of $2.59 were needed for every $1 spent on insurance to achieve the same behavioral effect. Loss aversion, probability weighting, and the certainty effect may account for this result. Incentive design may benefit from utilizing an insurance paradigm.

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PQRS Participation, Inappropriate Utilization of Health Care Services, and Medicare Expenditures

Bryan Dowd et al.
Medical Care Research and Review, forthcoming

Abstract:
Medicare's Physician Quality Reporting System (PQRS) is the largest quality-reporting system in the U.S. health care system and a basis for the new value-based modifier system for physician payment. The PQRS allows health care providers to report measures of quality of care that include both the process of care and physiological outcomes. Using a multivariate difference-in-differences model, we examine the relationship of PQRS participation to three claims-computable measures of inappropriate utilization of health care services and risk-adjusted per capita Medicare expenditures. The data are a national random sample of PQRS-participating providers matched to nonparticipating providers by zip code and caseload. We found few significant relationships in the overall analysis. However, the magnitude and statistical significance of the desirable associations increased in subgroups of providers and beneficiaries more prone to overutilization (e.g., males, older beneficiaries, beneficiaries treated in larger medical practices or by nonphysicians, and practices in rural areas), and among beneficiaries with heart conditions, diabetes, and eye problems.

By KEVIN LEWIS | 09:00:00 AM

Thursday, October 15, 2015

Clued in

The Curse of Expertise: When More Knowledge Leads to Miscalibrated Explanatory Insight

Matthew Fisher & Frank Keil
Cognitive Science, forthcoming

Abstract:
Does expertise within a domain of knowledge predict accurate self-assessment of the ability to explain topics in that domain? We find that expertise increases confidence in the ability to explain a wide variety of phenomena. However, this confidence is unwarranted; after actually offering full explanations, people are surprised by the limitations in their understanding. For passive expertise (familiar topics), miscalibration is moderated by education; those with more education are accurate in their self-assessments (Experiment 1). But when those with more education consider topics related to their area of concentrated study (college major), they also display an illusion of understanding (Experiment 2). This “curse of expertise” is explained by a failure to recognize the amount of detailed information that had been forgotten (Experiment 3). While expertise can sometimes lead to accurate self-knowledge, it can also create illusions of competence.

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Fast thinking: Implications for democratic politics

Gerry Stoker, Colin Hay & Matthew Barr
European Journal of Political Research, forthcoming

Abstract:
A major programme of research on cognition has been built around the idea that human beings are frequently intuitive thinkers and that human intuition is imperfect. The modern marketing of politics and the time-poor position of many citizens suggests that ‘fast’, intuitive, thinking in many contemporary democracies is ubiquitous. This article explores the consequences that such fast thinking might have for the democratic practice of contemporary politics. Using focus groups with a range of demographic profiles, fast thinking about how politics works is stimulated and followed by a more reflective and collectively deliberative form of slow thinking among the same participants. A strong trajectory emerges consistently in all groups in that in fast thinking mode participants are noticeably more negative and dismissive about the workings of politics than when in slow thinking mode. A fast thinking focus among citizens may be good enough to underwrite mainstream political exchange, but at the cost of supporting a general negativity about politics and the way it works. Yet breaking the cycle of fast thinking – as advocated by deliberation theorists – might not be straightforward because of the grip of fast thinking. The fast/slow thinking distinction, if carefully used, offers valuable new insight into political science.

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An advantage of appearing mean or lazy: Amplified impressions of warmth or competence after mixed descriptions

Nicolas Kervyn et al.
Journal of Experimental Social Psychology, January 2016, Pages 17–23

Abstract:
Three experiments show that describing a person in mixed rather than consistently positive (or negative) terms on warmth and competence — the two fundamental dimensions of social perception — results in more extreme impressions. Given sparse information on one dimension, amplified (i.e., more extreme) judgments arise when the other dimension is clearly opposite in valence. In Experiment 1, a competent-and-cold target was perceived as more competent than a competent-and-warm target. Experiment 2 extends this amplification effect by manipulating either warmth or competence and adding consistently negative descriptions. Experiment 3 replicates amplification using more naturalistic behavioral descriptions. These findings extend the compensation effect — a negative functional relation between perceived warmth and competence, previously observed only in explicitly comparative contexts — to single-target impression formation. Implications for traditional person-perception models and distributed social cognition are discussed.

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Decision importance as a cue for deferral

Job Krijnen, Marcel Zeelenberg & Seger Breugelmans
Judgment and Decision Making, September 2015, Pages 407–415

Abstract:
A series of 7 experiments found that people defer important decisions more than unimportant decisions, and that this is independent of choice set composition. This finding persists even when deferral does not provide more flexibility (Experiment 2), when deferral has potential disadvantages (Experiment 3), and when deferral has no material benefits and is financially costly (Experiment 4). The effect of importance on deferral was independent of potential choice conflict (Experiment 5 & 6). The only exception was a situation in which one alternative was clearly dominant; here decision importance did not affect the likelihood of deferral (Experiment 7). These results suggest that people use decision importance as a cue for deferral: more important decisions should take more time and effort.

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Blinding Us to the Obvious? The Effect of Statistical Training on the Evaluation of Evidence

Blakeley McShane & David Gal
Management Science, forthcoming

Abstract:
Statistical training helps individuals analyze and interpret data. However, the emphasis placed on null hypothesis significance testing in academic training and reporting may lead researchers to interpret evidence dichotomously rather than continuously. Consequently, researchers may either disregard evidence that fails to attain statistical significance or undervalue it relative to evidence that attains statistical significance. Surveys of researchers across a wide variety of fields (including medicine, epidemiology, cognitive science, psychology, business, and economics) show that a substantial majority does indeed do so. This phenomenon is manifest both in researchers’ interpretations of descriptions of evidence and in their likelihood judgments. Dichotomization of evidence is reduced though still present when researchers are asked to make decisions based on the evidence, particularly when the decision outcome is personally consequential. Recommendations are offered.

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The Empirical Benefits of Conceptual Rigor: Systematic Articulation of Conceptual Hypotheses Can Reduce the Risk of Non-Replicable Results (and Facilitate Novel Discoveries Too)

Mark Schaller
Journal of Experimental Social Psychology, forthcoming

Abstract:
Most discussions of rigor and replication focus on empirical practices (methods used to collect and analyze data). Typically overlooked is the role of conceptual practices: The methods scientists use to arrive at and articulate research hypotheses in the first place. This article discusses how the conceptualization of research hypotheses has implications for methodological decision-making and, consequently, for the replicability of results. The article identifies three ways in which empirical findings may be non-replicable, and shows how all three kinds of non-replicability are more likely to emerge when scientists take an informal conceptual approach, in which personal predictions are equated with scientific hypotheses. The risk of non-replicability may be reduced if scientists adopt more formal conceptual practices, characterized by the rigorous use of “if-then” logic to articulate hypotheses, and to systematically diagnose the plausibility, size, and context-dependence of hypothesized effects. The article identifies benefits that are likely to arise from more rigorous and systematic conceptual practices, and identifies ways in which their use can be encouraged to be more normative within the scholarly culture of the psychological sciences.

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Confidence Leak in Perceptual Decision Making

Dobromir Rahnev et al.
Psychological Science, forthcoming

Abstract:
People live in a continuous environment in which the visual scene changes on a slow timescale. It has been shown that to exploit such environmental stability, the brain creates a continuity field in which objects seen seconds ago influence the perception of current objects. What is unknown is whether a similar mechanism exists at the level of metacognitive representations. In three experiments, we demonstrated a robust intertask confidence leak — that is, confidence in one’s response on a given task or trial influencing confidence on the following task or trial. This confidence leak could not be explained by response priming or attentional fluctuations. Better ability to modulate confidence leak predicted higher capacity for metacognition as well as greater gray matter volume in the prefrontal cortex. A model based on normative principles from Bayesian inference explained the results by postulating that observers subjectively estimate the perceptual signal strength in a stable environment. These results point to the existence of a novel metacognitive mechanism mediated by regions in the prefrontal cortex.

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Deconstructing the seductive allure of neuroscience explanations

Deena Skolnick Weisberg, Jordan Taylor & Emily Hopkins
Judgment and Decision Making, September 2015, Pages 429–441

Abstract:
Previous work showed that people find explanations more satisfying when they contain irrelevant neuroscience information. The current studies investigate why this effect happens. In Study 1 (N=322), subjects judged psychology explanations that did or did not contain irrelevant neuroscience information. Longer explanations were judged more satisfying, as were explanations containing neuroscience information, but these two factors made independent contributions. In Study 2 (N=255), subjects directly compared good and bad explanations. Subjects were generally successful at selecting the good explanation except when the bad explanation contained neuroscience and the good one did not. Study 3 (N=159) tested whether neuroscience jargon was necessary for the effect, or whether it would obtain with any reference to the brain. Responses to these two conditions did not differ. These results confirm that neuroscience information exerts a seductive effect on people’s judgments, which may explain the appeal of neuroscience information within the public sphere.

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Distilling the Wisdom of Crowds: Prediction Markets Versus Prediction Polls

Pavel Atanasov et al.
Management Science, forthcoming

Abstract:
We report the results of the first large-scale, long-term, experimental test between two crowd sourcing methods – prediction markets and prediction polls. More than 2,400 participants made forecasts on 261 events over two seasons of a geopolitical prediction tournament. Some forecasters traded in a continuous double auction market and were ranked based on earnings. Others submitted probability judgments, independently or in teams, and were ranked based on Brier scores. In both seasons of the tournament, last day prices from the prediction market were more accurate than the simple mean of forecasts from prediction polls. However, team prediction polls outperformed prediction markets when poll forecasts were aggregated with algorithms using temporal decay, performance weighting and recalibration. The biggest advantage of prediction polls occurred at the start of long-duration questions. Prediction polls with proper scoring, algorithmic aggregation and teaming offer an attractive alternative to prediction markets for distilling the wisdom of crowds.

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Certainty and Overconfidence in Future Preferences for Food

Linda Thunström, Jonas Nordström & Jason Shogren
Journal of Economic Psychology, December 2015, Pages 101–113

Abstract:
We examine consumer certainty of future preferences and overconfidence in predicting future preferences. We explore how preference certainty and overconfidence impact the option value to revise today’s decisions in the future. We design a laboratory experiment that creates a controlled choice environment, in which a subject’s choice set (over food snacks) is known and constant over time, and the time frame is short -- subjects make choices for themselves today, and for one to two weeks ahead. Our results suggest that even for such a seemingly straightforward choice task, only 45 percent of subjects can predict future choices accurately, while stated certainty of future preferences (one and two weeks ahead) is around 80 percent. We define overconfidence in predicting future preferences as: the difference between actual accuracy at predicting future choices and stated certainty of future preferences. Our results suggest strong evidence of overconfidence. We find that overconfidence increases with the level of stated certainty of future preferences. Finally, we observe that the option value people attach to future choice flexibility decreases with overconfidence. Overconfidence in future preferences affects economic welfare because it says people have too much incentive to lock themselves into future suboptimal decisions.

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Vicarious hypocrisy: Bolstering attitudes and taking action after exposure to a hypocritical ingroup member

Elizabeth Focella et al.
Journal of Experimental Social Psychology, forthcoming

Abstract:
Four studies tested the prediction that when highly identified group members observe another ingroup member behave hypocritically, they experience vicarious hypocrisy, which they reduce by bolstering their support for the ingroup hypocrite's message. Participants in Experiment 1 (N = 161) who witnessed a similar ingroup member act hypocritically about using sunscreen reported more positive attitudes toward using sunscreen than participants exposed to an outgroup hypocrite or to a dissimilar ingroup hypocrite. The effect of vicarious hypocrisy on attitude bolstering was attenuated in Experiment 2 (N = 68) when ingroup identity was affirmed. In Study 3 (N = 64), more highly identified participants acquired sunscreen when a fellow ingroup member's hypocrisy was attributed to high compared to low choice. Study 4 (N = 68) showed that a misattribution cue attenuated the effect of vicarious hypocrisy on sunscreen acquisition. The discussion focuses on the vicarious dissonance processes that motivate some observers to defend, rather than reject, a hypocritical ingroup member.

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Inferring Others' Hidden Thoughts: Smart Guesses in a Low Diagnostic World

Chris Street et al.
Journal of Behavioral Decision Making, forthcoming

Abstract:
People are biased toward believing that what others say is what they truly think. This effect, known as the truth bias, has often been characterized as a judgmental error that impedes accuracy. We consider an alternative view: that it reflects the use of contextual information to make the best guess when the currently available information has low diagnosticity. Participants learnt the diagnostic value of four cues, which were present during truthful statements between 20% and 80% of the time. Afterwards, participants were given contextual information: either that most people would lie or that most would tell the truth. We found that people were biased in the direction of the context information when the individuating behavioral cues were nondiagnostic. As the individuating cues became more diagnostic, context had less to no effect. We conclude that more general context information is used to make an informed judgment when other individuating cues are absent. That is, the truth bias reflects a smart guess in a low diagnostic world.

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The Value of Being Wrong: Intermittent Feedback Delivery Alters the Striatal Response to Negative Feedback

Karolina Lempert & Elizabeth Tricomi
Journal of Cognitive Neuroscience, forthcoming

Abstract:
Whereas positive feedback is both rewarding and informative, negative feedback can be construed as either punishing (because it is indicative of poor performance) or informative (because it may lead to goal attainment). In this neuroimaging experiment, we highlighted the informational value of negative feedback by intermixing trials with and without feedback. When performance feedback is expected, positive feedback triggers an increase in striatal activity, whereas negative feedback elicits a decrease in striatal activity. We predicted that, in contrast, when feedback receipt is unpredictable, the striatal response to negative feedback would increase. Participants performed a paired-associate learning task during fMRI scanning. In one condition (“blocked feedback”), the receipt of feedback was predictable — participants knew whether or not they would receive feedback for their responses. In another condition (“mixed feedback”), the receipt of feedback was unpredictable — on a random 50% of trials, participants received feedback, and they otherwise received no feedback. Negative feedback in the mixed feedback condition elicited more striatal activity than negative feedback in the blocked feedback condition. In contrast, feedback omission evoked more striatal activity when feedback delivery was expected, compared to when it was unpredictable. This pattern emerged from an increase in caudate activity in response to negative feedback in the mixed feedback condition and a decrease in ventral striatal activity in response to no feedback in this condition. These results suggest that, by emphasizing the informational value of negative feedback, an unpredictable feedback context alters the striatal response to negative feedback and to the omission of feedback.

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Intertemporal Uncertainty Avoidance: When the Future is Uncertain, People Prefer the Present, and When the Present is Uncertain, People Prefer the Future

David Hardisty & Jeffrey Pfeffer
Stanford Working Paper, September 2015

Abstract:
Three studies explored the effects of uncertainty on people’s time preferences for financial gains and losses. In general, individuals seek to avoid uncertainty in situations of intertemporal choice. While holding the expected value of payouts constant, participants preferred immediate gains and losses if the future was uncertain, and preferred future gains and losses if the present was uncertain. This pattern of preferences is incompatible with current models of intertemporal choice, in which people should consistently prefer to have gains now and losses later. This pattern of uncertainty avoidance is also not explained by Prospect Theory models, which predict risk seeking for losses. We discuss these findings in relation to previous literature.

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Public perceptions of expert disagreement: Bias and incompetence or a complex and random world?

Nathan Dieckmann et al.
Public Understanding of Science, forthcoming

Abstract:
Expert disputes can present laypeople with several challenges including trying to understand why such disputes occur. In an online survey of the US public, we used a psychometric approach to elicit perceptions of expert disputes for 56 forecasts sampled from seven domains. People with low education, or with low self-reported topic knowledge, were most likely to attribute disputes to expert incompetence. People with higher self-reported knowledge tended to attribute disputes to expert bias due to financial or ideological reasons. The more highly educated and cognitively able were most likely to attribute disputes to natural factors, such as the irreducible complexity and randomness of the phenomenon. Our results show that laypeople tend to use coherent — albeit potentially overly narrow — attributions to make sense of expert disputes and that these explanations vary across different segments of the population. We highlight several important implications for scientists, risk managers, and decision makers.

By KEVIN LEWIS | 09:00:00 AM

Wednesday, October 14, 2015

Impressions

Does Product Placement Change Television Viewers’ Social Behavior?

Elizabeth Levy Paluck et al.
PLoS ONE, September 2015

Abstract:
To what extent are television viewers affected by the behaviors and decisions they see modeled by characters in television soap operas? Collaborating with scriptwriters for three prime-time nationally-broadcast Spanish-language telenovelas, we embedded scenes about topics such as drunk driving or saving money at randomly assigned periods during the broadcast season. Outcomes were measured unobtrusively by aggregate city- and nation-wide time series, such as the number of Hispanic motorists arrested daily for drunk driving or the number of accounts opened in banks located in Hispanic neighborhoods. Results indicate that while two of the treatment effects are statistically significant, none are substantively large or long-lasting. Actions that could be taken during the immediate viewing session, like online searching, and those that were relatively more integrated into the telenovela storyline, specifically reducing cholesterol, were briefly affected, but not behaviors requiring sustained efforts, like opening a bank account or registering to vote.

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Fighting as a profit maximizing strategy in the National Hockey League: More evidence

Duane Rockerbie
Applied Economics, forthcoming

Abstract:
This article estimates the effect of fighting in hockey games on attendance in the National Hockey League (NHL) over the 1997–1998 through 2009–2010 seasons. After estimating a system of equations developed from a model of a profit-maximizing club owner, it was found that fighting had a small negative effect on attendance implying that encouraging fighting on the ice is not a profit-maximizing strategy. The results are quite robust when incorporating capacity constraints on attendance and exogenous ticket pricing. Other factors that determine club performance and market size were found to significantly affect attendance. The empirical results also suggest that NHL club owners are maximizing profit.

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Niche Overlap and Discrediting Acts: An Empirical Analysis of Informing in Hollywood

Giacomo Negro & Sasha Goodman
Sociological Science, June 2015

Abstract:
This article examines informing on others as a discrediting act between individual agents in a labor market. We conduct an empirical analysis of artists called to testify during the 1950s Congressional hearings into Communism in Hollywood, and multi-level regression models reveal that the odds of an artist informing on another increase when their career histories are more similar. The similarity reflects levels of niche overlap in the labor market. The finding that similarity contributes to discredit in the context of resource competition is compatible with a social comparison process, whereby uncertainty about performance leads more similar people to attend to and exclude one another to a greater extent.

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Fewer blockbusters and more superstars: How technological innovation has impacted convergence on the music charts

Andrea Ordanini & Joseph Nunes
International Journal of Research in Marketing, forthcoming

Abstract:
The pace of change in recorded music technology has accelerated faster than ever during the past two decades with the shift from analog to digital. Digital recordings provide consumers the unimpeded ability to access, sample, learn about, acquire, store, and share vast amounts of music as never before. Supporters of winner-take-all theory believe lower search and transaction costs brought about by digitization have led to greater convergence with fewer extraordinarily popular songs (blockbusters) and a smaller number of artists who perform them (superstars). Supporters of long-tail theory believe the same factors have led to less convergence and a greater number of songs and artists becoming blockbusters and superstars. This work pits these opposing predictions against each other empirically. More specifically, we examine how the number of songs and artists appearing annually on Billboard's Hot 100 singles chart has changed between 1974 and 2013 in relation to three major turning points in technology associated with digitization. These turning points mark consumers' shift: (1) from analog records and cassettes to digital audio with the advent of CDs, (2) from CDs to compressed digital audio MP3s, and (3) from P2P networks and illegal file sharing to legitimate online distributors of digital downloads. In general, we observe a growing winner-take-all effect for songs until the advent of MP3s in 1998, when this trend abated. This result appears largely due to greater convergence in the Top 10. The trend reverses itself as the number of songs making the chart increases steadily after the launch of legitimate online music sellers such as iTunes. The exact opposite pattern is observed for artists. Initially, an increasing number of artists made the chart, and this trend continued unabated until 2003. After the emergence of legitimate online resellers, the trend reversed as fewer and fewer artists made it onto the chart. The overall pattern is summarized as a transition from fewer blockbusters by more superstars to more blockbusters by fewer superstars.

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The Perfect Storm: Using Snowstorms to Analyze the Effect of Theatrical Attendance on the Demand for Subsequently Released DVDs

Patrick Choi, Peter Boatwright & Michael Smith
Carnegie Mellon University Working Paper, June 2015

Abstract:
Movies are distributed through multiple, carefully segmented, channels. This paper investigates how consumption in a movie’s theatrical channel affects demand in the subsequent DVD retail channel. We exploit exogenous variation in events that affect theatrical attendance in a geographic market to estimate the causal impact of theater attendance on home entertainment demand. Specifically, we use the occurrence of major snowstorms surrounding a movie’s theatrical opening weekend as an exogenous shock to theatrical demand in a local market. Using this instrumental variable (IV) approach, we find evidence that theatrical attendance causally impacts home entertainment demand: lower theatrical attendance in a geographical market that experiences an opening weekend snowstorm leads to lower DVD/Blu-ray sales in the movie’s subsequent home entertainment release window in that geographical market. Specifically, we estimate a 10 percent rise (drop) in theatrical attendance causes an approximate 8 percent increase (decrease) in the volume of DVDs/Blu-ray discs sold in the first eight weeks of the DVD release window. This result provides important managerial guidance in an industry undergoing significant changes in the how movies are marketed across theatrical and home entertainment channels.

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Blinded with science: Trivial graphs and formulas increase ad persuasiveness and belief in product efficacy

Brian Wansink & Aner Tal
Public Understanding of Science, October 2014

Abstract:
The appearance of being scientific can increase persuasiveness. Even trivial cues can create such an appearance of a scientific basis. In our studies, including simple elements, such as graphs (Studies 1–2) or a chemical formula (Study 3), increased belief in a medication’s efficacy. This appears to be due to the association of such elements with science, rather than increased comprehensibility, use of visuals, or recall. Belief in science moderates the persuasive effect of graphs, such that people who have a greater belief in science are more affected by the presence of graphs (Study 2). Overall, the studies contribute to past research by demonstrating that even trivial elements can increase public persuasion despite their not truly indicating scientific expertise or objective support.

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The Ongoing Evolution of US Retail: A Format Tug-of-War

Ali Hortaçsu & Chad Syverson
NBER Working Paper, August 2015

Abstract:
We review major changes in the economics of the US retail sector over the past 15-20 years and discuss what these portend for the future evolution of retail. The sector has been shrinking in relative size over the long term, though this stopped around the onset of the Great Recession. Retail has experienced stronger-than-average productivity growth that has not been accompanied by commensurate wage growth. The main forces shaping the retail landscape in recent decades have been the expansions of two formats: e-commerce and warehouse clubs. While both formats have been the subject of study and discussion, we find evidence that warehouse clubs have had to this point a greater effect on retail than e-commerce has. This impact has been manifested in changes in the retail sector’s scale, concentration, dynamism, and urbanization. Thus while e-commerce will continue to expand and physical retail will further evolve in the coming years, the physical format is unlikely to meet its demise soon.

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On the Mental Accounting of Restricted-Use Funds: How Gift Cards Change What People Purchase

Nicholas Reinholtz, Daniel Bartels & Jeffrey Parker
Journal of Consumer Research, forthcoming

Abstract:
This paper emphasizes the role of categorization in mental accounting and proposes that once a mental account is established, purchases that are highly congruent with the purpose of the mental account (i.e., typical category members) will be more preferred in selection decisions compared to purchases that are less congruent (i.e., atypical category members). This hypothesis is tested in the context of gift cards. Six studies find that people shopping with a retailer-specific gift card — and so, the authors argue, possessing a retailer-specific mental account — express an increased preference for products more typical of the retailer compared to those shopping with more fungible currency. This pattern is found to occur for both well-known retailers, where people already possess product-typicality knowledge, and fictional retailers, where product-typicality cues are provided. An alternative account based on semantic priming is not supported by these data. These results both broaden the contemporary understanding of how mental accounting influences preferences and provide retailers deeper insight into their customers’ decision processes.

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The Impact of Dynamic Presentation Format on Consumer Preferences for Hedonic Products and Services

Anne Roggeveen et al.
Journal of Marketing, forthcoming

Abstract:
Manufacturers and online retailers are readily availing themselves of new technologies to present their merchandise using a variety of formats, including static (still image) and dynamic (video) portrayal. Building on vividness theory, the authors propose and demonstrate that presenting products and services using a dynamic visual format enhances consumer preference for hedonic options and willingness to pay for those options. The dynamic presentation format increases involvement with the product/service experience, in a manner presumably similar to that of actual product experience. The result is an increased preference for and valuation of hedonic options. This holds true for experiential and search products, in single and joint evaluations, and carries over to subsequent choices. Across all studies, the results demonstrate that a dynamic (relative to static) presentation format enhances choice of the hedonically superior (versus utilitarian superior) option by over 79%.

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Does Your Company Have The Right Logo? How and Why Circular and Angular Logo Shapes Influence Brand Attribute Judgments

Yuwei Jiang et al.
Journal of Consumer Research, forthcoming

Abstract:
Five experiments document that the mere circularity and angularity of a brand logo is powerful enough to affect perceptions of the attributes of a product or company. It is theorized and shown that circular vs. angular logo shapes activate softness and hardness associations, respectively, and these concepts subsequently influence product/company attribute judgments through a resource-demanding imagery generation process that utilizes the visuospatial sketchpad component of working memory. There are no logo shape effects on attribute judgments a) when the visuospatial sketchpad component of working memory is constrained by irrelevant visual imagery, b) when people have a lower disposition to generate imagery when processing product information, and c) when the headline of the ad highlights a product attribute that differs from the inference drawn from the logo shape. Further, there are shape effects even when the shape is incidentally exposed beforehand using a priming technique rather than being a part of the logo itself, demonstrating the generalizability of our findings. When taken together, the results have implications for working memory, consumer imagery, and visual marketing.

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Amount off versus percentage off — when does it matter?

Eva González et al.
Journal of Business Research, forthcoming

Abstract:
This research explores the impact of discount framing on consumer perceptions of value and purchase intentions. An amount off discount frame results in higher perceptions of value and purchase intentions for higher-priced products (priced over $100). Three studies consistently support this prediction. Experiment 1 examines the interactive effects of amount off versus percentage off deals as a function of higher versus lower-priced products. For a higher-priced product, consumers prefer the offer more in terms of both value and purchase intentions when the discount is presented as amount off rather than the percentage off. For a lower-priced product (less than $100), the results, though not statistically significant, indicate a reverse pattern. Experiment 2 demonstrates that the result (amount off is better than percentage off) generalizes across higher price levels. Finally, Experiment 3 affirms that the result (amount off is better than percentage off for higher-priced products) generalizes across discount levels.

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Consumer Reactions to Attractive Service Providers: Approach or Avoid?

Lisa Wan & Robert Wyer
Journal of Consumer Research, forthcoming

Abstract:
Attractive service providers are often assumed to elicit favorable consumer reactions and to increase purchase intentions. However, this may not always be true. A pilot study and five field and laboratory experiments show that when a self-presentation concern is made salient, consumers react less positively to highly attractive providers than to less attractive ones. This concern can be influenced by chronic social anxiety or can be aroused by unrelated experiences that consumers have before being exposed to the service interactions. In addition, it can be activated by the type of product being sold, that is, a product that is likely to cause embarrassment. Thus, the attractiveness of a service provider can have either positive or negative effects on consumers’ reactions to a consumption experience and their consequent purchase intentions, depending on the type of product under consideration. These effects occur when the service provider is both of the opposite sex and the same sex. However, self-presentation concerns when an opposite-sex provider is attractive are driven by sexual motives whereas these self-presentation concerns when a same-sex target is attractive are stimulated by social comparison processes.

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Harmful Upward Line Extensions: Can the Launch of Premium Products Result in Competitive Disadvantages?

Fabio Caldieraro, Ling-Jing Kao & Marcus Cunha
Journal of Marketing, forthcoming

Abstract:
Companies often extend product lines with the goal of increasing demand for their products and responding to competitive threats. Although line extensions may lead to cannibalization and reduction of overall profits, the bulk of theoretical and empirical research suggests that product line extensions result in a net gain of overall demand and market share. To mitigate cannibalization, the extant literature prescribes the addition of premium versions of products: an upward line extension, with the intention of achieving not only gains in demand and market share, but also in overall profit. In this research, we employ analytical and empirical methods to make the case that upward line extensions aimed at matching a competing product's attribute may lead consumers to reassess their perceptions about the brand and attributes of the products in the market in a way that erodes the advantages of the firm extending its product line. Ultimately, this can result in a loss of demand, market share, and profit for the extending firm.

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Odor Semantics and Visual Cues: What We Smell Impacts Where We Look, What We Remember, and What We Want to Buy

May Lwin et al.
Journal of Behavioral Decision Making, forthcoming

Abstract:
The current research uses eye-tracking technology in a consumer context to explore the interactive effects of olfactory and visual cues on consumers' eye gaze patterns. We manipulate the semantic correspondence between pictorial objects depicted in print advertisements and odors smelled (or not) while looking at the ads. The results indicate that smelling a scent that shares learned semantic associations with an object in the advertisement diverts consumers' eye gazes to the semantically related object in the ad, with positive downstream effects on advertising recall and purchase intent. This is the first study we are aware of demonstrating multisensory integration of odors and pictures on consumer eye gaze patterns with clear implications for consumer choice.

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Corporate social responsibility and media coverage

Steven Cahan et al.
Journal of Banking & Finance, October 2015, Pages 409–422

Abstract:
In this study, we examine whether firms that act more socially responsible receive more favorable media coverage, and we consider whether firms use CSR to actively manage their media image. We focus on all news stories about a firm, not just those that report on specific CSR initiatives, and find that more socially responsible firms receive more favorable news reportage overall, i.e., they have a more positive media image. These findings are robust after controlling for potential endogeneity. Further, consistent with firms actively managing their media image, we find a stronger relation between CSR and media favorability when incentives to improve a firm’s media image are high, e.g., among firms in sin industries, during periods of low investor sentiment, and prior to seasoned equity offerings. Finally, we find that for firms that demonstrate superior social responsibility and receive more favorable news reporting, there is a significant interaction between social responsibility and media favorability that increases (decreases) a firm’s equity valuation (cost of capital). Our results are consistent with the media slanting their reporting in favor of good performing CSR firms. Overall, we contribute to the literature by showing that firms can influence their media coverage through a relatively subtle channel, CSR performance.

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Managerial Response to Online Reviews: Is It Always Good?

Yang Wang & Alexander Chaudhry
Rice University Working Paper, July 2015

Abstract:
Managerial response to online reviews has become a common practice on many review platforms, including TripAdvisor. While the practice is broadly accepted, little research has been conducted to understand the implications of management response for the firm. We study one outcome of management response, its influence on a firm’s subsequent ratings. While recent research and conventional wisdom suggest that management response should positively impact subsequent ratings, we document a more nuanced result. We find that management response to negative reviews do in fact lead to higher subsequent ratings. However, management response to positive reviews actually leads to lower subsequent ratings. We find three moderating effects – branding, vertical positioning, and reviewer’s psychological construal level – that are consistent with a psychological reactance tale for the negative effect of responding to positive reviews. Methodologically, we break from the typical difference-in-differences (DD) framework used to test such platform-specific effects. We use the timing of responses and reviews to identify whether a manager’s response is actually observable to a subsequent reviewer. Using observability of response as the treatment, we can leverage the full dataset of managerial responses, rather than the first instance as in the DD approach, in order to identify the different impact between responding to positive and negative reviews.

By KEVIN LEWIS | 09:00:00 AM

Tuesday, October 13, 2015

With child

Does Education Reduce Teen Fertility? Evidence from Compulsory Schooling Laws

Philip DeCicca & Harry Krashinsky
NBER Working Paper, September 2015

Abstract:
While less-educated women are more likely to give birth as teenagers, there is scant evidence the relationship is causal. We investigate this possibility using variation in compulsory schooling laws (CSLs) to identify the impact of formal education on teen fertility for a large sample of women drawn from multiple waves of the Canadian Census. We find that greater CSL-induced schooling reduces the probability of giving birth as a teenager by roughly two to three percentage points. We find evidence that education affects the timing of births in a way that strongly implies an “incarceration” effect of education. In particular, we find large negative impacts of education on births to young women aged seventeen and eighteen, but little evidence of an effect after these ages, consistent with the idea that being enrolled in school deters fertility in a contemporaneous manner. Our findings are robust to the inclusion of several province-level characteristics including multiple dimensions of school quality, expenditures on public programs and region-specific time trends.

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Are Early-Life Socioeconomic Conditions Directly Related to Birth Outcomes? Grandmaternal Education, Grandchild Birth Weight, and Associated Bias Analyses

Jonathan Huang et al.
American Journal of Epidemiology, 1 October 2015, Pages 568-578

Abstract:
Grandmaternal education may be related to grandchild birth weight (GBW) through maternal early-life development; however, conventional regression models may be endogenously confounded. Alternative models employing explicit structural assumptions may provide incrementally clearer evidence. We used data from the US National Longitudinal Study of Adolescent to Adult Health (1995–2009; 1,681 mother-child pairs) to estimate “direct effects” of grandmaternal educational level (less than high school, high school diploma or equivalent, or college degree) at the time of the mother's birth on GBW, adjusted for maternal life-course factors: maltreatment as a child, education and income as an adult, prepregnancy overweight, and prenatal smoking. Using conventional and marginal structural model (MSM) approaches, we estimated 54-g (95% confidence interval: −14.0, 122.1) and 87-g (95% confidence interval: 10.9, 162.5) higher GBWs per increase in educational level, respectively. The MSM allowed simultaneous mediation by and adjustment for prepregnancy overweight. Estimates were insensitive to alternate structural assumptions and mediator parameterizations. Bias analysis suggested that a single unmeasured confounder would have to have a strong influence on GBW (approximately 150 g) or be greatly imbalanced across exposure groups (approximately 25%) to completely explain the findings. Coupling an MSM with sensitivity analyses provides some evidence that maternal early-life socioeconomic environment is directly associated with offspring birth weight.

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Common Law Marriage and Teen Births

Shoshana Amyra Grossbard & Victoria Vernon
San Diego State University Working Paper, July 2015

Abstract:
Using microdata from Current Population Survey Fertility supplements 1990-2010 we examine whether Common Law Marriage (CLM) laws in the US affect teen birth rates. CLM effects are identified through cross-state and time variation, as four states repealed the law over the period of study. We find that in the states where CLM laws were first available but then repealed the odds that teens would become new mothers increased, with a larger increase among young black teens. When we include dummies for CLM at various times around the timing of the repeal, it turns out that the likelihood of becoming a mother is most affected by availability of CLM between 1 and 4 years prior to the repeal. There is a small negative effect of CLM on older women becoming mothers. To the extent that they reduce teen births CLM laws are socially desirable and worthy of further study.

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Labor Market Conditions and US Teen Birth Rates, 2001–2009

Robert Cherry & Chun Wang
Journal of Family and Economic Issues, September 2015, Pages 408-420

Abstract:
Using unemployment rates as the sole labor market explanatory variable, most previous studies have concluded that employment conditions do not systematically influence teen birth rates. By contrast, this study found that birth rates were positively correlated with male employment rates (20–24 years old) and negatively correlated with the real minimum wage. Teen birth rates were also positively correlated with teen gonorrhea infection rates; and for the older teens (18–19 years old), by a measure of illegal drug use. By contrast, alcohol use was negatively correlated with teen birth rates. Finally, teen female employment rates were positively correlated with teen birth rates in weak labor market areas, suggesting that better job opportunities might increase teen birth rates among disadvantaged youth. Given the persistence of young adult birth rates among disadvantaged youth, policy recommendations to eliminate the marriage penalty they face are offered.

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Low Fertility, Socioeconomic Development, and Gender Equity

Thomas Anderson & Hans-Peter Kohler
Population and Development Review, September 2015, Pages 381–407

"Specifically, we argue that the onset and long-term pace of socioeconomic development are inherently linked with a key driver of fertility variation within developed countries: differing gender equity regimes. Moreover, we argue that these gender equity regimes are not static, but instead, dynamic and closely tied to changes in fertility through a demographic feedback mechanism: a gender-equity dividend. This gender-equity dividend is the result of the following process: below-replacement fertility brought about by work-family conflicts yields age-structures at young adulthood that are characterized by a relative scarcity of women relative to men (given the prevailing gender-differences in the age at marriage), which in turn facilitates changes in gender-norms and the rise of greater gender-equity. Greater gender equity is then likely to help raise or stabilize fertility in low-fertility high-income countries."

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Interpregnancy Interval and Risk of Autism Spectrum Disorders

Ousseny Zerbo et al.
Pediatrics, October 2015, Pages 651-657

Objective: To determine whether subsequent births after short and long interpregnancy intervals (IPIs) are associated with risk of autism spectrum disorder (ASD).

Method: We assessed the association between IPI and ASD risk in a cohort of 45 261 children born at Kaiser Permanente Northern California (KPNC) between 2000 and 2009. Children with ASD were identified from International Classification of Diseases, Revision 9 diagnostic codes 299.0, 299.8, and 299.9 recorded in KPNC electronic medical records. IPI was defined as the time from the birth of the first child to the conception of the second child. Survival analysis and logistic regression models were used to evaluate the association between IPI and risk of ASD in second-born children.

Results: Children born after an IPI of <12 months or ≥72 months had a 2- to 3-fold increased ASD risk compared with children born after an interval of 36 to 47 months. Respective adjusted hazard ratios (95% confidence intervals) were as follows: <6 months, 3.0 (1.9–4.7); 6 to 8 months, 2.1 (1.4–3.3); 9 to 11 months, 1.9 (1.3–2.1); 12 to 23 months, 1.5 (1.1–2.1); and ≥72 months, 2.4 (1.5–3.7). The results are not explained by maternal BMI or change in BMI between pregnancies or by parental age, maternal antidepressant medication use, or unfavorable events occurring during the first or second pregnancy.

Conclusions: Children born after interpregnancy intervals <2 years or >6 years may be at increased risk of ASD. The mechanism explaining this association is unknown, and more research is needed.

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Ovarian reserve assessment in users of oral contraception seeking fertility advice on their reproductive lifespan

Birch Petersen et al.
Human Reproduction, October 2015, Pages 2364-2375

Study question: To what extent does oral contraception (OC) impair ovarian reserve parameters in women who seek fertility assessment and counselling to get advice on whether their remaining reproductive lifespan is reduced?

Study design, size, duration: A cross-sectional study of 887 women aged 19–46 attending the Fertility Assessment and Counselling Clinic (FACC) from 2011 to 2014 comparing ovarian reserve parameters in OC users with non-OC users.

Main results and the role of chance: Of the 887 women, 244 (27.5%) used OC. In a linear regression analyses adjusted for age, ovarian volume was 50% lower (95% CI 45.1–53.7%), AMH was 19% lower (95% CI 9.1–29.3%), and AFC was 18% lower (95% CI 11.2–24.8%) in OC users compared with non-users. Comparison of AMH at values of <10 pmol/l OC was found to have a significant negative influence on AMH (OR 1.6, 95% CI 1.1; 2.4, P = 0.03). Furthermore, we found a significant decrease in antral follicles sized 5–7 mm (P < 0.001) and antral follicles sized 8–10 mm (P < 0.001) but an increase in antral follicles sized 2–4 mm (P = 0.008) among OC users. The two groups (OC users versus non-users) were comparable regarding age, BMI, smoking and maternal age at menopause.

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Abortion Legalization, Sex Selection, and Female University Enrollment in Taiwan

Priti Kalsi
Economic Development and Cultural Change, October 2015, Pages 163-185

Abstract:
Increasing access to sex-selective abortions in societies with a male preference should, theoretically, increase the average level of investments and care provided for girls who are not aborted. Existing literature finds that higher birth order sex selection increased after the legalization of abortion in Taiwan. This research presents evidence that the legalization of abortion in Taiwan improved the average rate of university attendance for girls born at higher birth orders where sex selection is most common. Specifically, I find that girls born at higher birth orders after the legalization of abortion are on average more likely to attend a university by approximately 4.5 percentage points. Moreover, a similar improvement in university attendance rates for higher birth order boys is not found. Heterogeneous results indicate that families with a relatively lower socioeconomic status are likely driving the results. The findings in this analysis are robust to several specifications, and they extend existing literature by providing evidence of the substitution hypothesis for a later-life economic outcome.

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Medicaid Reimbursement, Prenatal Care and Infant Health

Lyudmyla Sonchak
Journal of Health Economics, December 2015, Pages 10–24

Abstract:
This paper evaluates the impact of state-level Medicaid reimbursement rates for obstetric care on prenatal care utilization across demographic groups. It also uses these rates as an instrumental variable to assess the importance of prenatal care on birth weight. The analysis is conducted using a unique dataset of Medicaid reimbursement rates and 2001-2010 Vital Statistics Natality data. Conditional on county fixed effects, the study finds a modest, but statistically significant positive relationship between Medicaid reimbursement rates and the number of prenatal visits obtained by pregnant women. Additionally, higher rates are associated with an increase in the probability of obtaining adequate care, as well as a reduction in the incidence of going without any prenatal care. However, the effect of an additional prenatal visit on birth weight is virtually zero for black disadvantaged mothers, while an additional visit yields a substantial increase in birth weight of over 20 grams for white disadvantaged mothers.

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A Rights-Based Sexuality Education Curriculum for Adolescents: 1-Year Outcomes From a Cluster-Randomized Trial

Louise Rohrbach et al.
Journal of Adolescent Health, October 2015, Pages 399–406

Purpose: The purpose of this study was to evaluate the impact of a rights-based sexuality education curriculum on adolescents' sexual health behaviors and psychosocial outcomes 1 year after participation.

Methods: Within 10 urban high schools, ninth-grade classrooms were randomized to receive a rights-based curriculum or a basic sex education (control) curriculum. The intervention was delivered across two school years (2011–2012, 2012–2013). Surveys were completed by 1,447 students at pretest and 1-year follow-up. Multilevel analyses examined curriculum effects on behavioral and psychosocial outcomes, including four primary outcomes: pregnancy risk, sexually transmitted infection risk, multiple sexual partners, and use of sexual health services.

Results: Students receiving the rights-based curriculum had higher scores than control curriculum students on six of nine psychosocial outcomes, including sexual health knowledge, attitudes about relationship rights, partner communication, protection self-efficacy, access to health information, and awareness of sexual health services. These students also were more likely to report use of sexual health services (odds ratio, 1.37; 95% confidence interval, 1.05–1.78) and more likely to be carrying a condom (odds ratio, 1.97; 95% confidence interval, 1.39–2.80) relative to those receiving the control curriculum. No effects were found for other sexual health behaviors, possibly because of low prevalence of sexual activity in the sample.

Conclusions: The curriculum had significant, positive effects on psychosocial and some behavioral outcomes 1 year later, but it might not be sufficient to change future sexual behaviors among younger adolescents, most of whom are not yet sexually active. Booster education sessions might be required throughout adolescence as youth initiate sexual relationships.

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Paternal sperm DNA methylation associated with early signs of autism risk in an autism-enriched cohort

Jason Feinberg et al.
International Journal of Epidemiology, August 2015, Pages 1199-1210

Objectives: Here we tested for the relationship of paternal sperm DNA methylation with autism risk in offspring, examining an enriched-risk cohort of fathers of autistic children.

Methods: We examined genome-wide DNA methylation (DNAm) in paternal semen biosamples obtained from an autism spectrum disorder (ASD) enriched-risk pregnancy cohort, the Early Autism Risk Longitudinal Investigation (EARLI) cohort, to estimate associations between sperm DNAm and prospective ASD development, using a 12-month ASD symptoms assessment, the Autism Observation Scale for Infants (AOSI). We analysed methylation data from 44 sperm samples run on the CHARM 3.0 array, which contains over 4 million probes (over 7 million CpG sites), including 30 samples also run on the Illumina Infinium HumanMethylation450 (450K) BeadChip platform (∼485 000 CpG sites). We also examined associated regions in an independent sample of post-mortem human brain ASD and control samples for which Illumina 450K DNA methylation data were available.

Results: Using region-based statistical approaches, we identified 193 differentially methylated regions (DMRs) in paternal sperm with a family-wise empirical P-value [family-wise error rate (FWER)] <0.05 associated with performance on the Autism Observational Scale for Infants (AOSI) at 12 months of age in offspring. The DMRs clustered near genes involved in developmental processes, including many genes in the SNORD family, within the Prader-Willi syndrome gene cluster. These results were consistent among the 75 probes on the Illumina 450K array that cover AOSI-associated DMRs from CHARM. Further, 18 of 75 (24%) 450K array probes showed consistent differences in the cerebellums of autistic individuals compared with controls.

Conclusions: These data suggest that epigenetic differences in paternal sperm may contribute to autism risk in offspring, and provide evidence that directionally consistent, potentially related epigenetic mechanisms may be operating in the cerebellum of individuals with autism.

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Interaction of menstrual cycle phase and sexual activity predicts mucosal and systemic humoral immunity in healthy women

Tierney Lorenz, Gregory Demas & Julia Heiman
Physiology & Behavior, December 2015, Pages 92–98

Abstract:
Several studies have documented shifts in humoral immune parameters (e.g., immunoglobulins) across the menstrual cycle in healthy women. It is thought that these shifts may reflect dynamic balancing between reproduction and pathogen defense, as certain aspects of humoral immunity may disrupt conception and may be temporarily downregulated at ovulation. If so, one could expect maximal cycle-related shifts of humoral immunity in individuals invested in reproduction – that is, women who are currently sexually active – and less pronounced shifts in women who are not reproductively active (i.e., abstinent). We investigated the interaction of sexual activity, menstrual cycle phase, and humoral immunity in a sample of 32 healthy premenopausal women (15 sexually active, 17 abstinent). Participants provided saliva samples during their menses, follicular phase, ovulation (as indicated by urine test for LH surge), and luteal phase, from which IgA was assayed. Participants also provided blood samples at menses and ovulation, from which IgG was assayed. Sexually active participants provided records of their frequency of sexual activity as well as condom use. At ovulation, sexually active women had higher IgG than abstinent women (d = 0.77), with women reporting regular condom use showing larger effects (d = 0.63) than women reporting no condom use (d = 0.11). Frequency of sexual activity predicted changes in IgA (Cohen's f2 = 0.25), with women reporting high frequency of sexual activity showing a decrease in IgA at ovulation, while women reporting low frequency or no sexual activity showing an increase in IgA at ovulation. Taken together, these findings support the hypothesis that shifts in humoral immunity across the menstrual cycle are associated with reproductive effort, and could contribute to the mechanisms by which women's physiology navigates tradeoffs between reproduction and immunity.

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Gender Ratio under China's Two-Child Policy

Bing Xu & Maxwell Pak
Journal of Economic Behavior & Organization, November 2015, Pages 289–307

Abstract:
China's one-child policy has often been criticized for exacerbating its gender imbalance. Although such criticism implies that the gender imbalance should improve significantly once the one-child policy is removed, experiences of other countries with similar gender imbalance and no mandated fertility limit suggest that this conclusion should not be accepted without closer examination. Consequently, this paper examines the effects of allowing parents to have two children on the gender ratio. Specifically, we build a model of parental decision-making, in which parents choose between letting nature decide the gender of their child and manipulating the birth process to increase the likelihood of obtaining a son, and identify the optimal behaviors in this framework. We investigate the equilibrium level of gender imbalance under both the one-child and the two-child policy settings and show through a series of examples that the gender imbalance need not improve under the two-child policy.

By KEVIN LEWIS | 09:00:00 AM

Monday, October 12, 2015

Settling

Critical Junctures and Economic Development – Evidence from the Adoption of Constitutions Among American Indian Nations

Randall Akee, Miriam Jorgensen & Uwe Sunde
Journal of Comparative Economics, forthcoming

Abstract:
Utilizing a novel data set on American Indian Nations, we investigate how conditions at critical junctures of development can have long-lasting economic effects. We investigate the effect of the party of the US President at the time when American Indian tribes adopt a written constitution for the first time. Our results indicate that there is a persistent effect on economic development, even after controlling for other important characteristics and conducting extensive robustness checks. We also find suggestive evidence for the constitutional design, and specifically whether the chief executive is elected directly or indirectly, being a likely channel through which the presidential party affects long-run economic development.

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Poor Institutions, Rich Mines: Resource Curse in the Origins of the Sicilian Mafia

Paolo Buonanno et al.
Economic Journal, August 2015, Pages F175–F202

Abstract:
With weak law-enforcement institutions, a positive shock to the value of natural resources may increase demand for private protection and opportunities for rent appropriation through extortion, favouring the emergence of mafia-type organisations. We test this hypothesis by investigating the emergence of the mafia in twentieth century Sicily, where a severe lack of state property-rights enforcement coincided with a steep rise in international demand for sulphur, Sicily's most valuable export commodity. Using historical data on the early incidence of mafia activity and on the distribution of sulphur reserves, we document that the mafia was more present in municipalities with greater sulphur availability.

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Colonial Legacies and State Institutions in China: Evidence From a Natural Experiment

Daniel Mattingly
Comparative Political Studies, forthcoming

Abstract:
What is the legacy of Japanese colonial rule in East Asia? In this article, I use a geographic regression discontinuity design to examine of the long-run effects of Japanese rule over northern China. I find that the Japanese colonization of northern China had a positive long-run effect on state institutions — with persistent increases in schooling, health, and bureaucratic density. I also find suggestive evidence that colonization led to increases in wealth, as measured by census data and nighttime luminosity. The positive legacy of Japanese colonization in northern China suggests that intense state building efforts can pay long-run dividends, even in the context of a brutal and extractive regime.

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Moral Hazard and Financial Crises: Evidence from US Troop Deployments

Michaël Aklin & Andreas Kern
Georgetown University Working Paper, September 2015

Abstract:
Why do governments adopt macroeconomic policies that increase the risk of financial crisis? One explanation is moral hazard induced by an international lender of last resort. We focus on the role of the US, and hypothesize that a credible commitment by the US toward other countries generates moral hazard in two ways. First, these countries will adopt riskier macroeconomic policies. Second, markets will be more willing to lend them capital. Empirically, we use the number of US troops deployed abroad to measure the US's commitment to a country. We find that increasing the contingent from zero to 500 (a small battalion) raises the risk of a crisis by about 20 percentage points. To rule out alternative explanations and reverse causality, we investigate the channels through which moral hazard materializes. We find that countries with more US troops conduct more expansionary fiscal and monetary policies, and that they receive more capital, especially from the US markets.

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Industry structure, entrepreneurship, and culture: An empirical analysis using historical coalfields

Michael Stuetzer et al.
European Economic Review, forthcoming

Abstract:
There is mounting evidence demonstrating that entrepreneurship is spatially clustered and that these spatial differences are quite persistent over long periods of time. However, especially the sources of that persistence are not yet well-understood, and it is largely unclear whether persistent differences in entrepreneurship are reflected in differences in entrepreneurship culture across space as it is often argued in the previous literature. We approach the cluster phenomenon by theorizing that a historically high regional presence of large-scale firms negatively affects entrepreneurship, due to low levels of human capital and entrepreneurial skills, fewer opportunities for entry and entrepreneurship inhibiting formal and informal institutions. These effects can become self-perpetuating over time, ultimately resulting in persistent low levels of entrepreneurship activity and entrepreneurship culture. Using data from Great Britain, we analyze this long-term imprinting effect by using the distance to coalfields as an exogenous instrument for the regional presence of large-scale industries. IV regressions show that British regions with high employment shares of large-scale industries in the 19th century, due to spatial proximity to coalfields, have lower entrepreneurship rates and weaker entrepreneurship culture today. We control for an array of competing hypotheses like agglomeration forces, the regional knowledge stock, climate, and soil quality. Our main results are robust with respect to inclusion of these control variables and various other modifications which demonstrates the credibility of our empirical identification strategy. A mediation analysis reveals that a substantial part of the impact of large-scale industries on entrepreneurship is through human capital.

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The Heavy Plough and the Agricultural Revolution in Medieval Europe

Thomas Barnebeck Andersen, Peter Sandholt Jensen & Christian Volmar Skovsgaard
Journal of Development Economics, forthcoming

Abstract:
This research sheds new light on the much-debated link between agricultural productivity and development. We do so by estimating the causal impact of a large shock to agricultural productivity — the introduction of the heavy plough in the Middle Ages — on long run development. We build on the work of Lynn White, Jr. (1962), who argued that it was impossible to take proper advantage of the fertile clay soils of Northern Europe prior to the invention and widespread adoption of the heavy plough. We implement the test in a difference-in-difference set-up by exploiting regional variation in the presence of fertile clay soils. Using a high quality dataset for Denmark, we find that historical counties with relatively more fertile clay soil experienced higher urbanization after the heavy plough had its breakthrough, which was around AD 1000. We obtain a similar result, when we extend the test to European regions. Our findings substantiate that agricultural productivity can be an important driver of long-run development.

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Economic freedom in the long run: Evidence from OECD countries (1850–2007)

Leandro Prados De La Escosura
Economic History Review, forthcoming

Abstract:
This article presents historical indices for the main dimensions of economic freedom and an aggregate index for the developed countries of today, specifically pre-1994 OECD members. Economic liberty expanded over the last century-and-a-half, reaching more than two-thirds of its possible maximum. However, its evolution has been far from linear. After a substantial improvement from the mid-nineteenth century, the First World War brought a major setback. The postwar recovery up to 1929 was followed by a dramatic decline in the 1930s. Significant progress took place during the 1950s but fell short of the pre-First World War peak. After a period of stagnation, steady expansion since the early 1980s has resulted in the highest levels of economic liberty of the last two centuries. Each of the main dimensions of economic freedom exhibited a distinctive trend and its contribution to the aggregate index varied over time. Overall, improved property rights provided the main contribution to the long-run advancement of economic liberty.

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Electoral Democracy and Human Development

John Gerring et al.
Boston University Working Paper, August 2015

Abstract:
This study attempts to reconcile competing positions in the debate over whether democracy improves human development by showing that some aspects of democracy – but not others – affect human development. Specifically, we argue that the “electoral” aspect of democracy improves human development while aspects related to citizen empowerment do not (or scarcely so). Likewise, composite indices of democracy bear only a weak relationship to human development, especially if they do not take the mutual dependence between electoral components into account in their aggregation procedures. We argue, finally, that public policies serve as a key causal mechanism in this relationship. Electoral competition incentivizes politicians to provide public goods and services, and these, in turn, save lives. This set of hypotheses is tested in a more rigorous fashion than has hitherto been possible. First, we enlist a new dataset compiled by the CLIO Infra project that measures mortality – infant mortality, child mortality, and life expectancy – for most sovereign countries over the course of the twentieth century. Second, we draw on a new political institutions dataset – Varieties of Democracy (V- Dem) – that provides highly differentiated measures of democracy, measured annually for most sovereign countries from 1900 to the present. Third, we apply a diverse set of empirical tests including fixed effects, lagged dependent variables, first-difference, system GMM, and instrumental variables. Considered together, these tests mitigate concerns about causal identification.

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Democracy, Elite Bias, and Financial Development in Latin America

Victor Menaldo & Daniel Yoo
World Politics, October 2015, Pages 726-759

Abstract:
Does democracy induce financial development? There are good theoretical reasons to believe this to be the case, but the evidence adduced to support this claim has been mixed. In this article, the authors posit that only democracies that appeal to the median voter should experience financial development because those democracies have adopted their own constitution after transition, rather than having inherited one from an authoritarian predecessor. The authors empirically test this theory by focusing attention on Latin America, where there have been several reversals and improvements in financial outcomes and where many countries have cycled between regime types. They find robust support for it across different specifications. While popular democracies tend to reform their financial systems, have greater participation in the banking system, increase the supply of credit and reduce its price, and grow their stock markets, elite-biased democracies do not.

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The Wealth of Subnations: Geography, Institutions, and Within-Country Development

Todd Mitton
Journal of Development Economics, forthcoming

Abstract:
I study determinants of economic development in a new dataset covering 1,867 subnational regions from 101 countries, focusing on within-country effects of geography and institutions. Several geographic factors have significant explanatory power for within-country differences in per-capita GDP, including terrain ruggedness, tropical climate, ocean access, temperature range, storm risk, and natural resources such as oil, diamonds, or iron. Institutions have a significant positive effect on income among subnational regions with greater autonomy, suggesting that strong subnational institutions enhance development when not dominated by national institutions.

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The openness of Britain during industrialisation. Determinants of career success of British men born between 1780 and 1880

Cristóbal Montt & Ineke Maas
Research in Social Stratification and Mobility, forthcoming

Abstract:
In this article we study the occupational careers of British men during industrialisation. We ask whether careers became more successful during industrialisation and whether British society became more open. Using the Longitudinal Study of Residential Histories dataset we analysed the career of 6,229 men born between 1780 and 1880 with a multilevel growth model. Over time men's careers became somewhat more successful: men started their careers at a higher occupational status, but status did not grow at a faster rate. Father's occupational status and son's education were main determinants of career success. The importance of education did not increase, but the relevance of father's status declined, suggesting that with industrialisation Britain became a more open society.

By KEVIN LEWIS | 09:00:00 AM


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