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Tuesday, August 30, 2016

Where you come from

Long-Term Orientation and Educational Performance

David Figlio et al.

NBER Working Paper, August 2016

Abstract:
We use remarkable population-level administrative education and birth records from Florida to study the role of Long-Term Orientation on the educational attainment of immigrant students living in the US. Controlling for the quality of schools and individual characteristics, students from countries with long term oriented attitudes perform better than students from cultures that do not emphasize the importance of delayed gratification. These students perform better in third grade reading and math tests, have larger test score gains over time, have fewer absences and disciplinary incidents, are less likely to repeat grades, and are more likely to graduate from high school in four years. Also, they are more likely to enroll in advanced high school courses, especially in scientific subjects. Parents from long term oriented cultures are more likely to secure better educational opportunities for their children. A larger fraction of immigrants speaking the same language in the school amplifies the effect of Long-Term Orientation on educational performance. We validate these results using a sample of immigrant students living in 37 different countries.

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Arab Responses to Western Hegemony: Experimental Evidence from Egypt

Elizabeth Nugent, Tarek Masoud & Amaney Jamal

Journal of Conflict Resolution, forthcoming

Abstract:
Scholars have long held that Islamism — defined as a political ideology that demands the application of Islamic holy law and the deepening of religious identity — is in part a response to Western domination of Muslim lands. Drawing on the literatures on nationalism and international relations theory, we argue that Islamism is one of a menu of options that Muslims may adopt in response to Western hegemony — a menu that includes Arab nationalism and pro-Western accommodation. We hypothesize that a Muslim’s ideological response to Western domination is a function of the type of domination experienced — that is, military, cultural, or economic — as well as of individual-level characteristics such as intensity of religious practice. We test this hypothesis with a nationally representative survey experiment conducted in Egypt. We find that, among subjects in our study, pro-Western responses to Western domination were more common than “Islamist” or “nationalist” ones and that these were particularly driven by reminders of the West’s economic ascendancy. These findings suggest that foreign domination does not always yield defensive responses and often produces desires for greater cooperation with the hegemon.

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Indifference to dissonance in native Amazonians reveals cultural variation in music perception

Josh McDermott et al.

Nature, 28 July 2016, Pages 547–550

Abstract:
Music is present in every culture, but the degree to which it is shaped by biology remains debated. One widely discussed phenomenon is that some combinations of notes are perceived by Westerners as pleasant, or consonant, whereas others are perceived as unpleasant, or dissonant. The contrast between consonance and dissonance is central to Western music, and its origins have fascinated scholars since the ancient Greeks. Aesthetic responses to consonance are commonly assumed by scientists to have biological roots, and thus to be universally present in humans. Ethnomusicologists and composers, in contrast, have argued that consonance is a creation of Western musical culture. The issue has remained unresolved, partly because little is known about the extent of cross-cultural variation in consonance preferences. Here we report experiments with the Tsimane’ — a native Amazonian society with minimal exposure to Western culture — and comparison populations in Bolivia and the United States that varied in exposure to Western music. Participants rated the pleasantness of sounds. Despite exhibiting Western-like discrimination abilities and Western-like aesthetic responses to familiar sounds and acoustic roughness, the Tsimane’ rated consonant and dissonant chords and vocal harmonies as equally pleasant. By contrast, Bolivian city- and town-dwellers exhibited significant preferences for consonance, albeit to a lesser degree than US residents. The results indicate that consonance preferences can be absent in cultures sufficiently isolated from Western music, and are thus unlikely to reflect innate biases or exposure to harmonic natural sounds. The observed variation in preferences is presumably determined by exposure to musical harmony, suggesting that culture has a dominant role in shaping aesthetic responses to music.

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Individual Responsibility and Economic Development: Evidence from Rainfall Data

Lewis Davis

Kyklos, August 2016, Pages 426–470

Abstract:
This paper estimates the effect of individual responsibility on economic development using an instrument derived from rainfall data. I argue that a taste for collective responsibility was adaptive in preindustrial societies that were exposed to high levels of agricultural risk, and that these attitudes continue to influence contemporary social norms and economic outcomes. The link between agricultural risk and collective responsibility is formalized in a model of optimal parental socialization effort. Empirically, I find a robust negative correlation between rainfall variation, a measure of exogenous agricultural risk, and a measure of individual responsibility. Using rainfall variation as an instrument, I find that individual responsibility has a large positive effect on economic development. The relationships between rainfall variation, individual responsibility and economic development are robust to the inclusion of variables related to climate and agricultural and institutional development.

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Culture and Healthy Eating: The Role of Independence and Interdependence in the United States and Japan

Cynthia Levine et al.

Personality and Social Psychology Bulletin, forthcoming

Abstract:
Healthy eating is important for physical health. Using large probability samples of middle-aged adults in the United States and Japan, we show that fitting with the culturally normative way of being predicts healthy eating. In the United States, a culture that prioritizes and emphasizes independence, being independent predicts eating a healthy diet (an index of fish, protein, fruit, vegetables, reverse-coded sugared beverages, and reverse-coded high fat meat consumption; Study 1) and not using nonmeat food as a way to cope with stress (Study 2a). In Japan, a culture that prioritizes and emphasizes interdependence, being interdependent predicts eating a healthy diet (Studies 1 and 2b). Furthermore, reflecting the types of agency that are prevalent in each context, these relationships are mediated by autonomy in the United States and positive relations with others in Japan. These findings highlight the importance of understanding cultural differences in shaping healthy behavior and have implications for designing health-promoting interventions.

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Gender preference and age at arrival among Asian immigrant mothers in the US

Ben Ost & Eva Dziadula

Economics Letters, August 2016, Pages 286–290

Abstract:
We examine gender preference assimilation by comparing fertility patterns of Asian immigrants according to their age of arrival. Past work has shown that U.S. natives appear to value mixed sex composition whereas families in many Asian countries exhibit a strong son preference. We find that Asian immigrants who arrive to the US late in life show evidence of son preference since they are much more likely to have additional children if their first two children are girls. Asian immigrants who arrive early in life, however, exhibit a fertility pattern quite close to that of U.S. natives. Our results are suggestive of complete assimilation of gender preferences for immigrants who arrive as children, and very little gender preference assimilation for immigrants who arrive at later ages.

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Cooperation, Decision Time, and Culture: Online Experiments with American and Indian Participants

Akihiro Nishi, Nicholas Christakis & David Rand

Yale Working Paper, June 2016

Abstract:
Two separate bodies of work have examined whether culture affects cooperation in economic games and whether cooperative or non-cooperative decisions occur more quickly. Here, we connect this work by exploring the relationship between decision time and cooperation in American versus Indian subjects. We use a series of dynamic social network experiments in which subjects play a repeated public goods game: 80 sessions for a total of 1,462 subjects (1,059 from the United States, 337 from India, and 66 from other countries) making 13,560 decisions. In the first round, where subjects do not know if connecting neighbors are cooperative, American subjects are highly cooperative and decide faster when cooperating than when defecting, whereas a majority of Indian subjects defect and Indians decide faster when defecting than when cooperating. The same is true in later rounds where neighbors were previously cooperative (a cooperative environment) although the Indian decision time difference does not reach significance. Conversely, when connecting neighbors were previously not cooperative (a non-cooperative environment), a large majority of both American and Indian subjects defect, and defection is faster than cooperation among both sets of subjects. Our results imply the cultural background of subjects in their real life affects the speed of cooperation decision-making differentially in online social environments. 

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Do Institutions Affect Social Preferences? Evidence from Divided Korea

Byung-Yeon Kim et al.

Journal of Comparative Economics, forthcoming

Abstract:
The division of Korea is a historic social experiment that randomly assigned ex ante identical individuals into two different economic and political institutions. About 70 years after the division, we sample Koreans who were born and raised in the two different parts of Korea to study whether institutions affect social preferences. We find that those from North Korea behave in a less self-interested manner and support the market economy and democracy less than those from South Korea. A follow-up study shows that social preferences did not change considerably in two years. We check robustness against sample selection and potential confounding factors such as income differences. Our findings indicate that preferences are rooted in institutions.

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The relationship between momentary emotions and well-being across European Americans, Hispanic Americans, and Asian Americans

Eunsoo Choi & Yulia Chentsova-Dutton

Cognition and Emotion, forthcoming

Abstract:
Cultural differences in the emphasis on positive and negative emotions suggest that the impact of these emotions on well-being may differ across cultural contexts. The present study utilised a momentary sampling method to capture average momentary emotional experiences. We found that for participants from cultural contexts that foster positive emotions (European Americans and Hispanic Americans), average momentary positive emotions predicted well-being better than average momentary negative emotions. In contrast, average momentary negative emotions were more strongly associated with well-being measures for Asian Americans, the group from a cultural context that emphasises monitoring of negative emotions. Furthermore, we found that acculturation to American culture moderated the association between average momentary positive emotions and well-being for Asian Americans. These findings suggest the importance of culture in studying the impact of daily emotional experiences on well-being.

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Give me liberty and give me control: Economic freedom, control perceptions and the paradox of choice

Boris Nikolaev & Daniel Bennett

European Journal of Political Economy, forthcoming

Abstract:
We explore the relationship between individual control perceptions and the degree to which a country's institutions and policies are consistent with the principles of economic freedom. Using data from the World Values Surveys (WVS) and the Economic Freedom of the World (EFW) index, we find that people living in more economically free countries are more likely to perceive greater control over their lives. This effect is not diminishing at higher levels of economic freedom. One possible channel that explains this relationship is the perception of procedural fairness and social mobility. Decomposing the EFW index, we further find that the area of sound money is what drives the results.

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Exploring the Motivations for Punishment: Framing and Country-Level Effects

Jonathan Bone, Katherine McAuliffe & Nichola Raihani

PLoS ONE, August 2016

Abstract:
Identifying the motives underpinning punishment is crucial for understanding its evolved function. In principle, punishment of distributional inequality could be motivated by the desire to reciprocate losses ('revenge') or by the desire to reduce payoff asymmetries between the punisher and the target ('inequality aversion'). By separating these two possible motivations, recent work suggests that punishment is more likely to be motivated by disadvantageous inequality aversion than by a desire for revenge. Nevertheless, these findings have not consistently replicated across different studies. Here, we suggest that considering country of origin — previously overlooked as a possible source of variation in responses — is important for understanding when and why individuals punish one another. We conducted a two-player stealing game with punishment, using data from 2,400 subjects recruited from the USA and India. US-based subjects punished in response to losses and disadvantageous inequality, but seldom invested in antisocial punishment (defined here as punishment of non-stealing partners). India-based subjects, on the other hand, punished at higher levels than US-based subjects and, so long as they did not experience disadvantageous inequality, punished stealing and non-stealing partners indiscriminately. Nevertheless, as in the USA, when stealing resulted in disadvantageous inequality, India-based subjects punished stealing partners more than non-stealing partners. These results are consistent with the hypothesis that variation in punitive behavior varies across societies, and support the idea that punishment might sometimes function to improve relative status, rather than to enforce cooperation.

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Watching Subtitled Films Can Help Learning Foreign Languages

J. Birulés-Muntané & S. Soto-Faraco

PLoS ONE, June 2016

Abstract:
Watching English-spoken films with subtitles is becoming increasingly popular throughout the world. One reason for this trend is the assumption that perceptual learning of the sounds of a foreign language, English, will improve perception skills in non-English speakers. Yet, solid proof for this is scarce. In order to test the potential learning effects derived from watching subtitled media, a group of intermediate Spanish students of English as a foreign language watched a 1h-long episode of a TV drama in its original English version, with English, Spanish or no subtitles overlaid. Before and after the viewing, participants took a listening and vocabulary test to evaluate their speech perception and vocabulary acquisition in English, plus a final plot comprehension test. The results of the listening skills tests revealed that after watching the English subtitled version, participants improved these skills significantly more than after watching the Spanish subtitled or no-subtitles versions. The vocabulary test showed no reliable differences between subtitled conditions. Finally, as one could expect, plot comprehension was best under native, Spanish subtitles. These learning effects with just 1 hour exposure might have major implications with longer exposure times.

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I Am Dumber When I Look Dumb in Front of Many (vs. Few) Others: A Cross-Cultural Difference in How Audience Size Affects Perceived Social Reputation and Self-Judgments

Minjae Seo et al.

Journal of Cross-Cultural Psychology, September 2016, Pages 1019-1032

Abstract:
People from all cultures are averse to looking dumb in front of others, especially if there is a large audience. However, there could be a difference between Face and Dignity cultures in the extent to which their members see themselves as dumb when they perform poorly before a large versus small audience. In the present study, Chinese and Americans were asked to imagine themselves performing poorly on tasks either in front of 10 others or one other and make judgments about how poorly (a) they thought and (b) others would think they performed on the tasks. Chinese were found to judge their performance more negatively in the large (vs. small) audience, but Americans were not. Audience size effect on self-judgments was mediated by how the Chinese perceived others to judge their performance in the large (vs. small) audience. Findings are discussed in the context of the logic of Face and Dignity cultures.

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Why household inefficiency? An experimental approach to assess spousal resource distribution preferences in a subsistence population undergoing socioeconomic change

Jonathan Stieglitz et al.

Evolution and Human Behavior, forthcoming

Abstract:
Two disparate views of the sexual division of labour have dominated the representation of intra-household resource allocations. These joint and separate interests views differ in their interpretation of the relative roles of men and women, and make different predictions about the extent to which marriage promotes economic efficiency (i.e. maximized household production). Using an experimental “distribution task” stipulating a trade-off between household efficiency and spousal equality in allocating surpluses of meat and money, we examine factors influencing spousal distribution preferences among Tsimane forager-horticulturalists of Bolivia (n = 53 couples). Our primary goal is to understand whether and how access to perfectly fungible and liquid resources – which increases with greater participation in market economies – shifts intra-household distribution preferences. We hypothesize that greater fungibility of money compared to meat results in greater squandering of money for individual fitness gain at a cost to the family. Money therefore requires costly strategies to insure against a partner's claims for consumption. Whereas nearly all Tsimane spouses prefer efficient meat distributions, we find a substantially reduced efficiency preference for money compared to meat controlling for potential confounders (adjusted OR = 0.087, 95% CI: 0.02–0.38). Reported marital conflict over paternal disinvestment is associated with a nearly 13-fold increase in odds of revealing a selfish money distribution preference. Selfish husbands are significantly more likely than other husbands to be paired with selfish wives. Lastly, Tsimane husbands and wives are more likely than Western Europeans to prefer an efficient money distribution, but Tsimane wives are more likely than Western European wives to exhibit a selfish preference. In sum, preferences for the distribution of household production surplus support joint and separate interests views of marriage; a hybrid approach best explains how ecological-, family-, and individual-level factors influence spousal preferences through their effects on perceptions of marginal gains within and outside the household.

By KEVIN LEWIS | 09:00:00 AM

Monday, August 29, 2016

Pro tip

Can information be locked up? Informed trading ahead of macro-news announcements

Gennaro Bernile, Jianfeng Hu & Yuehua Tang

Journal of Financial Economics, September 2016, Pages 496-520

Abstract:
Government agencies routinely allow pre-release access to information to accredited news agencies under embargo agreements. Using high-frequency data, we find evidence consistent with informed trading during embargoes of Federal Open Market Committee (FOMC) scheduled announcements. The E-mini Standard & Poor's 500 futures' abnormal order imbalances are in the direction of subsequent policy surprises and contain information that predicts the market reaction to the policy announcements. The estimated informed trades' profits are arguably large. Notably, we find no evidence of informed trading prior to the start of FOMC news embargoes or during lockups ahead of nonfarm payroll, US Producer Price Index, and gross domestic product data releases.

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Family Descent as a Signal of Managerial Quality: Evidence from Mutual Funds

Oleg Chuprinin & Denis Sosyura

NBER Working Paper, August 2016

Abstract:
We study the relation between mutual fund managers' family backgrounds and their professional performance. Using hand-collected data from individual Census records on the wealth and income of managers' parents, we find that managers from poor families deliver higher alphas than managers from rich families. This result is robust to alternative measures of fund performance, such as benchmark-adjusted return and value extracted from capital markets. We argue that managers born poor face higher entry barriers into asset management, and only the most skilled succeed. Consistent with this view, managers born rich are more likely to be promoted, while those born poor are promoted only if they outperform. Overall, we establish the first link between family descent of investment professionals and their ability to create value.

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Low Interest Rates and Risk Taking: Evidence from Individual Investment Decisions

Chen Lian, Yueran Ma & Carmen Wang

Harvard Working Paper, June 2016

Abstract:
In recent years, many central banks have set benchmark interest rates to historic lows. In this paper, we provide evidence that individual investors "reach for yield", that is, have a greater appetite for risk taking in such low interest rate environment. We first document this phenomenon in a simple investment experiment, where investment risks and risk premia are held constant. We find significantly higher allocations to risky assets in the low rate condition, among MTurks as well as HBS MBAs. This reaching for yield behavior is unrelated to institutional frictions, and cannot be easily explained by conventional portfolio choice theory. We then propose and provide evidence for two sets of explanations related to people's preferences and psychology. We also present complementary evidence using historical data on individual investors' portfolio allocations and household investment flows.

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Political Sentiment and Predictable Returns

Jawad Addoum & Alok Kumar

Review of Financial Studies, forthcoming

Abstract:
This study shows that shifts in political climate influence stock prices. As the party in power changes, there are systematic changes in the industry-level composition of investor portfolios, which weaken arbitrage forces and generate predictable patterns in industry returns. A trading strategy that attempts to exploit demand-based return predictability generates an annualized risk-adjusted performance of 6% during the 1939 to 2011 period. This evidence of predictability spans 17%-27% of the market and is stronger during periods of political transition. Our demand-based predictability pattern is distinct from cash flow-based predictability identified in the recent literature.

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The Societal Benefit of a Financial Transaction Tax

Aleksander Berentsen, Samuel Huber & Alessandro Marchesiani

European Economic Review, October 2016, Pages 303-323

Abstract:
We provide a novel justification for a financial transaction tax for economies where agents face stochastic consumption opportunities. A financial transaction tax makes it more costly for agents to readjust their portfolios of liquid and illiquid assets in response to liquidity shocks, which increase both the demand for and the price of liquid assets. The higher price improves liquidity insurance and welfare for other market participants. We calibrate the model to U.S. data and find that the optimal financial transaction tax is 1.6 percent and that it reduces the volume of financial trading by 17 percent.

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How Rigged Are Stock Markets?: Evidence From Microsecond Timestamps

Robert Bartlett & Justin McCrary

NBER Working Paper, August 2016

Abstract:
We use new timestamp data from the two Securities Information Processors (SIPs) to examine SIP reporting latencies for quote and trade reports. Reporting latencies average 1.13 milliseconds for quotes and 22.84 milliseconds for trades. Despite these latencies, liquidity-taking orders gain on average $0.0002 per share when priced at the SIP-reported national best bid or offer (NBBO) rather than the NBBO calculated using exchanges' direct data feeds. Trading surrounding SIP-priced trades shows little evidence that fast traders initiate these liquidity-taking orders to pick-off stale quotes. These findings contradict claims that fast traders systematically exploit traders who transact at the SIP NBBO.

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Public reaction to stock market volatility: Evidence from the ATUS

Patrick Payne, Christopher Browning & Charlene Kalenkoski

Applied Economics Letters, Fall 2016, Pages 1197-1200

Abstract:
How does the public react to changes in the stock market? We know from the existing body of research that sentiment can predict future stock-market movements. However, do market movements affect sentiment? This article addresses these questions by testing whether market movements precede changes in the emotional well-being of the general public. Using Granger causality analysis, we compare how market movements affect public well-being during periods of increased (2010) and decreased (2012) volatility. The results show that 30-day-lagged returns are associated positively and significantly with the public's emotional well-being, and that this effect is stronger during periods of increased volatility. The results also show that this effect may persist for up to 120 days.

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The Price of Street Friends: Social Networks, Informed Trading, and Shareholder Costs

Jie Cai, Ralph Walkling & Ke Yang

Journal of Financial and Quantitative Analysis, June 2016, Pages 801-837

Abstract:
Recent studies suggest the transfer of privileged information via social ties but do not explicitly examine the cost of these ties to shareholders. We document a significant positive relation between stock transaction costs and a company's social ties to the investment community. Social ties based on education and leisure activities, stronger ties, and ties to individuals responsible for trading have greater effects. Using investment connection deaths as natural experiments, we document that exogenous severance of ties reduces trading costs and trading activities by connected parties. Our evidence illustrates an important and previously undocumented consequence of social ties.

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Measuring Institutional Investors' Skill from Their Investments in Private Equity

Daniel Cavagnaro et al.

NBER Working Paper, August 2016

Abstract:
Using a large sample of institutional investors' private equity investments in venture and buyout funds, we estimate the extent to which investors' skill affects returns from private equity investments. We first consider whether investors have differential skill by comparing the distribution of investors' returns relative to the bootstrapped distribution that would occur if funds were randomly distributed across investors. We find that the variance of actual performance is higher than the bootstrapped distribution, suggesting that higher and lower skilled investors consistently outperform and underperform. We then use a Bayesian approach developed by Korteweg and Sorensen (2015) to estimate the incremental effect of skill on performance. The results imply that a one standard deviation increase in skill leads to about a three percentage point increase in returns, suggesting that variation in institutional investors' skill is an important driver of their returns.

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Property crime, earnings variability, and the cost of capital

James Brushwood et al.

Journal of Corporate Finance, October 2016, Pages 142-173

Abstract:
We show that firms located in states where property crime is more prevalent have more uncertain earnings and higher financing costs. Specifically, firms located in states with higher property crime rates have more volatile and less persistent earnings as well as lower quality analysts' earnings forecasts. Firms located in states with higher property crime rates also have a higher cost of equity and debt capital. These results are robust to accounting for econometric and endogeneity concerns in various ways. Overall, our results suggest that a potentially large and overlooked cost of crime is a higher cost of capital.

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What's a name worth? The impact of a likeable stock ticker symbol on firm value

Xuejing Xing, Randy Anderson & Yan Hu

Journal of Financial Markets, forthcoming

Abstract:
We investigate the impact of the likeability and pronounceability of stock ticker symbols on firm value. Using a unique, comprehensive dataset with hand-collected ratings of ticker symbols, we find that higher likeability of ticker symbols leads to higher Tobin's Q. The pronounceability of ticker symbols has a similar but weaker effect. Further evidence suggests that the effect is possibly due to the impact of ticker symbols on stock liquidity or mispricing or both.

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Analyst Promotions within Credit Rating Agencies: Accuracy or Bias?

Darren Kisgen, Matthew Osborn & Jonathan Reuter

NBER Working Paper, August 2016

Abstract:
We examine whether credit rating agencies reward accurate or biased analysts. Using data collected from Moody's corporate debt credit reports, we find that Moody's is more likely to promote analysts who are accurate, but less likely to promote analysts who downgrade frequently. Combined, analysts who are accurate but not overly negative are approximately twice as likely to get promoted. Further, analysts whose rating changes are more informative to the market are more likely to get promoted, unless their ratings changes cause large negative market reactions. Moody's balances a desire for accuracy with a desire to cater to its corporate clients.

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Peer Pressure: Social Interaction and the Disposition Effect

Rawley Heimer

Review of Financial Studies, forthcoming

Abstract:
Social interaction contributes to some traders' disposition effect. New data from an investment-specific social network linked to individual-level trading records builds evidence of this connection. To credibly estimate causal peer effects, I exploit the staggered entry of retail brokerages into partnerships with the social trading web platform and compare trader activity before and after exposure to these new social conditions. Access to the social network nearly doubles the magnitude of a trader's disposition effect. Traders connected in the network develop correlated levels of the disposition effect, a finding that can be replicated using workhorse data from a large discount brokerage.

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Do Private Equity Funds Manipulate Reported Returns?

Gregory Brown, Oleg Gredil & Steven Kaplan

NBER Working Paper, August 2016

Abstract:
Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported return manipulation. We find evidence that some under-performing managers boost reported returns during times when fundraising takes place. However, those managers are unlikely to raise a next fund, suggesting that investors see through much of the manipulation. In contrast, we find that top-performing funds likely understate their valuations.

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The Activities of Buy-Side Analysts and the Determinants of Their Stock Recommendations

Lawrence Brown et al.

Journal of Accounting and Economics, August 2016, Pages 139-156

Abstract:
We survey 344 buy-side analysts from 181 investment firms and conduct 16 detailed follow-up interviews to gain insights into the activities of buy-side analysts, including the determinants of their compensation, the inputs to their stock recommendations, their beliefs about financial reporting quality, and the role of sell-side analysts in buy-side research. One important finding is that 10-K or 10-Q reports are more useful than quarterly conference calls and management earnings guidance for determining buy-side analysts' stock recommendations. Our results also suggest that sell-side analysts add value by providing buy-side analysts with in-depth industry knowledge and access to company management.

By KEVIN LEWIS | 09:00:00 AM

Sunday, August 28, 2016

We're cool

Trust Your Gut or Think Carefully? Examining Whether an Intuitive, Versus a Systematic, Mode of Thought Produces Greater Empathic Accuracy

Christine Ma-Kellams & Jennifer Lerner

Journal of Personality and Social Psychology, forthcoming

Abstract:
Cultivating successful personal and professional relationships requires the ability to accurately infer the feelings of others - that is, to be empathically accurate. Some are better at this than others, a difference which may be explained in part by mode of thought. Specifically, empathically accurate people may tend to rely more on intuitive rather than systematic thought when perceiving others. Or it may be the reverse: systematic thought may increase empathic accuracy. To determine which view is supported by the evidence, we conducted 4 studies examining relations between mode of thought (intuitive vs. systematic) and empathic accuracy. Study 1 revealed a lay belief that empathic accuracy arises from intuitive modes of thought. Studies 2 through 4, each using executive-level professionals as participants, demonstrated that, contrary to lay beliefs, people who tend to rely on intuitive thinking also tend to exhibit lower empathic accuracy. This pattern held when participants inferred others' emotional states based on (a) in-person face-to-face interactions with partners (Study 2) as well as on (b) pictures with limited facial cues (Study 3). Study 4 confirmed that the relationship is causal: experimentally inducing systematic (as opposed to intuitive) thought led to improved empathic accuracy. In sum, evidence regarding personal and social processes in these 4 samples of working professionals converges on the conclusion that, contrary to lay beliefs, empathic accuracy arises more from systematic thought than from gut intuition.

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Talking Less during Social Interactions Predicts Enjoyment: A Mobile Sensing Pilot Study

Gillian Sandstrom et al.

PLoS ONE, July 2016

Abstract:
Can we predict which conversations are enjoyable without hearing the words that are spoken? A total of 36 participants used a mobile app, My Social Ties, which collected data about 473 conversations that the participants engaged in as they went about their daily lives. We tested whether conversational properties (conversation length, rate of turn taking, proportion of speaking time) and acoustical properties (volume, pitch) could predict enjoyment of a conversation. Surprisingly, people enjoyed their conversations more when they spoke a smaller proportion of the time. This pilot study demonstrates how conversational properties of social interactions can predict psychologically meaningful outcomes, such as how much a person enjoys the conversation. It also illustrates how mobile phones can provide a window into everyday social experiences and well-being.

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Psychological Distance Moderates the Amplification of Shared Experience

Erica Boothby et al.

Personality and Social Psychology Bulletin, forthcoming

Abstract:
Sharing an experience with another person can amplify that experience. Here, we propose for the first time that amplification is moderated by the psychological distance between co-experiencers. We predicted that experiences would be amplified for co-experiencers who are psychologically proximate but not for co-experiencers who are psychologically distant. In two studies we manipulated both (a) whether or not a pleasant experience was shared and (b) the psychological distance between co-experiencers, via social distance (Study 1) and spatial distance (Study 2). In Study 1, co-experiencers either were unacquainted (i.e., strangers, socially distant) or became acquainted in the laboratory (i.e., socially proximate). In Study 2, co-experiencers were either in different rooms (i.e., spatially distant) or in the same room (i.e., spatially proximate). In both studies, the pleasant experience was amplified when shared compared with when not shared, but only when co-experiencers were psychologically proximate (vs. distant) to one another.

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New Students' Peer Integration and Exposure to Deviant Peers: Spurious Effects of School Moves?

Sonja Siennick, Alex Widdowson & Daniel Ragan

Journal of Early Adolescence, forthcoming

Abstract:
School moves during adolescence predict lower peer integration and higher exposure to delinquent peers. Yet mobility and peer problems have several common correlates, so differences in movers' and non-movers' social adjustment may be due to selection rather than causal effects of school moves. Drawing on survey and social network data from a sample of seventh and eighth graders, this study compared the structure and behavioral content of new students' friendship networks with those of not only non-movers but also students about to move schools; the latter should resemble new students in both observed and unobserved ways. The results suggest that the association between school moves and friends' delinquency is due to selection, but the association between school moves and peer integration may not be entirely due to selection.

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Impressions Based on a Portrait Predict, 1-Month Later, Impressions Following a Live Interaction

Gul Gunaydin, Emre Selcuk & Vivian Zayas

Social Psychological and Personality Science, forthcoming

Abstract:
When it comes to person perception, does one "judge a book by its cover?" Perceivers made judgments of liking, and of personality, based on a photograph of an unknown other, and at least 1 month later, made judgments following a face-to-face interaction with the same person. Photograph-based liking judgments predicted interaction-based liking judgments, and, to a lesser extent, photograph-based personality judgments predicted interaction-based personality judgments (except for extraversion). Consistency in liking judgments (1) partly reflected behavioral confirmation (i.e., perceivers with favorable photograph-based judgments behaved more warmly toward the target during the live interaction, which elicited greater target warmth); (2) explained, at least in part, consistency in personality judgments (reflecting a halo effect); and (3) remained robust even after controlling for perceiver effects, target effects, and perceived attractiveness. These findings support the view that even after having "read a book," one still, to some extent, judges it by its "cover."

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Persistent Social Networks: Civil War Veterans who Fought Together Co-Locate in Later Life

Dora Costa et al.

NBER Working Paper, July 2016

Abstract:
At the end of the U.S Civil War, veterans had to choose whether to return to their prewar communities or move to new areas. The late 19th Century was a time of sharp urban growth as workers sought out the economic opportunities offered by cities. By estimating discrete choice migration models, we quantify the tradeoffs that veterans faced. Veterans were less likely to move far from their origin and avoided urban immigrant areas and high mortality risk areas. They also avoided areas that opposed the Civil War. Veterans were more likely to move to a neighborhood or a county where men from their same war company lived. This co-location evidence highlights the existence of persistent social networks. Such social networks had long-term consequences: veterans living close to war time friends enjoyed a longer life.

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Do Your School Mates Influence How Long You Game? Evidence from the U.S.

Aliaksandr Amialchuk & Ales Kotalik

PLoS ONE, August 2016

Abstract:
The goal of this paper is to estimate peer influence in video gaming time among adolescents. Using a nationally representative sample of the U.S. school-aged adolescents in 2009-2010, we estimate a structural model that accounts for the potential biases in the estimate of the peer effect. Our peer group is exogenously assigned and includes one year older adolescents in the same school grade as the respondent. The peer measure is based on peers' own reports of video gaming time. We find that an additional one hour of playing video games per week by older grade-mates results in .47 hours increase in video gaming time by male responders. We do not find significant peer effect among female responders. Effective policies aimed at influencing the time that adolescents spend video gaming should take these findings into account.

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Oxytocin, but not vasopressin, impairs social cognitive ability among individuals with higher levels of social anxiety: A randomized controlled trial

Benjamin Tabak et al.

Social Cognitive and Affective Neuroscience, August 2016, Pages 1272-1279

Abstract:
Individuals with social anxiety are characterized by a high degree of social sensitivity, which can coincide with impairments in social cognitive functioning (e.g. theory of mind). Oxytocin (OT) and vasopressin (AVP) have been shown to improve social cognition, and OT has been theorized as a potential therapeutic agent for individuals with social anxiety disorder. However, no study has investigated whether these neuropeptides improve social cognitive ability among socially anxious individuals. In a randomized, double-blind, placebo controlled, between-subjects design we investigated whether social anxiety moderated the effects of OT or AVP (vs placebo) on social working memory (i.e. working memory that involves manipulating social information) and non-social working memory. OT vs placebo impaired social working memory accuracy in participants with higher levels of social anxiety. No differences were found for non-social working memory or for AVP vs placebo. Results suggest that OT administration in individuals with higher levels of social anxiety may impair social cognitive functioning.

By KEVIN LEWIS | 09:00:00 AM

Saturday, August 27, 2016

Antisocialism

Sexual Aggression When Power Is New: Effects of Acute High Power on Chronically Low-Power Individuals

Melissa Williams, Deborah Gruenfeld & Lucia Guillory

Journal of Personality and Social Psychology, forthcoming

Abstract:
Previous theorists have characterized sexually aggressive behavior as an expression of power, yet evidence that power causes sexual aggression is mixed. We hypothesize that power can indeed create opportunities for sexual aggression — but that it is those who chronically experience low power who will choose to exploit such opportunities. Here, low-power men placed in a high-power role showed the most hostility in response to a denied opportunity with an attractive woman (Studies 1 and 2). Chronically low-power men and women given acute power were the most likely to say they would inappropriately pursue an unrequited workplace attraction (Studies 3 and 4). Finally, having power over an attractive woman increased harassment behavior among men with chronic low, but not high, power (Study 5). People who see themselves as chronically denied power appear to have a stronger desire to feel powerful and are more likely to use sexual aggression toward that end.

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The longitudinal relationship between everyday sadism and the amount of violent video game play

Tobias Greitemeyer & Christina Sagioglou

Personality and Individual Differences, January 2017, Pages 238–242

Abstract:
Previous research found correlational evidence that the trait of everyday sadism is associated with the amount of violent video game play. Due to the correlational design, the direction of the association remained unclear. According to the selection hypothesis, everyday sadists should be attracted to violent video games, whereas the socialization hypothesis would propose that repeated exposure to violent video games makes the player more sadistic. However, these hypotheses are by no means mutually exclusive and the relation between everyday sadism and violent video game exposure could be bidirectional. To examine the causal mechanisms more closely, we carried out a longitudinal study (N = 743) for which we collected data at two points in time, six months apart. Results showed that (a) everyday sadists are more likely than others to play violent video games and (b) repeated exposure to violent video games predicts everyday sadism over time. Overall, this bidirectional influence reflects a downward spiral of everyday sadistic tendencies and violent video gaming reinforcing each other.

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Do beliefs about gender roles moderate the relationship between exposure to misogynistic song lyrics and men's female-directed aggression?

Courtland Hyatt et al.

Aggressive Behavior, forthcoming

Abstract:
Although independent lines of research have identified misogynistic lyrical content and traditional gender role beliefs as reliable predictors of men's female-directed aggression, more research is needed to understand the extent to which these variables may function in synthesis to potentiate aggression. In the current study, men (N = 193), who completed questionnaires relevant to their conformity to masculine norms and level of hostile and benevolent sexism, were exposed to either misogynistic or neutral lyrics before having the opportunity to shock an ostensible female confederate in a bogus reaction time task that, in effect, measured aggression. Results indicated that misogynistic lyrics and hostile sexism significantly predicted both unprovoked and provoked aggression against a female target. Contrary to expectations, moderating effects of gender role beliefs on the relationship between misogynistic lyrics and men's aggression were not found. Implications are discussed in terms of the costs of misogyny in media for women's lives.

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Learning to Love Guns? Gun-Based Gameplay’s Links to Gun Attitudes

Matthew Lapierre & Kirstie Farrar

Psychology of Popular Media Culture, forthcoming

Abstract:
Although there is a long empirical record exploring links between violent videogame play and aggression, little is known about how these games potentially affect players’ political attitudes. Specifically, with firearms frequently featured in videogames, including games where players are required to use firearms to succeed during gameplay, it is worth examining whether players’ experience with firearms relates to their attitudes toward guns and gun policy. Utilizing the General Learning Model, this survey explores whether public policy outcomes regarding gun control and public safety are related to exposure to violent video games, first-person shooter games, and realistic gun controllers. Results show that increased exposure to first-person shooter games was related to more negative attitudes concerning gun control. In addition, more experience using realistic gun controllers was associated with negative attitudes toward gun control and greater support for the idea that greater gun availability can help guarantee public safety. Thus, video game exposure may shape the gun attitudes of young people in small but important ways.

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An oxytocin receptor polymorphism predicts amygdala reactivity and antisocial behavior in men

Rebecca Waller et al.

Social Cognitive and Affective Neuroscience, August 2016, Pages 1218-1226

Abstract:
Variability in oxytocin (OXT) signaling is associated with individual differences in sex-specific social behavior across species. The effects of OXT signaling on social behavior are, in part, mediated through its modulation of amygdala function. Here, we use imaging genetics to examine sex-specific effects of three single-nucleotide polymorphisms in the human oxytocin receptor gene (OXTR; rs1042778, rs53576 and rs2254298) on threat-related amygdala reactivity and social behavior in 406 Caucasians. Analyses revealed that among men but not women, OXTR rs1042778 TT genotype was associated with increased right amygdala reactivity to angry facial expressions, which was uniquely related to higher levels of antisocial behavior among men. Moderated meditation analysis suggested a trending indirect effect of OXTR rs1042778 TT genotype on higher antisocial behavior via increased right amygdala reactivity to angry facial expressions in men. Our results provide evidence linking genetic variation in OXT signaling to individual differences in amygdala function. The results further suggest that these pathways may be uniquely important in shaping antisocial behavior in men.

By KEVIN LEWIS | 09:00:00 AM

Friday, August 26, 2016

Bringing back the jobs

Learning to Love the Government: Trade Unions and Late Adoption of the Minimum Wage

Brett Meyer

World Politics, July 2016, Pages 538-575

Abstract:
One counterintuitive variation in wage-setting regulation is that countries with the highest labor standards and strongest labor movements are among the least likely to set a statutory minimum wage. This, the author argues, is due largely to trade union opposition. Trade unions oppose the minimum wage when they face minimal low-wage competition, which is affected by the political institutions regulating industrial action, collective agreements, and employment, as well as by the skill and wage levels of their members. When political institutions effectively regulate low-wage competition, unions oppose the minimum wage. When political institutions are less favorable toward unions, there may be a cleavage between high- and low-wage unions in their minimum wage preferences. The argument is illustrated with case studies of the UK, Germany, and Sweden. The author demonstrates how the regulation of low-wage competition affects unions' minimum wage preferences by exploiting the following labor market institutional shocks: the Conservatives' labor law reforms in the UK, the Hartz labor market reforms in Germany, and the European Court of Justice's Laval ruling in Sweden. The importance of union preferences for minimum wage adoption is also shown by how trade union confederation preferences influenced the position of the Labour Party in the UK and the Social Democratic Party in Germany.

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Moving to a Job: The Role of Home Equity, Debt, and Access to Credit

Yuliya Demyanyk et al.

American Economic Journal: Macroeconomics, forthcoming

Abstract:
We use individual-level credit reports merged with loan-level mortgage data to estimate how home equity interacted with mobility in relatively weak and strong labor markets in the United States during the Great Recession. We construct a dynamic model of housing, consumption, employment, and relocation, which provides a structural interpretation of our empirical results and allows us to explore the role that foreclosure played in labor mobility. We find that negative home equity is not a significant barrier to job-related mobility because the benefits of accepting an out-of-area job outweigh the costs of moving. This pattern holds even if homeowners are not able to default on their mortgages.

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The Rise of Finance and Firm Employment Dynamics

Ken-Hou Lin

Organization Science, July-August 2016, Pages 972-988

Abstract:
This article sheds light on the ongoing employment stagnation in the United States by investigating the links between the rise of finance and firm employment dynamics during the 1982-2005 period. I argue that the rise of finance marginalized the role of labor in revenue generating and sharing processes, which led to employment stagnation among the largest nonfinancial firms in the United States. Evidence suggests that increasing investment in financial assets depresses the workforce size. The growing dependence on debt reprioritizes the order of distribution, heightening the need for workforce reduction. The increasing rewards for shareholders generate a downsize-and-distribute spiral, in which labor expense becomes a primary target of cost-cutting strategies. Further analysis indicates that production and service workers are more vulnerable to shifts associated with the rise of finance than managers and professionals.

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Partial Automation: Routine-Biased Technical Change, Deskilling, and the Minimum Wage

Mitch Downey

University of California Working Paper, May 2016

Abstract:
Recent research emphasizes the pressure technological change exerts on middle-wage occupations by automating routine tasks. I argue that technology only partially automates these tasks, which often still require labor. Rather, technology reduces task complexity enabling a less skilled worker to do the same job. The costs of automation, then, are not only the costs of the technology itself but also of low-wage workers to use it. By raising the cost of low-wage labor, the minimum wage reduces the profitability of adopting automating technologies. I test this prediction with state variation in the minimum wage and industry variation in complementarity between low-wage workers and technology. I show that accounting for state price differences induces new and useful minimum wage variation, derive new measures of complementarity from the Dictionary of Occupational Titles and the CPS Computer Use Supplement, and build a measure of technology based on IT employment, the largest component of IT spending. My results imply a $1 decrease in the minimum wage raises the average industry's technology use by 30% and decreases the routine share of the wage bill by 1 percentage point (3.3%), both relative to a counterfactual without complementarity. Routine-intensive industries often exhibit high complementarity, making the minimum wage an important policy lever to influence the pace of routine-biased technical change.

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Skill Demands and Mismatch in U.S. Manufacturing

Andrew Weaver & Paul Osterman

ILR Review, forthcoming

Abstract:
Recent economic events have sparked debates over the degree of structural mismatch in the U.S. economy. One of the most frequent claims is that workers lack the skills that employers demand. The existing literature, however, analyzes this potential mismatch at a high level of aggregation with abstract indices and noisy proxies that obscure the underlying mechanisms. The authors address these issues by presenting and analyzing results from a survey of U.S. manufacturing establishments. The survey is the first, to their knowledge, to directly measure concrete employer skill demands and hiring experiences in a nationally representative survey at the industry level. The findings indicate that demand for higher-level skills is generally modest, and that three-quarters of manufacturing establishments do not show signs of hiring difficulties. Among the remainder, demands for higher-level math and reading skills are significant predictors of long-term vacancies, but demands for computer skills and other critical-thinking/problem-solving skills are not. Of particular interest, high-tech plants do not experience greater levels of hiring challenges. When the authors examine the potential mechanisms that could contribute to hiring difficulties, they find that neither external regional supply conditions nor internal firm practices are predictive of hiring problems. Rather, the data show that establishments that are members of clusters or that demand highly specialized skills have the greatest probability of incurring long-term vacancies. The authors interpret these results as a sign that it is important to think about factors that complicate the interaction of supply and demand - such as disaggregation and communication/coordination failures - rather than simply focusing on inadequate labor supply.

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No Woman No Crime: Ban the Box, Employment, and Upskilling

Daniel Shoag & Stan Veuger

Harvard Working Paper, March 2016

Abstract:
A sizable number of localities have in recent years limited the use of criminal background checks in hiring decisions, or "banned the box." Using LEHD Origin-Destination Employment and American Community Survey data, we show that these bans increased employment of residents in high-crime neighborhoods by as much as 4%. These increases are particularly large in the public sector. At the same time, we establish using job postings data that employers respond to ban-the-box measures by raising experience requirements. A perhaps unintended consequence of this is that women, who are less likely to be convicted of crimes, see their employment opportunities reduced.

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Does employment growth increase travel time to work?: An empirical analysis using military troop movements

Geoffrey Morrison & Cynthia Lin Lawell

Regional Science and Urban Economics, September 2016, Pages 180-197

Abstract:
Employment growth is a common public policy goal, but it can lead to a number of unwanted environmental, social, and economic costs - particularly in high growth communities - due to its impact on peak-hour traffic. This paper examines the short-run impacts of rapid employment growth on travel time to work. We exploit exogenous variation in employment levels resulting from movements of military troops during the 2005 Base Realignment and Closure (BRAC) in order to identify the effect of employment growth on travel time using difference-in-difference-in-differences and instrumental variable methods. Our results show that for each additional 10 workers added per square kilometer, travel time increases by 0.171 to 0.244 min per one-way commute trip per commuter in the short run, which equates to $0.07 to $0.20 in travel time cost per commuter per day. Our estimates imply that the annualized short-run congestion costs of the 2005 BRAC were $79 to $761 million per year (in constant 2005 dollars) for military commuters and $3.15 to $6.3 billion per year (in constant 2005 dollars) for civilian commuters in BRAC-affected areas.

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The Effect of Population Aging on Economic Growth, the Labor Force and Productivity

Nicole Maestas, Kathleen Mullen & David Powell

NBER Working Paper, July 2016

Abstract:
Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.

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The General Equilibrium Impacts of Unemployment Insurance: Evidence from a Large Online Job Board

Ioana Marinescu

NBER Working Paper, July 2016

Abstract:
During the Great Recession, U.S. unemployment benefits were extended by up to 73 weeks. Theory predicts that extensions increase unemployment by discouraging job search, a partial equilibrium effect. Using data from the large job board CareerBuilder.com, I find that a 10% increase in benefit duration decreased state-level job applications by 1%, but had no robust effect on job vacancies. Job seekers thus faced reduced competition for jobs, a general equilibrium effect. Calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 40%: increasing benefit duration by 10% increases unemployment by only 0.6% in equilibrium.

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Does the Unemployment Benefit Institution Affect the Productivity of Workers? Evidence from the Field

Mariana Blanco, Patricio Dalton & Juan Vargas

Management Science, forthcoming

Abstract:
This paper studies the effects of unemployment benefit schemes on individual productivity. We created employment and unemployment in the field and compared workers' productivity under no unemployment benefits to productivity under two different unemployment schemes. In one scheme, the unemployed received an unconditional monetary transfer. In the other, the monetary transfer was obtained conditional on the unemployed spending some time on an ancillary activity. Our results challenge the standard economic theory prediction that unemployment benefits, especially unconditional compensations, hinder workers' effort. We find that workers employed under the unconditional scheme are more productive than workers under the conditional one, and both schemes make workers more productive than having no unemployment benefit. We discuss two possible explanations for our results based on reciprocity and differential psychological costs of unemployment across unemployment benefit schemes.

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Potential Unemployment Insurance Duration and Labor Supply: The Individual and Market-Level Response to a Benefit Cut

Andrew Johnston & Alexandre Mas

NBER Working Paper, July 2016

Abstract:
We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate a marginal effect of maximum duration on UI and nonemployment spells of approximately 0.5 and 0.3 respectively. We use RDD estimates to simulate the unemployment rate assuming no market-level externalities. The simulated response closely approximates the estimated change in the unemployment rate following the benefit cut, suggesting that even in a period of high unemployment the labor market absorbed this influx of workers without crowding-out other jobseekers.

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Effects of the unemployment insurance work test on long-term employment outcomes

Marta Lachowska, Merve Meral & Stephen Woodbury

Labour Economics, August 2016, Pages 246-265

Abstract:
Does requiring job seekers to be available and searching for work affect job quality? We examine the effects of this unemployment insurance (UI) work test on long-term employment outcomes. Adding administrative wage records to the Washington Alternative Work Search (WAWS) experiment, we examine effects on earnings, hours worked, employment, and job match quality in the nine years following the experiment. Among UI recipients as a whole, the effects of the work test were negligible, counter to the hypothesis that the work test may harm long-term earnings. But for permanent job losers, the work test reduced time to reemployment by 1-2 quarters, and increased job tenure with the first post-claim employer by about 2 quarters. Also, we find that the work test selected lower-wage workers into reemployment. Accordingly, the work test may be an important policy for improving the reemployment prospects of lower-wage, permanent job losers.

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Education, Participation, and the Revival of U.S. Economic Growth

Dale Jorgenson, Mun Ho & Jon Samuels

NBER Working Paper, July 2016

Abstract:
Labor quality growth captures the upgrading of the labor force through higher educational attainment and greater experience. Our first finding is that average levels of educational attainment of new entrants will remain high, but will no longer continue to rise, so that growing educational attainment will gradually disappear as a source of U.S. economic growth. Our second finding is that the investment boom of 1995-2000 drew many younger and less-educated workers into employment. Participation rates for these workers declined during the recovery of 2000-2007 and dropped further during the Great Recession of 2007-2009. In order to assess the prospects for recovery of participation as a potential source U.S. economic growth, we project the participation rates of each age-gender-education group. Our third finding is that the recovery of participation rates will provide an important opportunity for the revival of U.S. economic growth. Participation rates for less-educated workers are unlikely to recover the peak levels that followed the investment boom of 1995-2000. However, these rates can achieve the levels that preceded the Great Recession. While labor quality will grow more slowly, hours worked will grow much faster.

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Weathering the Great Recession: Variation in Employment Responses by Establishments and Countries

Erling Barth et al.

NBER Working Paper, July 2016

Abstract:
This paper finds that US employment changed differently relative to output in the Great Recession and recovery than in most other advanced countries or in the US in earlier recessions. Instead of hoarding labor, US firms reduced employment proportionately more than output in the Great Recession, with establishments that survived the downturn contracting jobs massively. Diverging from the aggregate pattern, US manufacturers reduced employment less than output while the elasticity of employment to gross output varied widely among establishments. In the recovery, growth of employment was dominated by job creation in new establishments. The variegated responses of employment to output challenges extant models of how enterprises adjust employment over the business cycle.

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Exploring Wage Determination by Education Level: A U.S. Metropolitan Statistical Area Analysis From 2005 to 2012

Penelope Prime, Donald Grimes & Mary Beth Walker

Economic Development Quarterly, August 2016, Pages 191-202

Abstract:
The purpose of this study is to explain urban wage differentials with a special focus on educational levels. The authors explore whether the share of people with a bachelor's degree or higher in the community matters to the wages of those within specific educational cohorts, accounting for cost of living, human capital externalities, consumer externalities, policy factors, and local labor market conditions. Using data for all U.S. Metropolitan Statistical Areas between 2005 and 2012, the authors find that the presence of more highly educated people will result in a higher median wage in the community overall, as do many studies, but that this factor does not significantly increase the wage for any individual education cohort. These results are hidden if we only look at the entire workforce in the aggregate.

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Employment Protection, Technology Choice, and Worker Allocation 

Eric Bartelsman, Pieter Gautier & Joris De Wind

International Economic Review, August 2016, Pages 787-826

Abstract:
We show empirically that high-risk sectors, which contribute strongly to aggregate productivity growth, are relatively small and have relatively low productivity growth in countries with strict employment protection legislation (EPL). To understand these findings, we develop a two-sector matching model where firms endogenously choose between a safe technology and a risky technology. For firms that have chosen the risky technology, EPL raises the costs of shedding workers in case they receive a low productivity draw. According to our calibrated model, high-EPL countries benefit less from the arrival of new risky technologies than low-EPL countries. Parameters estimated through reduced-form regressions of employment and productivity on exit costs, riskiness, and in particular their interaction are qualitatively similar for actual cross-country data and simulated model data. Our model is consistent with the slowdown in productivity in the European Union relative to the United States since the mid-1990s.

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Penalizing the Underdogs? Employment Protection and the Competitive Dynamics of Firm Innovation

Daniel Dongil Keum

NYU Working Paper, June 2016

Abstract:
This paper examines how constraining resource adjustment affects a firm's ability to increase innovation as a response to falling behind. By limiting the pace and efficiency with which laggard firms can release obsolete resources, resource constraints reduce their ability to experiment with new resources and increase innovation. To explore this theory empirically, I exploit staggered adoptions of employment protection laws by U.S. state courts that increase the cost of employee dismissal. In addition to showing that increasing employment protection results in fewer and safer yet lower quality patents by laggards, I find that the negative effects are highly asymmetrical, more heavily penalizing firms operating in sectors with high technological velocity or employee turnover, firms with limited financial slack, and technologies that require significant resource adjustments.

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Taking the Leap: The Determinants of Entrepreneurs Hiring their First Employee

Robert Fairlie & Javier Miranda

NBER Working Paper, July 2016

Abstract:
Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of startups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a non-employer to employer firm among startups. Several interesting patterns emerge regarding the dynamics of non-employer startups hiring their first employee. Hiring rates among the universe of non-employer startups are very low, but increase when the population of non-employers is focused on more growth-oriented businesses such as incorporated and EIN businesses. If non-employer startups hire, the bulk of hiring occurs in the first few years of existence. After this point in time relatively few non-employer startups hire an employee. Focusing on more growth- and employment-oriented startups in the KFS, we find that Asian-owned and Hispanic-owned startups have higher rates of hiring their first employee than white-owned startups. Female-owned startups are roughly 10 percentage points less likely to hire their first employee by the first, second and seventh years after startup. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that non-employers hire their first employee.

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Deterring Wage Theft: Alt-Labor, State Politics, and the Policy Determinants of Minimum Wage Compliance

Daniel Galvin

Perspectives on Politics, June 2016, Pages 324-350

Abstract:
Can stronger state-level public policies help protect workers from "wage theft?" In recent years, workers' rights groups have responded to policy drift and legislative inaction at the national level by launching campaigns to enact stronger penalties for wage and hour violations at the state level. Many of these campaigns have been legislatively successful and formative for the development of "alt-labor." But are such policies actually effective in deterring wage theft? Previous scholarship has long concluded that although stronger penalties should theoretically make a difference, in practice, they do not. But by confining the analysis to the admittedly weak national-level regulatory regime, the existing literature has eliminated all variation from the costs side of the equation and overlooked the rich variety of employment laws that exist at the state level. Using an original dataset of state laws, new estimates of minimum wage violations, and difference-in-differences analyses of a dozen recently enacted "wage-theft laws," I find that stronger penalties can, in fact, serve as an effective deterrent against wage theft, but the structure of the policy matters a great deal, as does its enforcement. The implications for workers' rights and the changing shape of the labor movement are discussed in detail.

By KEVIN LEWIS | 09:00:00 AM

Thursday, August 25, 2016

Stupefying

The Effect of Medical Marijuana on Sickness Absence

Darin Ullman

Health Economics, forthcoming

Abstract:
Utilizing the Current Population Survey, the study identifies that absences due to sickness decline following the legalization of medical marijuana. The effect is stronger in states with ‘lax’ medical marijuana regulations, for full-time workers, and for middle-aged males, which is the group most likely to hold medical marijuana cards.

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Racial-Ethnic Disparities in Opioid Prescriptions at Emergency Department Visits for Conditions Commonly Associated with Prescription Drug Abuse

Astha Singhal, Yu-Yu Tien & Renee Hsia

PLoS ONE, August 2016

Abstract:
Prescription drug abuse is a growing problem nationally. In an effort to curb this problem, emergency physicians might rely on subjective cues such as race-ethnicity, often unknowingly, when prescribing opioids for pain-related complaints, especially for conditions that are often associated with drug-seeking behavior. Previous studies that examined racial-ethnic disparities in opioid dispensing at emergency departments (EDs) did not differentiate between prescriptions at discharge and drug administration in the ED. We examined racial-ethnic disparities in opioid prescription at ED visits for pain-related complaints often associated with drug-seeking behavior and contrasted them with conditions objectively associated with pain. We hypothesized a priori that racial-ethnic disparities will be present among opioid prescriptions for conditions associated with non-medical use, but not for objective pain-related conditions. Using data from the National Hospital Ambulatory Medical Care Survey for 5 years (2007–2011), the odds of opioid prescription during ED visits made by non-elderly adults aged 18–65 for ‘non-definitive’ conditions (toothache, back pain and abdominal pain) or ‘definitive’ conditions (long-bone fracture and kidney stones) were modeled. Opioid prescription at discharge and opioid administration at the ED were the primary outcomes. We found significant racial-ethnic disparities, with non-Hispanic Blacks being less likely (adjusted odds ratio ranging from 0.56–0.67, p-value < 0.05) to receive opioid prescription at discharge during ED visits for back pain and abdominal pain, but not for toothache, fractures and kidney stones, compared to non-Hispanic whites after adjusting for other covariates. Differential prescription of opioids by race-ethnicity could lead to widening of existing disparities in health, and may have implications for disproportionate burden of opioid abuse among whites. The findings have important implications for medical provider education to include sensitization exercises towards their inherent biases, to enable them to consciously avoid these biases from defining their practice behavior.

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Does one day of drinking matter? 21st birthday drinking predicts subsequent drinking and consequences

Irene Geisner et al.

Addictive Behaviors, January 2017, Pages 57–61

Objective: There has been ample research on college student risks and consequences related to 21st Birthday Drinking. To date, no studies we are aware of have examined how 21st birthday drinking impacts subsequent drinking and related consequences. This study evaluates the effect of a single night of drinking on peak drinking, heavy drinking, and negative consequences over 12 months following the event. Furthermore, we examine if typical drinking behavior prior to 21st birthday moderates the relationship between the event drinking and subsequent use.

Method: Participants included 599 college students (46% male) who intended to consume at least five/four drinks (men/women respectively) on their 21st birthday. Screening and baseline assessments were completed approximately four weeks before turning 21. A follow-up assessment was completed approximately one week after students' birthdays and every 3 months for one year thereafter.

Results: Those who drank more on their 21st birthday, also reported higher peak consumption, increased likelihood of consequences, and increased number of consequences throughout the year. Additionally, baseline peak drinking moderated the relationship such that those who drank less at peak occasion prior to turning 21 showed the strongest effects of 21st BD drinking on subsequent consumption.

Conclusions: 21st BD drinking could impact subsequent choices and problems related to alcohol. Interventions are warranted and implications discussed.

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Cannabis Control and Crime: Medicinal Use, Depenalization and the War on Drugs

Arthur Huber, Rebecca Newman & Daniel LaFave B.E.

Journal of Economic Analysis & Policy, forthcoming

Abstract:
To date, 27 states and the District of Columbia have passed laws easing marijuana control. This paper examines the relationship between the legalization of medical marijuana, depenalization of possession, and the incidence of non-drug crime. Using state panel data from 1970 to 2012, results show evidence of 4–12 % reductions in robberies, larcenies, and burglaries due to the legalization of medical marijuana, but that depenalization has little effect and may instead increase crime rates. These effects are supported by null results for crimes unrelated to the cannabis market and are consistent with the supply-side effects of medicinal use that are absent from depenalization laws as well as existing evidence on the substitution between marijuana and alcohol. The findings contribute new evidence to the complex debate surrounding marijuana policy and the war on drugs.

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Young People’s More Permissive Views About Marijuana: Local Impact of State Laws or National Trend?

Laura Schmidt, Laurie Jacobs & Joanne Spetz American

Journal of Public Health, August 2016, Pages 1498-1503

Objectives: To determine whether state medical marijuana laws “send the wrong message,” that is, have a local influence on the views of young people about the risks of using marijuana.

Methods: We performed multilevel, serial, cross-sectional analyses on 10 annual waves of the US National Survey on Drug Use and Health (2004–2013) nationally and for states with marijuana laws using individual- and state-level controls.

Results: Living in medical marijuana states was associated with more permissive views regarding marijuana across 5 different measures. However, these associations became non–statistically significant after we adjusted for state-level differences. By contrast, there was a consistent and significant national time trend toward more permissive attitudes, which was less pronounced among children of middle school age than it was among their older counterparts.

Conclusions: Passing medical marijuana laws does not seem to directly affect the views of young people in medical marijuana states. However, there is a national trend toward young people taking more permissive views about marijuana independent of any effects within states.

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Why Alcoholics Ought to Compete Equally for Liver Transplants

Alexander Zambrano

Bioethics, forthcoming

Abstract:
Some philosophers and physicians have argued that alcoholic patients, who are responsible for their liver failure by virtue of alcoholism, ought to be given lower priority for a transplant when donated livers are being allocated to patients in need of a liver transplant. The primary argument for this proposal, known as the Responsibility Argument, is based on the more general idea that patients who require scarce medical resources should be given lower priority for those resources when they are responsible for needing them and when they are competing with patients who need the same resources through no fault of their own. Since alcoholic patients are responsible for needing a new liver and are in direct competition with other patients who need a new liver through no fault of their own, it follows that alcoholic patients ought to be given lower priority for a transplant. In this article, I argue against the Responsibility Argument by suggesting that in order for it to avoid the force of plausible counter examples, it must be revised to say that patients who are responsible for needing a scarce medical resource due to engaging in behavior that is not socially valuable ought to be given lower priority. I'll then argue that allocating organs according to social value is inconsistent or in tension with liberal neutrality on the good life. Thus, if one is committed to liberal neutrality, one ought to reject the Responsibility Argument.

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The Application of a Decision-Theoretic Model to Estimate the Public Health Impact of Vaporized Nicotine Product Initiation in the United States

David Levy et al.

Nicotine & Tobacco Research, forthcoming

Introduction: The public health impact of vaporized nicotine products (VNPs) such as e-cigarettes is unknown at this time. VNP uptake may encourage or deflect progression to cigarette smoking in those who would not have otherwise smoked, thereby undermining or accelerating reductions in smoking prevalence seen in recent years.

Methods: The public health impact of VNP use are modeled in terms of how it alters smoking patterns among those who would have otherwise smoked cigarettes and among those who would not have otherwise smoked cigarettes in the absence of VNPs. The model incorporates transitions from trial to established VNP use, transitions to exclusive VNP and dual use, and the effects of cessation at later ages. Public health impact on deaths and life years lost is estimated for a recent birth cohort incorporating evidence-informed parameter estimates.

Results: Based on current use patterns and conservative assumptions, we project a reduction of 21% in smoking-attributable deaths and of 20% in life years lost as a result of VNP use by the 1997 US birth cohort compared to a scenario without VNPs. In sensitivity analysis, health gains from VNP use are especially sensitive to VNP risks and VNP use rates among those likely to smoke cigarettes.

Conclusions: Under most plausible scenarios, VNP use generally has a positive public health impact. However, very high VNP use rates could result in net harms. More accurate projections of VNP impacts will require better longitudinal measures of transitions into and out of VNP, cigarette and dual use.

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Nonmedical use of prescription drugs and related negative sexual events: Prevalence estimates and correlates in college students

Kathleen Parks et al.

Addictive Behaviors, forthcoming

Abstract:
The present study of college students investigated (a) the prevalence of nonmedical use of three classes of prescription drugs (stimulants, anxiolytics/sedatives, analgesics), (b) the prevalence of negative sexual events (NSE) associated with any nonmedical use of prescription drugs (NMUPD), and (c) a set of correlates of NSE. The specific NSE were sexual aggression victimization and perpetration, and regretted sex. The correlates of the NSE were sex, race/ethnicity, year in school, psychological symptoms, alcohol use, illegal drug use, and NMUPD. Participants were 509 (254 females, 255 males) randomly-selected college students who reported any NMUPD. The majority (76.2%) of the sample reported ever using stimulants, 38.9% reported ever using anxiolytics/sedatives, and 40.9% reported using analgesics. During NMUPD, 14.3% of the students reported regretted sex, 7.1% of female students reported sexual victimization, and 6.3% of male students reported perpetrating sexual aggression. Multiple logistic regression analyses indicated that anxiolytic/sedative use (Adj. OR = 1.99; 95% CI = 1.51—2.62) was positively associated with regretted sex, whereas anxiolytic/sedative use (Adj. OR = 1.79; 95% CI = 1.01—3.16) and psychological symptoms (Adj. OR = 1.06; 95% CI = 1.02—1.10) were positively associated with sexual victimization. Illegal drug use was positively associated with perpetrating sexual aggression (Adj. OR = 4.10; 95% CI = 1.21—13.86). These findings suggest that among these college students, NMUPD-associated NSE were not uncommon, and primarily associated with anxiolytic/sedative use. Given the academic, physical, and psychological implications associated with NSE, research needs to further explore the causal nature of these relations.

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Alcohol consumption by youth: Peers, parents, or prices?

Olugbenga Ajilore, Aliaksandr Amialchuk & Keven Egan

Economics & Human Biology, December 2016, Pages 76–83

Abstract:
Using data from the National Longitudinal Survey of Adolescent to Adult Health, we estimate the effect of peers’ alcohol consumption and alcohol prices on the drinking habits of high-school-age youth. We use the two-stage residual inclusion method to account for the endogeneity of peer drinking in nonlinear models. For our sample of high school students, we find that peer effects are statistically and economically significant regarding the choice to participate in drinking but are not significant for the frequency of drinking, including binge drinking. Regarding alcohol prices, even though we have good price variation in our sample, alcohol prices are not found to be significant. The results are important for policymakers who are considering policies to reduce underage drinking, as we conclude that no significant impact on underage drinking will result from low-tax states’ increasing excise taxes on alcohol so they are similar to those of high-tax states. Policymakers may choose to focus instead on the influence of peers and changing the social norm behavior.

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The Couple That Smokes Together: Dyadic Marijuana Use and Relationship Functioning During Conflict

Cory Crane et al.

Psychology of Addictive Behaviors, forthcoming

Abstract:
Self-reported marijuana use has been associated with poor relationship functioning and decreased stability over time. The present study examined the behavioral interactions of couples with concordant and discordant patterns of marijuana use during conflict, using individual self-reports and observation by independent coders. Heavy drinking community couples (N = 149) participated in a conflict resolution paradigm. Interactions were recorded and coded by naïve coders. Approximately 30% of the sample reported past year marijuana use. Actor-Partner Interdependence Models and analysis of covariance (ANCOVA) were used to evaluate the individual and interactive effects of dyadic marijuana use on maladaptive relationship functioning. A Robust Actor × Partner Marijuana Use interaction was detected for a range of behavioral outcomes, assessed by both self-report and direct observation, including relationship satisfaction, anger experience, patterns of demand and withdrawal during conflict, constructive behaviors, and overall relationship quality. Specifically, couples in which both partners used or abstained from marijuana displayed more adaptive relationship functioning across indicators relative to couples in which only 1 partner identified as a marijuana user. This pattern was particularly strong for couples in which the female partner used marijuana and the male partner did not. Couples with discordant, rather than concordant, marijuana use displayed distinct conflict resolution behaviors that were consistent with the long-term negative relationship outcomes that have been observed in previous studies.

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The paradox of decreasing nonmedical opioid analgesic use and increasing abuse or dependence — An assessment of demographic and substance use trends, United States, 2003–2014

Christopher Jones

Addictive Behaviors, forthcoming

Methods: Data from the National Survey on Drug Use and Health were used to assess trends in opioid analgesic nonmedical use, abuse, and dependence for 2003–2005, 2006–2008, 2009–2011, and 2012–2014. Multivariable logistic regression was used to identify characteristics associated with opioid analgesic abuse or dependence.

Results: Rates of past-year opioid analgesic nonmedical use decreased from 48.4 per 1000 persons aged 12 years and older in 2003–2005 to 43.3 in 2012–2014. Declines were seen among most demographic and substance using groups. In contrast, rates of past-year opioid analgesic abuse or dependence increased from 6.0 per 1000 persons in 2003–2005 to 7.5 in 2012–2014; increases were seen among most demographic and substance using groups. In 2012–2014, odds of opioid analgesic abuse or dependence were highest among those with sedative or tranquilizer and heroin abuse or dependence.

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U.S. Demand for Tobacco Products in a System Framework

Yuqing Zheng et al.

Health Economics, forthcoming

Abstract:
This study estimated a system of demand for cigarettes, little cigars/cigarillos, large cigars, e-cigarettes, smokeless tobacco, and loose smoking tobacco using market-level scanner data for convenience stores. We found that the unconditional own-price elasticities for the six categories are −1.188, −1.428, −1.501, −2.054, −0.532, and −1.678, respectively. Several price substitute (e.g., cigarettes and e-cigarettes) and complement (e.g., cigarettes and smokeless tobacco) relationships were identified. Magazine and television advertising increased demand for e-cigarettes, and magazine advertising increased demand for smokeless tobacco and had spillover effects on demand for other tobacco products. We also reported the elasticities by U.S. census regions and market size. These results may have important policy implications, especially viewed in the context of the rise of electronic cigarettes and the potential for harm reduction if combustible tobacco users switch to non-combustible tobacco products.

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From Maize to Haze: Agricultural Shocks and the Growth of the Mexican Drug Sector

Oeindrila Dube, Omar García-Ponce & Kevin Thom

Journal of the European Economic Association, forthcoming

Abstract:
Understanding how economic incentives affect illegal drug production is essential for crafting policies in response to the international drug trade. Policymakers typically face a choice between two strategies: targeting criminal groups via law enforcement, and offering producers incentives to engage in alternate activities. Yet, little is known about how the returns to alternate legal activities affect drug supply. We contribute to this literature by examining how shocks to legal commodity prices affect the drug trade in Mexico. Our analysis exploits exogenous movements in the Mexican maize price stemming from weather conditions in US maize-growing regions, as well as exports of other major maize producers. Using data on over 2200 municipios spanning 1990–2010, we show that lower prices differentially increased the cultivation of both marijuana and opium poppies in municipios more climatically suited to growing maize. We also find impacts on downstream drug-trade outcomes, including drug cartel operations and killings perpetrated by these groups. Our findings demonstrate that maize price changes contributed to the burgeoning drug trade in Mexico, and point to the violent consequences of an expanding drug sector.

By KEVIN LEWIS | 09:00:00 AM

Wednesday, August 24, 2016

The golden rules

Beautiful Lemons: Adverse Selection in Durable-Goods Markets with Sorting

Jonathan Peterson & Henry Schneider

Management Science, forthcoming

Abstract:
We document a basic characteristic of adverse selection in secondhand markets for durable goods: goods with higher observed quality may have more adverse selection and hence lower unobserved quality. We provide a simple theoretical model to demonstrate this result, which is a consequence of the interaction of sorting between drivers over observed quality and adverse selection over unobserved quality. We then offer empirical support using data on secondhand prices and repair rates of used cars from the Consumer Expenditure Survey, and discuss a number of implications for everyday advertising and consumer questions.

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Economic freedom and economic crises

Christian Bjørnskov

European Journal of Political Economy, forthcoming

Abstract:
In this paper, I explore the politically contested association between the degree of capitalism, captured by measures of economic freedom, and the risk and characteristics of economic crises. After offering some brief theoretical considerations, I estimate the effects of economic freedom on crisis risk in the post-Cold War period 1993–2010. I further estimate the effects on the duration, peak-to-trough GDP ratios and recovery times of 212 crises across 175 countries within this period. Estimates suggest that economic freedom is robustly associated with smaller peak-to-trough ratios and shorter recovery time. These effects are driven by regulatory components of the economic freedom index.

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Property Is Another Name for Monopoly Facilitating Efficient Bargaining with Partial Common Ownership of Spectrum, Corporations, and Land

Eric Posner & Glen Weyl

University of Chicago Working Paper, August 2016

Abstract:
The existing system of private property interferes with allocative efficiency by giving owners the power to hold out for excessive prices. We propose a remedy in the form of a tax on property, based on the value self-assessed by its owner at intervals, along with a requirement that the owner sell the property to any third party willing to pay a price equal to the self-assessed value. The tax rate would reflect a tradeoff between gains from allocative efficiency and losses to investment efficiency, and would increase in line with expected developments in information technology. The legal and economic implications of this system are explored.

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The Bright Side of Patents

Joan Farre-Mensa, Deepak Hegde & Alexander Ljungqvist

NBER Working Paper, February 2016

Abstract:
Motivated by concerns that the patent system is hindering innovation, particularly for small inventors, this study investigates the bright side of patents. We examine whether patents help startups grow and succeed using detailed micro data on all patent applications filed by startups at the U.S. Patent and Trademark Office (USPTO) since 2001 and approved or rejected before 2014. We leverage the fact that patent applications are assigned quasi-randomly to USPTO examiners and instrument for the probability that an application is approved with individual examiners’ historical approval rates. We find that patent approvals help startups create jobs, grow their sales, innovate, and reward their investors. Exogenous delays in the patent examination process significantly reduce firm growth, job creation, and innovation, even when a firm’s patent application is eventually approved. Our results suggest that patents act as a catalyst that sets startups on a growth path by facilitating their access to capital. Proposals for patent reform should consider these benefits of patents alongside their potential costs.

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The Regulatory Determinants of Railroad Safety

Jerry Ellig & Patrick McLaughlin

Review of Industrial Organization, September 2016, Pages 371-398

Abstract:
The dramatic improvement in railroad safety since the 1970s has been accompanied by a substantial increase in safety regulation and a substantial reduction in economic regulation after 1980. We assess the effects of both regulatory changes on railroad safety with the use of RegData: a new data set that was developed by one of the authors that measures the amount of regulation that is imposed by specific regulatory agencies on specific industries. We find that partial economic deregulation is associated with improved safety. Safety regulation was most closely associated with improved railroad safety during the period when economic regulation curtailed railroads’ incentives to operate safely.

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Regional business climate and interstate manufacturing relocation decisions

Tessa Conroy, Steven Deller & Alexandra Tsvetkova

Regional Science and Urban Economics, September 2016, Pages 155–168

Abstract:
In this study, we use the National Establishment Time Series (NETS) database to study relocation by manufacturers based on differences in the business climate between the origin and destination states. We model interstate relocations for manufacturers in aggregate and for three subgroups characterized by their industry-level research and development (R&D) intensity. The analysis suggests that very few manufacturing firms relocate across state lines in any given year and the vast majority of those that do are small in size and move to adjoining states. Our results also reveal that interstate migration by manufacturing establishments varies with their R&D intensity. Whereas a number of factors considered in this study are statistically significant, marginal effects at the mean are infinitesimal. This implies that states attempting to encourage manufacturing firms to relocate from other states via traditional perspectives on business climate are unlikely to be successful.

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Insurance coverage of customers induces dishonesty of sellers in markets for credence goods

Rudolf Kerschbamer, Daniel Neururer & Matthias Sutter

Proceedings of the National Academy of Sciences, 5 July 2016, Pages 7454–7458

Abstract
Honesty is a fundamental pillar for cooperation in human societies and thus for their economic welfare. However, humans do not always act in an honest way. Here, we examine how insurance coverage affects the degree of honesty in credence goods markets. Such markets are plagued by strong incentives for fraudulent behavior of sellers, resulting in estimated annual costs of billions of dollars to customers and the society as a whole. Prime examples of credence goods are all kinds of repair services, the provision of medical treatments, the sale of software programs, and the provision of taxi rides in unfamiliar cities. We examine in a natural field experiment how computer repair shops take advantage of customers’ insurance for repair costs. In a control treatment, the average repair price is about EUR 70, whereas the repair bill increases by more than 80% when the service provider is informed that an insurance would reimburse the bill. Our design allows decomposing the sources of this economically impressive difference, showing that it is mainly due to the overprovision of parts and overcharging of working time. A survey among repair shops shows that the higher bills are mainly ascribed to insured customers being less likely to be concerned about minimizing costs because a third party (the insurer) pays the bill. Overall, our results strongly suggest that insurance coverage greatly increases the extent of dishonesty in important sectors of the economy with potentially huge costs to customers and whole economies.

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Economic freedom and social capital: Pooled mean group evidence

Jeremy Jackson

Applied Economics Letters, forthcoming

Abstract:
This article uses annual US-state-level data from 1986 to 2004 and pooled-mean group estimation based on Pesaran et al. (1999) to examine whether economic freedom influences social capital. We find economic freedom has a negative effect on our social capital measure. This result is driven by the labour market component of freedom which is indicative of the relationship between labour market freedom and Olson-type group social capital.

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Of Mice and Academics: Examining the Effect of Openness on Innovation

Fiona Murray et al

American Economic Journal: Economic Policy, February 2016, Pages 212-252

Abstract:
This paper argues that openness, by lowering costs to access existing research, can enhance both early and late stage innovation through greater exploration of novel research directions. We examine a natural experiment in openness: late-1990s NIH agreements that reduced academics' access costs regarding certain genetically engineered mice. Implementing difference-in-differences estimators, we find that increased openness encourages entry by new researchers and exploration of more diverse research paths, and does not reduce the creation of new genetically engineered mice. Our findings highlight a neglected cost of strong intellectual property restrictions: lower levels of exploration leading to reduced diversity of research output.

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Beyond Kelo: An Experimental Study of Public Opposition to Eminent Domain

Logan Strother

Journal of Law and Courts, Fall 2016, Pages 339-375

Abstract:
The power of government to take private property for public use has been a frequent source of political disquiet because of the tension it creates with notions of individual rights ingrained in liberal society. The backlash against takings after Kelo offers a case in point. Existing research has focused on the public’s distaste for the taking of homes and has thus missed an important cause of the backlash: the purpose for which property is taken. I utilize a combination of experimental and observational methods to advance our understanding of this important issue, finding that purpose is crucial in shaping attitudes toward takings.

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Money Secrets: How Does Trade Secret Legal Protection Affect Firm Market Value? Evidence from the Uniform Trade Secret Act

Francesco Castellaneta, Raffaele Conti & Aleksandra “Olenka” Kacperczyk

Strategic Management Journal, forthcoming

Abstract:
We investigate the impact of trade secret legal protection on firm market value in the context of acquisitions. On one hand, market value may increase because trade secret assets become better protected from rivals. On the other hand, market value may decrease because trade secret protection reduces information about the target and its competitors available to potential buyers, increasing uncertainty about its value. Buyers will discount their offers in expectation of being compensated for riskier deals. Using a sample of private equity investments in the United States, we find that trade secret protection has a positive effect in industries with high mobility of knowledge workers, and a negative effect in industries with (a) high resource-value uncertainty, and (b) high poor-investment risk.

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Low-quality Patents in the Eye of the Beholder: Evidence from Multiple Examiners

Gaétan de Rassenfosse, Adam Jaffe & Elizabeth Webster

NBER Working Paper, May 2016

Abstract:
Low-quality patents are of considerable concern to businesses operating in patent-dense markets. There are two pathways by which low-quality patents may be issued: the patent office may apply systematically a standard that is too lenient (low inventive step threshold); or the patent office may grant patents that are, in fact, below its own threshold (so-called ‘weak’ patents). This paper uses novel data from inventions that have been examined at the five largest patent offices and an explicit model of the grant process to derive first-of-their-kind office-specific estimates of the height of the inventive step threshold and the prevalence of weak patents. The empirical analysis is based on patent applications granted at one office but refused at another office. We estimate that the fraction of patent grants associated with a patent standard that is lower than that of other countries ranges from 2-15%, with Japan having the tightest standard and the United States and China the loosest. The fraction of grants that are inconsistent with the office’s own standard ranges from 2-6 per cent. The fraction of grants that are inconsistent in this sense is generally higher in newer fields such as software and biotechnology, and lower in traditional fields such as mechanical engineering. Our estimates of invalidity are much lower than those that have been derived from litigation studies, consistent with litigated patents being highly non-representative of the population.

By KEVIN LEWIS | 09:00:00 AM

Tuesday, August 23, 2016

It's a race thing

Viral Challenge Reveals Further Evidence of Skin-Deep Resilience in African Americans From Disadvantaged Backgrounds

Gregory Miller et al.

Health Psychology, forthcoming

Objective: Studies have revealed a phenomenon called skin-deep resilience, which develops in upwardly mobile African American youth. They perform well in school, maintain good mental health, and avoid legal problems. Despite outward indications of success, they also show evidence of worse health in biomarker studies. Here we extend this research, asking whether it manifests in differential susceptibility to upper respiratory infection, and if it emerges in European Americans as well.

Methods: The sample included 514 adults in good health, as judged by physician examination and laboratory testing. Participants completed questionnaires about lifecourse socioeconomic conditions, conscientiousness, psychosocial adjustment, and lifestyle factors. They were subsequently inoculated with a rhinovirus that causes upper respiratory infection, and monitored in quarantine for 5 days the development of illness.

Results: Consistent with past work, African Americans from disadvantaged backgrounds displayed indications of skin-deep resilience. To the extent these participants were high in conscientiousness, they fared better across multiple domains of psychosocial functioning, as reflected in educational attainment, symptoms of depression, and close relationship quality (p values = .01-.04). But analyses of these participants' susceptibility to infection revealed the opposite pattern; higher conscientiousness was associated with a greater likelihood of becoming ill following inoculation (p value = .03). In European Americans, there was no evidence of skin-deep resilience; conscientiousness was associated with better psychosocial outcomes, but not infection risk.

Conclusions: These observations suggest that resilience may be a double-edged sword for African Americans from disadvantaged backgrounds. The same characteristics associated with academic success and psychological adjustment forecast increased vulnerability to health problems.

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Contested Boundaries: Explaining Where Ethnoracial Diversity Provokes Neighborhood Conflict

Joscha Legewie & Merlin Schaeffer

American Journal of Sociology, July 2016, Pages 125-161

Abstract:
Concerns about neighborhood erosion and conflict in ethnically diverse settings occupy scholars, policy makers, and pundits alike; but the empirical evidence is inconclusive. This article proposes the contested boundaries hypothesis as a refined contextual explanation focused on poorly defined boundaries between ethnic and racial groups. The authors argue that neighborhood conflict is more likely to occur at fuzzy boundaries defined as interstitial or transitional areas sandwiched between two homogeneous communities. Edge detection algorithms from computer vision and image processing allow them to identify these boundaries. Data from 4.7 million time- and geo-coded 311 service requests from New York City support their argument: complaints about neighbors making noise, drinking in public, or blocking the driveway are more frequent at fuzzy boundaries rather than crisp, polarized borders. By focusing on the broader sociospatial structure, the contested boundaries hypothesis overcomes the "aspatial" treatment of neighborhoods as isolated areas in research on ethnic diversity.

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Tuskegee and the Health of Black Men

Marcella Alsan & Marianne Wanamaker

NBER Working Paper, June 2016

Abstract:
For forty years, the Tuskegee Study of Untreated Syphilis in the Negro Male passively monitored hundreds of adult black males with syphilis despite the availability of effective treatment. The study's methods have become synonymous with exploitation and mistreatment by the medical community. We find that the historical disclosure of the study in 1972 is correlated with increases in medical mistrust and mortality and decreases in both outpatient and inpatient physician interactions for older black men. Our estimates imply life expectancy at age 45 for black men fell by up to 1.4 years in response to the disclosure, accounting for approximately 35% of the 1980 life expectancy gap between black and white men.

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Are pregnant women happier? Racial and ethnic differences in the relationship between pregnancy and life satisfaction in the United States

Paul Hagstrom & Stephen Wu

Review of Economics of the Household, September 2016, Pages 507-527

Abstract:
This paper examines the relationship between pregnancy and life satisfaction for US women of childbearing age using a large sample from the 2005 to 2009 waves of the Behavioral Risk Factor Surveillance System. The results show strong differences by race and ethnicity. Pregnancy has a significant positive correlation with happiness for Whites and Hispanics, but no relationship for Blacks. This differential in the marginal effect of pregnancy is in addition to a general decrease in satisfaction for Black women, independent of being pregnant. The results cannot be explained by differences in other demographics such age, income, education, or physical health status. Within each racial/ethnic group, the results are consistent across different categories for all these characteristics. Racial and ethnic differences in the effects of pregnancy on support from others can partly explain this result. For Whites and Hispanic women, pregnancy increases their feelings of social and emotional support from others, while pregnant Black women report lower levels of social and emotional support than non-pregnant Black women.

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Active Life Expectancy In The Older US Population, 1982-2011: Differences Between Blacks And Whites Persisted

Vicki Freedman & Brenda Spillman

Health Affairs, August 2016, Pages 1351-1358

Abstract:
Understanding long-range trends in longevity and disability is useful for projecting the likely impact of the baby-boom generation on long-term care utilization and spending. We examine changes in active life expectancy in the United States from 1982 to 2011 for white and black adults ages sixty-five and older. For whites, longevity increased, disability was postponed to older ages, the locus of care shifted from nursing facilities to community settings, and the proportion of life at older ages spent without disability increased. In contrast, for blacks, longevity increases were accompanied by smaller postponements in disability, and the percentage of remaining life spent active remained stable and well below that of whites. Older black women were especially disadvantaged in 2011 in terms of the proportion of years expected to be lived without disability. Public health measures directed at older black adults - particularly women - are needed to offset impending pressures on the long-term care delivery system as the result of population aging.

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What's the Matter with Kansas? Now It's the High White Death Rate

Frank Young

Sociological Forum, forthcoming

Abstract:
This article reports empirical tests for an explanation of the anomalous finding that Case and Deaton recently identified. They found that middle-aged white people were dying at increased rates during the 1998-2013 years. By contrast, the Hispanic and African Americans enjoyed lower rates. The explanation proposed here for this deviant trend is that the middle-aged whites are especially vulnerable to the stress of "white status loss" as measured by the decline in the county white population. Using data for the 105 Kansas counties, the analysis replicates the divergent mortality trends and shows that white population decline predicts the rising mortality rate for the middle-aged segment of the population. This explanation opens the door to a new branch of public health, one based on social problems, not pathogens.

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The Racial Structure of Economic Inequality in the United States: Understanding Change and Continuity in an Era of "Great Divergence"

Rodney Hero & Morris Levy

Social Science Quarterly, September 2016, Pages 491-505

Abstract:
The "great divergence" of America's rich from its middle class and poor has led some observers to see a country increasingly stratified by income and wealth, more so than by race. In this article, the first in a two-part series, we argue that this conclusion overlooks the persistent importance of the racial "structure" of inequality. A decomposition of income inequality between 1980 and 2010 using the Theil Index shows that inequality between racial groups accounts for a rising share of total income inequality over this period nationally and in most states. We also demonstrate that within-state trends in the between-race component of inequality are not fully accounted for by trends in income inequality and racial diversity per se. These findings lay the groundwork for a forthcoming companion piece in Social Science Quarterly that shows that between-race inequality is strongly linked to welfare policy outcomes in the United States.

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At a Loss for Words: Measuring Racial Inequality in America

Major Coleman

Review of Black Political Economy, June 2016, Pages 177-192

Abstract:
Scholars of race tend to measure racial inequality in either absolute or relative terms. How much Blacks have advanced from their historical antebellum status is an absolute measure. How the status of Blacks compares with that of Whites is a relative measure. A more revealing measure might be how much racial equality will be strategically necessary to avoid a major politico-economic crisis like the ones that occurred during the civil war and the 1960s. Though it is easier to measure absolute or relative equality, measures of strategic equality yield more important information. Using the Current Population Survey, General Social Survey, Center for Education Statistics, Multi-City Study of Urban Inequality, and Census Bureau estimates, I find that, strategically, America is actually declining in racial equality, not advancing.

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The Shadow of the Politics of Deservedness? The Implications of Group-Centric Policy Context for Environmental Policy Implementation Inequalities in the United States

Jiaqi Liang

Journal of Public Administration Research and Theory, July 2016, Pages 552-570

Abstract:
Despite considerable evidence indicating that racial minorities are more likely to reside in communities surrounding the sources of environmental risks or live with higher levels of pollutant emissions, relatively little research focuses on how broader political and institutional contexts pertaining to people of color impacts routine environmental policy implementation at the state level in the post-facility-siting period. Drawing on theories of group-centric, degenerative policy, and the politics of group recognition, this study explores the effects of the minority group-specific policy context on administrative outputs for the vulnerable African American communities. Examining the National Pollutant Discharge Elimination System permit program of the Clean Water Act from 1996 to 2010, findings from a multilevel modeling analysis show that generosity of welfare benefits is positively related to state agencies' regulatory inspection and enforcement activities for predominantly black counties, while stringent welfare eligibility and sanctions are negatively associated with those efforts from government for those counties. Implications are then derived for the essential role of public administration in shaping the entitlements of the marginalized members of society to public services in an era within which social equity has emerged on government's policy agenda.

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Racial and Ethnic Disparities in Mental Health Care for Children and Young Adults: A National Study

Lyndonna Marrast, David Himmelstein & Steffie Woolhandler

International Journal of Health Services, forthcoming

Abstract:
Psychiatric and behavior problems are common among children and young adults, and many go without care or only receive treatment in carceral settings. We examined racial and ethnic disparities in children's and young adults' receipt of mental health and substance abuse care using nationally representative data from the 2006-2012 Medical Expenditure Panel Surveys. Blacks' and Hispanics' visit rates (and per capita expenditures) were about half those of non-Hispanic whites for all types and definitions of outpatient mental health services. Disparities were generally larger for young adults than for children. Black and white children had similar psychiatric inpatient and emergency department utilization rates, while Hispanic children had lower hospitalization rates. Multivariate control for mental health impairment, demographics, and insurance status did not attenuate racial/ethnic disparities in outpatient care. We conclude that psychiatric and behavioral problems among minority youth often result in school punishment or incarceration, but rarely mental health care.

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The Effects of Allostatic Load on Racial/Ethnic Mortality Differences in the United States

Jeffrey Howard & Johnelle Sparks

Population Research and Policy Review, August 2016, Pages 421-443

Abstract:
This study expands on previous findings of racial/ethnic and allostatic load (AL) associations with mortality by addressing whether differential AL levels by race/ethnicity may explain all-cause mortality differences. This study used data from the third National Health and Nutrition Survey public-use file, gathered between 1988 and 1994, with up to 18 years of mortality follow-up (n = 11,733). AL scores were calculated using a 10-biomarker algorithm based on clinically determined thresholds. Results of discrete-time hazard models suggest that AL is associated with increased mortality risks, independent of other factors, including race/ethnicity and SES. The results also suggest that the AL-mortality association is stronger for non-Hispanic blacks than for non-Hispanic whites, and that at low levels of AL observed mortality differences between non-Hispanic blacks and non-Hispanic whites are non-significant. These findings suggest that mortality differences between non-Hispanic blacks and non-Hispanic whites may be the result of how early life exposure causes premature aging and increased mortality risks. More attention to resource allocation and local environments is needed to understand why non-Hispanic blacks experience premature aging that leads to differential mortality risks compared to non-Hispanic whites.

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Perceived electoral malfeasance and resentment over the election of Barack Obama

David Wilson & Tyson King-Meadows

Electoral Studies, December 2016, Pages 35-45

Abstract:
Controversies over voting outcomes, and subsequent laws to seemingly curb irregularities, have led to increased scrutiny over the process of voting day activities. While studies find evidence that majorities perceive rampant fraud, the explanations for these opinions have mainly pointed to political predispositions, largely ignoring the influence of racial attitudes. We propose that contemporary opinions on electoral malfeasance are shaped by the context of a popularly elected African American president, Barack Obama, and subsequent racial resentments. Analyses of data from the 2010 Cooperative Congressional Election Study reveals that racial resentment significantly predicts higher perceived electoral malfeasance, even after controlling for political predispositions. Surprisingly, significant racial resentment effects exist among both Obama and McCain supporters, and these effects are strongest among those who perceived Obama won because of his race. Our results highlight the hyper racialized spill-over effects into judgements about the political system.

By KEVIN LEWIS | 09:00:00 AM

Monday, August 22, 2016

Runners

What Doesn't Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior

Gennaro Bernile, Vineet Bhagwat & Raghavendra Rau

Journal of Finance, forthcoming

Abstract:
The literature on managerial style posits a linear relation between a CEO's past experiences and firm risk. We show that there is a nonmonotonic relation between the intensity of CEOs’ early-life exposure to fatal disasters and corporate risk-taking. CEOs who experience fatal disasters without extremely negative consequences lead firms that behave more aggressively, whereas CEOs who witness the extreme downside of disasters behave more conservatively. These patterns manifest across various corporate policies including leverage, cash holdings, and acquisition activity. Ultimately, the link between CEOs’ disaster experience and corporate policies has real economic consequences on firm riskiness and cost of capital.

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FORE! An Analysis of CEO Shirking

Lee Biggerstaff, David Cicero & Andy Puckett

Management Science, forthcoming

Abstract:
Using golf play as a measure of leisure, we provide direct evidence that some CEOs shirk their responsibilities to the detriment of firm shareholders. CEOs with lower equity-based incentives play more golf and those that golf the most are associated with firms that have lower operating performance and firm values. Numerous tests accounting for the possible endogenous nature of these relations support a conclusion that CEO shirking causes lower firm performance. New CEOs and those at firms with more independent boards are more likely to be replaced when they shirk, but those with long tenures or less independent boards appear to avoid discipline.

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Do CEOs Affect Employee Political Choices?

Ilona Babenko, Viktar Fedaseyeu & Song Zhang

Arizona State University Working Paper, July 2016

Abstract:
Employees donate almost three times more money to CEO-supported political candidates than to candidates not supported by the CEO. After CEO departures, including departures due to death or retirement, employees reduce campaign contributions to candidates supported by the departing CEO and increase campaign contributions to candidates supported by the replacement CEO. CEO influence is strongest in firms that explicitly advocate for political candidates. Further, employees located in areas in which CEOs make political contributions are more likely to vote in elections. Our results suggest that CEOs shape not only firms’ financial and operational decisions but also their employees’ political choices.

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Relative Peer Quality and Firm Performance

Bill Francis et al.

Journal of Financial Economics, forthcoming

Abstract:
We examine the performance impact of the relative quality of a Chief Executive Officer (CEO)’s compensation peers (peers to determine a CEO's overall compensation) and bonus peers (peers to determine a CEO's relative-performance-based bonus). We use the fraction of peers with greater managerial ability scores (Demerjian, Lev, and McVay, 2012) than the reporting firm to measure this CEO's relative peer quality (RPQ). We find that firms with higher RPQ earn higher stock returns and experience higher profitability growth than firms with lower RPQ. Learning among peers and the increased incentive to work harder induced by the peer-based tournament contribute to RPQ's performance effect.

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CEO Severance Pay and Corporate Tax Avoidance

John Campbell et al.

University of Georgia Working Paper, June 2016

Abstract:
We examine the association between CEO severance pay (i.e., payment the CEO would receive if s/he is involuntarily terminated) and corporate tax avoidance. We find that corporate tax avoidance is increasing in the amount of CEO severance pay. This finding is consistent with the notion that CEO severance pay encourages otherwise risk averse managers to take reasonable amounts of risk and, thus, fits into the optimal executive incentive scheme as a form of efficient contracting. Further analysis reveals that the association between CEO severance pay and corporate tax avoidance is stronger in situations where we expect the risk-taking incentives provided by severance pay to matter more – when the CEO is otherwise more risk averse and when firms exhibit a higher business risk. Overall, our findings suggest that firms can contract with their managers using CEO severance pay to provide incentives for them to engage in tax avoidance activities.

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Common Ownership, Competition, and Top Management Incentives

Miguel Anton et al.

Yale Working Paper, July 2016

Abstract:
Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don't diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals' performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals' performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.

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A Corporate Beauty Contest

John Graham, Campbell Harvey & Manju Puri

Management Science, forthcoming

Abstract:
We provide new evidence that the subjective “look of competence” rather than beauty is important for CEO selection and compensation. Our experiments, studying the facial traits of CEOs using nearly 2,000 subjects, link facial characteristics to both CEO compensation and performance. In one experiment, we use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” than non-CEO faces. Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent. In a third experiment, subjects numerically score the facial traits of CEOs. We find competent looks are priced into CEO compensation, more so than attractiveness. Our evidence suggests this premium has a behavioral origin. First, we find no evidence that the premium is associated with superior performance. Second, we separately analyze inside and outside CEO hires and find that the competence compensation premium is driven by outside hires — the situation where first impressions are likely to be more important.

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The Facial Appearance of CEOs: Faces Signal Selection but Not Performance

Janka Stoker, Harry Garretsen & Luuk Spreeuwers

PLoS ONE, July 2016

Abstract:
Research overwhelmingly shows that facial appearance predicts leader selection. However, the evidence on the relevance of faces for actual leader ability and consequently performance is inconclusive. By using a state-of-the-art, objective measure for face recognition, we test the predictive value of CEOs’ faces for firm performance in a large sample of faces. We first compare the faces of Fortune500 CEOs with those of US citizens and professors. We find clear confirmation that CEOs do look different when compared to citizens or professors, replicating the finding that faces matter for selection. More importantly, we also find that faces of CEOs of top performing firms do not differ from other CEOs. Based on our advanced face recognition method, our results suggest that facial appearance matters for leader selection but that it does not do so for leader performance.

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CEO Materialism and Corporate Social Responsibility

Robert Davidson, Aiyesha Dey & Abbie Smith

University of Chicago Working Paper, March 2016

Abstract:
We study the role of individual CEOs in explaining corporate social responsibility (CSR) scores. We show that CEO fixed-effects explain 63% of the variation in CSR scores, a significant portion of which is attributable to a CEO’s “materialism” (relatively high luxury asset ownership). Specifically, firms led by materialistic CEOs have lower CSR scores, and increases in CEOs’ materialism are associated with declining scores. Finally, CSR scores in firms with non-materialistic CEOs are positively associated with accounting profitability. In contrast, CSR scores in firms with materialistic CEOs are unrelated to profitability on average; however this association is decreasing in CEO power.

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Did Regulation Fair Disclosure Prevent Selective Disclosure? Direct Evidence from Intraday Volume and Returns

John Campbell, Brady Twedt & Benjamin Whipple

University of Georgia Working Paper, July 2016

Abstract:
Regulation Fair Disclosure (Reg FD) prohibits managers from releasing material information in non-public forums. Prior research concludes that Reg FD was effective at curtailing selective disclosure. However, these results have been called into question due to confounding events, an inability to ensure the disclosure was intended to comply with Reg FD, and an inability to identify the timing of the disclosure. We address these limitations and offer new evidence on the effectiveness of Reg FD. First, we find significant increases in abnormal trading volume during the trading hour immediately prior to the public release of Reg FD disclosures. Specifically, we find that 20 percent of the volume reaction over the two hour window surrounding Reg FD disclosures occurs during the hour before the disclosure. Second, this pre-disclosure increase in trading volume is larger when the information is of greater consequence to the market. Finally, stock returns during the trading hour immediately prior to Reg FD filings predict returns during the trading hour immediately after the filings, but only for the disclosure of consequential, negative information. Additional analysis reveals that selective disclosure is larger for firms with greater growth opportunities and weaker information environments, and that corporate insiders and large traders account for about 50 percent of the trading in the hour leading up to Reg FD filings. Overall, our results suggest that, despite Reg FD's goal of providing information to all investors simultaneously, disclosure provided pursuant to the regulation appears to be selectively disclosed to subsets of investors beforehand.

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Rank and File Employees and the Discovery of Misreporting: The Role of Stock Options

Andrew Call, Simi Kedia & Shivaram Rajgopal

Journal of Accounting and Economics, forthcoming

Abstract:
We find that firms grant more rank and file stock options when involved in financial reporting violations, consistent with managements’ incentives to discourage employee whistle-blowing. Violating firms grant more rank and file options during periods of misreporting relative to control firms and to their own option grants in non-violation years. Moreover, misreporting firms that grant more rank and file options during violation years are more likely to avoid whistle-blowing allegations. Although the Dodd-Frank Act (2010) offers financial rewards to encourage whistle-blowing, our findings suggest that firms discourage whistle-blowing by giving employees incentives to remain quiet about financial irregularities.

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The effect of price targets on the composition of CEO pay

Giuliano Bianchi

Applied Economics, Summer 2016, Pages 4299-4311

Abstract:
This article analyzes the impact of price targets from the IBES Detail Price History Target database on CEO compensation retained from Execucomp. The two databases are merged at fiscal year frequency and an OLS regression with fixed effect is used to analyze the impact of price target on CEO compensation. The analysis reveals that analysts’ price targets affect top executives’ compensation: when analysts predict a growth in the share price for a company, the compensation package tilts towards stock options, when analysts forecast a drop in the share price, the compensation package tilts towards cash-based compensation and restricted stocks. I argue that the result is more aligned with the managerial power model of compensation (which assumes the board of directors maximizes managers’ compensation) than with the arm’s length bargaining model (that states that managers’ compensation is set to maximize shareholders’ profit).

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Do Institutional Investors Demand Public Disclosure?

Andrew Bird & Stephen Karolyi

Review of Financial Studies, forthcoming

Abstract:
We examine the effect of institutional ownership on corporate disclosure policy using a regression discontinuity design. Using a novel dataset comprising every 8-K filing between 1996 and 2006, we find that positive shocks to institutional ownership around Russell index reconstitutions increase the quantity, form, and quality of disclosure. Compared with those at the bottom of the Russell 1000 index, firms at the top of the Russell 2000 index increase institutional ownership by 9.8%, and disclose 4.7% longer 8-K filings with 21.3% more embedded graphics. This incremental disclosure significantly increases the information content of 8-K filings for the market and for analysts.

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Does going private add value through operating improvements?

Brian Ayash & Harm Schütt

Journal of Corporate Finance, October 2016, Pages 192–215

Abstract:
Previous studies document a large positive effect of private equity ownership on operating performance between 1980 and 1990 while evidence on the more recent buyout wave is mixed. We revisit the evidence on post-LBO performance and offer an additional explanation for the varied and time-inconsistent results found in the literature: the effect of accounting for LBO transactions and its change over time. Using hand-collected financial statements for 183 U.S. public-to-private LBOs, we illustrate how previously used proxies for operating performance suffer from an accounting distortion induced by the buyout transaction. We reproduce the results of previous studies. However, once proxies are modified slightly to account for the LBO process, we find no robust evidence of post-buyout improvements in public-to-private LBOs, regardless of the time period of the study.

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CEO Personality and Firm Policies

Ian Gow et al.

University of Chicago Working Paper, July 2016

Abstract:
Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance.

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Golden hellos: Signing bonuses for new top executives

Jin Xu & Jun Yang

Journal of Financial Economics, forthcoming

Abstract:
We examine signing bonuses awarded to executives hired for or promoted to named executive officer (NEO) positions at Standard & Poor's 1500 companies during the period 1992–2011. Executive signing bonuses are sizable and increasing in use, and they are labeled by the media as “golden hellos.” We find that executive signing bonuses are mainly awarded at firms with greater information asymmetry and higher innate risks, especially to younger executives, to mitigate the executives’ concerns about termination risk. When termination concerns are strong, signing bonus awards are associated with better performance and retention outcomes.

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Are Ex Ante CEO Severance Pay Contracts Consistent with Efficient Contracting?

Brian Cadman, John Campbell & Sandy Klasa

Journal of Financial and Quantitative Analysis, June 2016, Pages 737-769

Abstract:
Efficient contracting predicts that ex ante severance pay contracts are offered to chief executive officers (CEOs) as protection against downside risk and to encourage investment in risky projects with a positive net present value (NPV). Consistent with this prediction, we find that ex ante contracted severance pay is positively associated with proxies for a CEO’s risk of dismissal and costs the CEO would incur from dismissal. Additionally, we show that the contracted severance payment amount is positively associated with CEO risk taking and the extent to which a CEO invests in projects that have a positive NPV. Overall, our findings imply that ex ante severance pay contracts are consistent with efficient contracting.

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The financial reporting consequences of proximity to political power

Christian Gross et al.

Journal of Accounting and Public Policy, forthcoming

Abstract:
In this study, we apply a new concept, corporate proximity to political power, to accounting research and examine its consequences on corporate financial reporting. Prior literature shows that higher proximity to political power leads to higher policy risk, i.e., uncertainty regarding the impact of future administration policies on the cash flow of the firm. An increase in policy risk implies an increase in the opaqueness of the information environment and in the expected volatility of future operating profitability; we argue that these effects both encourage and facilitate earnings management. Drawing on recent research in finance and political science, we use a measure of the alignment along party lines between politicians elected at the state level and the federally elected President as our main measure of proximity to political power. We find a significant positive association between the political alignment of firms’ home states and their level of absolute discretionary accruals. Consistent with the idea that firms engage in corporate political activities (lobbying and financial contributions) to hedge against policy risk, our results only hold for firms not engaging in such activities.

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Do corporate governance mandates impact long-term firm value and governance culture?

Reena Aggarwal, Jason Schloetzer & Rohan Williamson

Journal of Corporate Finance, forthcoming

Abstract:
Motivated by recent changes to corporate governance standards around the world, we use a regulatory shock that substantially altered the governance structure for some firms to shed light on the long-term impact of mandates that are of global interest. Firms affected by this shock had lower values and non-mandated governance practices that were less shareholder friendly before the mandates were in effect when compared to unaffected matched peers. In the post-mandate period, we document a 48% tightening of the relative value gap, and show that this gap relates to the continued use of less shareholder friendly non-mandated governance practices. Our results suggest that governance mandates can tighten, but not eliminate, the value gap between poorly and well governed firms, and that firms affected by the shock continue to have less shareholder friendly governance cultures long after regulatory intervention.

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Customer Concentration and Corporate Tax Avoidance

Henry He Huang et al.

Journal of Banking & Finance, forthcoming

Abstract:
Firms with a concentrated corporate customer base need to hold more cash and have a stronger incentive to manage earnings upwards. Since tax planning can increase both cash flow and accounting earnings, firms with a concentrated customer base may be more likely to engage in tax avoidance. We find evidence of a positive association between the level of corporate customer concentration and the extent of tax avoidance. In addition, we find that the positive relation between corporate customer concentration and tax avoidance is more pronounced when a firm has a lower market share in its industry, enjoys less revenue diversification, and engages less in real earnings management. In contrast to corporate major customers, governmental major customers provide stable cash flow to suppliers, which is likely to alleviate supplier firms’ need for tax avoidance. We find that firms engage in lower levels of tax avoidance when they have a governmental major customer, and that this association is less pronounced under Democratic presidencies. Taken together, our findings indicate that a firm's customer concentration (i.e., corporate and governmental major customers) has a significant effect on the extent to which it avoids taxes.

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Executives’ Legal Records and Insider Trading Activities

Robert Davidson, Aiyesha Dey & Abbie Smith

University of Chicago Working Paper, May 2016

Abstract:
We examine how and why insider trading varies across senior executives and their firms. As predicted, the profitability of both purchases and sales are higher for “recordholder” executives (those who have a record of legal infractions), than for other “non-recordholder” executives at the same firms. The profitability of recordholder executives’ purchases and sales decrease significantly with proxies for strong information and governance environments, suggesting that recordholders have a relatively higher propensity to exploit inside information given the opportunity to do so. Finally, our classification of executives (recordholder status) can predict future returns and firm-specific information events.

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Corruption culture and corporate misconduct

Xiaoding Liu

Journal of Financial Economics, forthcoming

Abstract:
Despite significant interest in corporate culture, there is little empirical research on its role in influencing corporate misconduct. Using cultural background information on key company insiders, I construct a measure of corporate corruption culture, capturing a firm's general attitude toward opportunistic behavior. Firms with high corruption culture are more likely to engage in earnings management, accounting fraud, option backdating, and opportunistic insider trading. I further explore the inner workings of corruption culture and find evidence that it operates both as a selection mechanism and by having a direct influence on individual behavior.

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Do Private Firms Invest Differently than Public Firms? Taking Cues from the Natural Gas Industry

Erik Gilje & Jerome Taillard

Journal of Finance, August 2016, Pages 1733–1778

Abstract:
We study how listing status affects investment behavior. Theory offers competing hypotheses on how listing-related frictions affect investment decisions. We use detailed data on 74,670 individual projects in the U.S. natural gas industry to show that private firms respond less than public firms to changes in investment opportunities. Private firms adjust drilling activity for low capital-intensity investments. However, they do not increase drilling in response to new capital-intensive growth opportunities. Instead, they sell these projects to public firms. Our evidence suggests that differences in access to external capital are important in explaining the investment behavior of public and private firms.

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Anticipated vs. Actual Synergy in Merger Partner Selection and Post-Merger Innovation

Vithala Rao, Yu Yu & Nita Umashankar

Marketing Science, forthcoming

Abstract:
Past research has primarily focused on what happens after a merger. This research attempts to determine whether anticipated benefits from the merger actually accrue. We characterize the effects of observed variables on whether pairs of firms merge, vis-à-vis roommate matching, and then link these factors to post-merger innovation (i.e., number of patents). We jointly estimate the two models using Markov Chain Monte Carlo methods with a unique panel data set of 1,979 mergers between 4,444 firms across industries and countries from 1992 to 2008. We find that similarity in national culture and technical knowledge has a positive effect on partner selection and post-merger innovation. Anticipated synergy from subindustry similarity, however, is not realized in post-merger innovation. Furthermore, some key synergy sources are unanticipated when selecting a merger partner. For example, financial synergy from higher total assets and complementarity in total assets and debt leverage as well as knowledge synergy from breadth and depth of knowledge positively influence innovation but not partner selection. Furthermore, factors that dilute synergy (e.g., higher debt levels) are unanticipated, and firms merge with firms that detract from their innovation potential. Overall, the results reveal some incongruity between anticipated and realized synergy.

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Securities fraud and corporate board turnover: New evidence from lawsuit outcomes

Christopher Baum, James Bohn & Atreya Chakraborty

International Review of Law and Economics, October 2016, Pages 14–25

Abstract:
We examine the relationship between outcomes of securities fraud class action lawsuits (SFCAs) and corporate board turnover rates. Our results indicate that turnover rates for board members are higher when a firm settles a lawsuit than when a suit is dismissed. Outside director turnover is most sensitive to SFCA outcomes, perhaps reflecting reputational effects. Results demonstrate that involvement in securities fraud is costly for corporate board members.

By KEVIN LEWIS | 09:00:00 AM

Sunday, August 21, 2016

Uplifting

Heads or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness

Steven Levitt

NBER Working Paper, August 2016

Abstract:
Little is known about whether people make good choices when facing important decisions. This paper reports on a large-scale randomized field experiment in which research subjects having difficulty making a decision flipped a coin to help determine their choice. For important decisions (e.g. quitting a job or ending a relationship), those who make a change (regardless of the outcome of the coin toss) report being substantially happier two months and six months later. This correlation, however, need not reflect a causal impact. To assess causality, I use the outcome of a coin toss. Individuals who are told by the coin toss to make a change are much more likely to make a change and are happier six months later than those who were told by the coin to maintain the status quo. The results of this paper suggest that people may be excessively cautious when facing life-changing choices.

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The Happiness Gap Between Conservatives and Liberals Depends on Country-Level Threat: A Worldwide Multilevel Study

Emma Onraet et al.

Social Psychological and Personality Science, forthcoming

Abstract:
In the present study, we investigated the much debated “happiness gap” between conservatives and liberals, approaching the issue from a multilevel person × context perspective. More specifically, we investigated whether this relationship depends on country-level threat. We used individual-level data for right-wing attitudes and psychological well-being from 94 large, representative samples collected worldwide (total N = 137,890) and objective indicators of country-level threat as the contextual variable. Our results suggest that, especially in countries characterized by high levels of threat, individuals with right-wing attitudes experienced greater well-being than individuals with left-wing attitudes. In countries with a low level of threat, this relationship was considerably weaker or even absent. Our findings corroborate the view that right-wing attitudes may serve a self-protective function, helping individuals to manage and cope with threat.

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New Evidence on Trust and Well-being

John Helliwell, Haifang Huang & Shun Wang

NBER Working Paper, July 2016

Abstract:
This paper first uses data from three large international surveys – the Gallup World Poll, the World Values Survey and the European Social Survey – to estimate income-equivalent values for social trust, with a likely lower bound equivalent to a doubling of household income. Second, the more detailed and precisely measured trust data in the European Social Survey (ESS) show that social trust is only a part of the overall climate of trust. While social trust and trust in police are the most important elements, there are significant additional benefits from trust in three aspects of the institutional environment: the legal system, parliament and politicians. Thus estimates of the total well-being value of a trustworthy environment are larger than those based on social trust alone. Third, the ESS data show that living in a high-trust environment makes people more resilient to adversity. Being subject to discrimination, ill-health or unemployment, although always damaging to subjective well-being, is much less damaging to those living in trustworthy environments. These results suggest a fresh set of links between trust and inequality. Individuals who are subject to discrimination, ill-health or unemployment are typically concentrated towards the lower end of any national distribution of happiness. Thus the resilience-increasing feature of social trust reduces well-being inequality by channeling the largest benefits to those at the low end of the well-being distribution.

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The emotional cost of distance: Geographic social network dispersion and post-traumatic stress among survivors of Hurricane Katrina

Katherine Ann Morris & Nicole Deterding

Social Science & Medicine, September 2016, Pages 56–65

Methods: We use longitudinal, mixed-methods data from the Resilience in Survivors of Katrina (RISK) Project to capture the long-term effects of Hurricane Katrina on low-income mothers from New Orleans. Baseline surveys occurred approximately one year before the storm and follow-up surveys and in-depth interviews were conducted five years later. We use a sequential explanatory analytic design. With logistic regression, we estimate the association of geographic network dispersion with the likelihood of post-traumatic stress. With linear regressions, we estimate the association of network dispersion with the three post-traumatic stress sub-scales. Using maximal variation sampling, we use qualitative interview data to elaborate identified statistical associations.

Results: We find network dispersion is positively associated with the likelihood of post-traumatic stress, controlling for individual-level socio-demographic characteristics, exposure to hurricane-related trauma, perceived social support, and New Orleans residency. We identify two social-psychological mechanisms present in qualitative data: respondents with distant network members report a lack of deep belonging and a lack of mattering as they are unable to fulfill obligations to important distant ties.

Conclusion: Results indicate the importance of physical proximity to emotionally-intimate network ties for long-term psychological recovery.

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Smartphone Applications Utilizing Biofeedback Can Aid Stress Reduction

Alison Dillon et al.

Frontiers in Psychology, June 2016

Methods: We compared a control game to gaming-style smartphone applications combined with a skin conductance biofeedback device (the Pip). Fifty participants aged between 18 and 35 completed the Trier Social Stress Test. They were then randomly assigned to the intervention (biofeedback game) or control group (a non-biofeedback game) for thirty minutes. Perceived stress, heart rate and mood were measured before and after participants had played the games.

Results: A mixed factorial ANOVA showed a significant interaction between time and game type in predicting perceived stress [F(1,48) = 14.19, p < 0.001]. Participants in the biofeedback intervention had significantly reduced stress compared to the control group. There was also a significant interaction between time and game in predicting heart rate [F(1,48) = 6.41, p < 0.05]. Participants in the biofeedback intervention showed significant reductions in heart rate compared to the control group.

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Do Our Facebook Friends Make Us Feel Worse? A Study of Social Comparison and Emotion

Jiangmeng Liu et al.

Human Communication Research, forthcoming

Abstract:
People often compare themselves to others to gain a better understanding of the self in a process known as social comparison. The current study discusses how people engage in a social comparison process on Facebook, and how observing content from their Facebook friends may affect their emotions. A 2 (comparison direction) × 2 (relational closeness) × 2 (self-esteem) between-subjects experiment was conducted with 163 adult participants. The results revealed a significant 3-way interaction such that people with high self-esteem would be happier receiving positive information than negative information from their close friends, but the effect would be the opposite if the information was from a distant friend. There was no such difference for people with low self-esteem.

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The Relationship between Facebook Use and Well-Being depends on Communication Type and Tie Strength

Moira Burke & Robert Kraut

Journal of Computer-Mediated Communication, July 2016, Pages 265–281

Abstract:
An extensive literature shows that social relationships influence psychological well-being, but the underlying mechanisms remain unclear. We test predictions about online interactions and well-being made by theories of belongingness, relationship maintenance, relational investment, social support, and social comparison. An opt-in panel study of 1,910 Facebook users linked self-reported measures of well-being to counts of respondents' Facebook activities from server logs. Specific uses of the site were associated with improvements in well-being: Receiving targeted, composed communication from strong ties was associated with improvements in well-being while viewing friends' wide-audience broadcasts and receiving one-click feedback were not. These results suggest that people derive benefits from online communication, as long it comes from people they care about and has been tailored for them.

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Stress and Subjective Age: Those With Greater Financial Stress Look Older

Stefan Agrigoroaei, Angela Lee-Attardo & Margie Lachman

Research on Aging, forthcoming

Abstract:
Subjective indicators of age add to our understanding of the aging process beyond the role of chronological age. We examined whether financial stress contributes to subjective age as rated by others and the self. The participants (N = 228), aged 26–75, were from a Boston area satellite of the Midlife in the United States (MIDUS) longitudinal study. Participants reported how old they felt and how old they thought they looked, and observers assessed the participants’ age based on photographs (other-look age), at two occasions, an average of 10 years apart. Financial stress was measured at Time 1. Controlling for income, general stress, health, and attractiveness, participants who reported higher levels of financial stress were perceived as older than their actual age to a greater extent and showed larger increases in other-look age over time. We consider the results on accelerated aging of appearance with regard to their implications for interpersonal interactions and in relation to health.

By KEVIN LEWIS | 09:00:00 AM


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